LUCA CIFERRI

Ford and PSA numbers give a glimpse of Europe's problems

Automotive News | November 9, 2011 - 12:01 am EST

You see how painful it is to be a mainstream automaker in Europe at the moment when you dig into Ford and PSA/Peugeot-Citroen's latest financial results.

From July to September, Ford of Europe increased new-car sales by 5 percent to 357,000 units and revenues by a 25.8 percent to $7.8 billion.

Boosting unit sales and revenues boosts profits, right?

Actually, no. Ford's pretax losses in Europe increased to $306 million in the third quarter from $197 million in 2010.

Ford says its widening European losses are due to higher commodity costs, including hedging adjustments, as well as unfavorable exchange rates, partially offset by improved structural costs.

What Ford doesn't say is that mainstream automakers in Europe are luring customers and fleet managers with hefty discounts.

Ford in Europe now has a 3.9 percent operating loss, up from 3.2 percent in the third quarter a year ago.

What makes European results even more striking is the comparison with other regions of the world, where Ford enjoys almost premium automaker margins.

In the United States, Ford's operating margin in the third quarter was 8.6 percent, in South America a heftier 9.3 percent.

Under 'One Ford', the company's products are truly global, as is its management team, so Ford's products and management are not responsible for its underperformance in Europe, but rather the market is.

PSA's profit warning for the full year is yet another sign of the growing difficulties that mainstream automakers are facing.

After reporting a 405 million euros operating profit in the first half for its automotive operations, PSA now says it plans "a close to operating breakeven" result for the full year.

This means the second half for the automaker will likely consume more than the profit gained in the first half. Western Europe will be the main reason for this reversal of fortune, as PSA is an automaker depending more and more on the region, which will generate 57 percent of its revenues this year, according to Morgan Stanley predictions.

Sadly, western Europe failed to address its overcapacity problems during the 2009-2010 crisis, and as the market weakens again, it looks like there is more pain on the horizon.

Luca Ciferri is chief correspondent at Automotive News Europe.Luca Ciferri is chief correspondent at Automotive News Europe.

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