DETROIT -- Ford’s European operations are sharing in the industry’s modest sales recovery this year, but Ford of Europe President Stephen Odell warned today that some of the region’s underlying economic weaknesses still pose a threat.
“You know there’s another economic shock out there somewhere, and clearly Europe has not recovered as an economy as fast as other parts of the world,” he told a group of journalists at Ford World Headquarters today. “There’s still much debate on how to address the unemployment situation. The longer that debate goes on and actions aren’t taken, the closer you get to the next downturn.”
High unemployment continues to dog some parts of Europe, particularly southern tier countries like Spain and Greece, where unemployment levels hover around 25 percent.
The European auto industry continues to struggle with overcapacity. Unlike some of its competitors, Ford has taken steps to slash capacity -- closing three plants and reducing its installed annual capacity by 350,000 units. Ford announced the changes in late 2012. The plan is modeled on former CEO Alan Mulally’s recovery plan that brought Ford back to profitability in North America.
“We have taken the actions we think are necessary to get our capacity utilization to a level where we can have sustainable profitability in Europe,” he said.
But, in a separate interview, Odell recently told Automotive News Europe that “we still have a market with 20 million units of capacity and about 14 million sales.”
Odell did not rule out further capacity reduction actions if circumstances call for it.
If the economy changes, “we will do what we believe is necessary because one of our key requirements is to right-size capacity,” he said today
Ford’s European sales rose 6.6 percent in the first half of 2014, compared to an overall industry increase of 6.3 percent. Ford’s European market share remained flat at 7.9 percent. The measurement is for western and central European markets, excluding Turkey and Russia.
Ford is in the midst of a new-product offensive in Europe that will bring 25 new vehicles to the market in the next five years. Several of those, including the North American-made Edge and Mustang, have never been sold in Europe.
Arndt Ellinghorst, analyst for IHS Automotive, said in a report that the new models will create a positive “showroom halo effect” in Ford dealerships.
“As of today, Ford of Europe sells six fewer models than Volkswagen in Europe. The introduction of the Edge and the Mustang will help Ford to reduce the gap in higher-end models sold -- vehicles which typically deliver higher margins.”
Ford has no plans to introduce its Lincoln luxury brand in Europe. Instead, Ford is rolling out a new premium trim-level badged Vignale. So far, Ford has announced plans to produce Vignale versions of the Mondeo sedan and S-Max crossover in Europe. But Odell said there are opportunities for other Vignale-badged models, which will feature some of the luxury features offered on Lincolns in the U.S.
Odell said Ford of Europe is maintaining its guidance that it will return to profitability in 2015. From 2011 through 2013, Ford of Europe had a combined pre-tax operating loss of about $3.4 billion. The company expects to lose more than $1 billion in Europe again this year.
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