Editor's note: Jim Farley is Ford's head of global markets. Farley's job title was misstated in a previous version of this story.
Ford's European operations are huge when measured by number of employees: 54,000 people work in sales, development and at 16 plants in the region. The same is not true for profits. Ford made a pretax profit of $234 million last year in Europe compared with a $7.5 billion profit for its U.S. business. Put another way, Ford in the U.S. makes $75,000 for each of its 100,000 workers, compared with $4,300 per worker in Europe.
Figuring out how to make Ford of Europe sustainably profitable has become a priority within the company again after last year's disappointing performance. Hopes were raised in 2016 when the company recorded a $1.2 billion pretax profit, a stunning turnaround after it lost $3.1 billion in the region from 2011 to 2014. Ford of Europe said two years ago that it wanted to achieve an operating margin of 6 to 8 percent within five years. But Europe's uniquely tricky marketplace has proved nothing can be certain.
Rival General Motors left the market last year, and there are enough similarities between the two to wonder whether Ford might follow. Like GM, Ford sees the bulk of its profits in the U.S. Like for GM, Europe looks more like a distraction than an asset, especially as customer tastes between the two regions widen. "Ford does not seem to have an economically viable business [in Europe] at present," Max Warburton, analyst with Bernstein Research, wrote in a paper published in January. "Could 2018 see it also slim or exit Europe, given its years of losses in the region?"
Ford's disappointing result in Europe last year was not because of vehicle sales volume. Across the 50 markets it counts in its European operations, including Russia and Turkey, it sold 1.56 million cars and light commercial vehicles, up 1.4 percent from 2016, the company said.
Rather, Ford cites four main problems. The big one was the decline of the pound following the decision by Britain, Ford's biggest European market, to leave the European Union. The company said the weaker pound wiped $600 million from its profits. In its annual report, Ford also blamed its European slowdown on the rising cost of steel, which also affected its U.S. earnings. And the company pointed to the expense of last year's launch of the new Fiesta subcompact, Ford's best-seller in Europe. Warranty costs were cited as the fourth drag on profits.
Many of the same issues carry over in 2018. Ford warned of "continued headwinds" from currency exchange rates and said it was preparing for prices to rise again this year for "most key metals." It also has another expensive launch to pay for — the new Focus compact, its No. 2-selling car in Europe. Ford's margin target of 6 percent for Europe looks a long way off. Last year, its margin was 0.8 percent.