Ford begins European restructuring with management shakeup

LONDON -- Ford Motor Co. has taken the first step in restructuring its money-losing European business that is expected to involve axing models, cutting jobs, and possibly factory closures.

 Ford has appointed executives in Germany and the UK to implement its plan, called “Sprint to 6 Reset and Redesign,” the automaker said in a news release on Friday.

The name refers to Ford’s aim to reach a 6 percent EBIT (earnings before interest and taxes) profit margin. The company did not give a timeframe for the target.

Ford said its former head of quality, Gunnar Herrmann, will head the restructuring in Germany, while Graham Hoare will carry out the same task in the UK. Hoare was previously responsible for Ford’s test and development operations worldwide.

The bulk of announcements around the restructuring are expected between now and the beginning of 2020, a Ford spokesperson said.

More partnerships

Ford has said the European plan will involve concentrating on its profit-making crossovers, SUVs and commercial vehicles and cutting unprofitable model lines. The company will also rely more heavily on partnerships to keep down costs.

Ford and Volkswagen Group have said they are discussing an alliance for commercial vehicles. This may be broadened to include potential collaboration on autonomous driving and arrangements to make vehicles for one another, Bloomberg reported in October. Ford has not confirmed that.

Ford already has a long-term partnership with PSA Group to share engines.

Ford lost $245 million in Europe in the third quarter, compared with a loss of $53 million in the same quarter last year. This was due to weakness in Turkey and Russia, and launch-related costs for the latest Focus compact car, the company said on Oct. 23.

Morgan Stanley estimates the bulk of Ford’s $11 billion global restructuring plan will center on Europe and the region will suffer the bulk of 25,000 global job losses it believes Ford is planning. It values Ford’s European business at “negative $7 billion,” Morgan Stanley analyst Adam Jonas said in a note.

Ford called the Morgan Stanley job cut estimates “pure speculation.” However, the automaker has said its restructuring would happen “largely outside of North America.”

Unprofitable vehicles

In July, Ford’s CFO Bob Shanks said the bulk of Ford’s European vehicle range was unprofitable. This consisted “principally of cars and multi-activity vehicles [minivans] such as C-Max,” he said. Ford’s Transit van, Kuga crossover and Ranger pickup and “selected imports” are selling profitably in Europe, Shanks said, without naming the imported vehicles. They are likely to include the Edge midsize crossover and the Mustang sports car.

Jim Farley, Ford’s head of global markets, said commercial vans are earning 13 percent profit margins for the automaker in Europe. He acknowledged that Ford has been slow to expand in the crossover/SUV segment in Europe.

Ford has said it expects a full-year loss in 2018 in Europe after earning $234 million in the region last year as it battles headwinds such as the weak pound in the UK, its biggest European market, high raw material costs and a slump in demand for once-core models.

Ford has about 54,000 employees in Europe and 24 manufacturing facilities, data from the company shows.