Ford Motor Co. plans to hold back on discounting in Europe, even as it cedes market share in the region and the end of cash-for-clunker programs saps demand.
“The scrappage effect has come off since the beginning of the year, but the industry is still being drugged by heavy incentives,” John Fleming, Ford’s top European executive, said today in an interview at an industry conference in Bilbao, Spain. “Our message to the team is let’s go for profit in a very difficult world.”
Ford’s European market share slipped to 8.7 percent in the first five months from 9.0 percent a year earlier, according to the European Automobile Manufacturers’ Association. The Dearborn, Michigan-based company projects European car sales will fall to as low as 14 million vehicles in 2010 from 15.9 million a year ago as demand erodes following the end of government car-scrapping programs.
Ford dealers’ May discounts averaged 10.9 percent off the list price, in line with the average in Germany, according to a monthly survey of car retailers by trade publication Autohaus PulsSchlag. The European division posted a first-quarter pretax profit of $107 million compared with a loss of $585 million a year earlier. Revenue rose 33 percent to $7.7 billion.
“Ford can discount and still make money, because it has among the best cost structures,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen in Germany. “Ford is where Volkswagen and Opel want to be.”
Ford’s European share decline has been less severe than General Motors Co., which last week ended an 18-month effort to secure state aid to restructure its Opel unit. The January-May market share of Opel and its U.K. Vauxhall brand slid to 6.9 percent from 7.6 percent, trade group data show. Opel dealers granted discounts of 12.8 percent last month, the steepest in Germany, PulsSchlag said.
“In a year following the end of scrappage schemes, offering incentives is like putting money in the wastebasket,” GM Europe President Nick Reilly said yesterday in an interview at the Bilbao conference sponsored by Automotive News Europe. “We are not scaling back, but we’re not being really aggressive either.”
With European carmakers hanging on to about 35 percent more production capacity than needed, discounting is inevitable, Fleming said at the conference.
“Overcapacity is a prime factor in fueling the current heavy and aggressive discounting,” he said. “We must tackle the chronic overcapacity that is a millstone around the neck of the industry.”
Ford is sticking to its strategy to focus on profitability, even if it means sacrificing market share as competitors offer more aggressive incentives to consumers, Fleming said, adding that the division will likely remain profitable in the second quarter and the full year.
Additional state budget cuts will add to market pressures on the industry in the second half of 2010, Fleming added. The U.K. government announced plans yesterday to eliminate 113 billion pounds ($167 billion) in spending. The measures include an increase in the sales tax to 20 percent from 17.5 percent.
“Now, we are facing debt issues and austerity measures -- none of these austerity packages are going to help car sales,” said Fleming, chief executive officer of the Cologne, Germany- based Ford of Europe unit. “None of us can stay out of the incentives game, but we are against incentives that undermine the brand.”
Ford is offering cut-rate financing as well as discount option packages, including navigation systems and parking assistance features. The option savings total as much as 3,980 euros ($4,888) for the Galaxy minivan, which starts at 30,000 euros in Germany, according to Ford’s German website. Buyers of the best-selling Fiesta can get options including air conditioning and electronically retracting side mirrors for 3,035 euros off the regular price, according to the website.
Opel’s sales decline partly reflects model changeovers, said Ulrich Weber, a spokesman for Opel at its headquarters in Ruesselsheim near Frankfurt. The wagon version of the revamped Astra compact will arrive in showrooms in the fall, while the new Meriva minivan went on sale earlier this month, he said. The new models should boost Opel’s market share in the second half, Reilly said.