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Mulally Says Europe Recognizing Surplus of Auto Factories

Ford Motor Co. (F) and other automakers in Europe recognize the need to reduce factory capacity as car sales collapse in the region, Chief Executive Officer Alan Mulally said.

“Europe had a lot of issues in the past and people did a lot of things to subsidize the industry,” Mulally said yesterday in an interview in Amsterdam. “But you’ve got to size to the real demand so you can profitably grow. People are realizing we all need to deal with that reality.”

Automakers in Europe have enough factory capacity to build 18 million vehicles a year, Mulally said. Auto sales in Europe have collapsed to their lowest level in 17 years and are running at less than a 14 million annual rate.

“Clearly, this is a structural issue,” Mulally said, adding that Ford has no announcements to make yet on how it will deal with its overcapacity.

Ford is utilizing just 63 percent of its factory capacity in Europe, according to Morgan Stanley. In order to be profitable, auto factories must operate at 80 percent of capacity or above, analysts have said. Ford has said it expects to lose more than $1 billion in Europe this year.

“What they need to do is reduce capacity by at least 20 percent,” said Adam Jonas, an analyst for Morgan Stanley, who estimates Ford’s European losses could reach $2 billion this year.

15 Models

Mulally was in Amsterdam to unveil 15 new models Ford will be introducing in Europe over the next five years, including a redesigned Mondeo sedan and three new sport-utility vehicles. Mulally also said Ford would bring the Mustang sports car to Europe “soon,” without specifying when.

“We’ve always talked about taking the Mustang outside the U.S.,” Mulally said. “In Europe, it makes a good business case because so many people want it.”

Even with new models to stoke demand, Mulally said realigning capacity has to be part of Ford’s plan to restore profitability in Europe.

“Everybody knows we need to size our production to the real demand,” Mulally said in an Aug. 28 interview in Beijing.

Shares of Dearborn, Michigan-based Ford rose 3.6 percent to $9.92 yesterday in New York. Ford has slid 7.9 percent this year.

To contact the reporter on this story: Keith Naughton in Amsterdam at knaughton3@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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