Ford Motor Co. (F), losing market share in Europe this year, is boosting sales in the troubled region through “self-registrations,” in which dealers sell cars to themselves without having customer orders.
The practice has become widespread in Europe and accounted for 30 percent of industry registrations in Germany in the first eight months of the year, said Roelant de Waard, vice president of marketing, sales and service at Ford of Europe. Dealers eventually sell the cars as used vehicles at big discounts.
“It is a very aggressive environment and until either demand picks up or capacity is adjusted to the situation, it’s unlikely going to change,” de Waard said today during an interview at the Paris Motor Show. “You have to live with the realities of the industry.”
Ford led the biggest decline in European car sales in six months in August, with industrywide registrations falling 8.5 percent from a year earlier to 722,483 vehicles, according to the European Automobile Manufacturers’ Association. The automaker’s sales in the region dropped 29 percent to 43,401, and its market share slipped to 6 percent from 7.7 percent a year earlier, Brussels-based ACEA said in a Sept. 18 statement.
The economic crisis in Europe is sullying the turnaround that Chief Executive Officer Alan Mulally has engineered at Ford. European pretax operating losses expanded to $404 million in the second quarter, from $149 million in the first quarter and profit of $176 million a year earlier. Ford said July 25 that it now expects full-year European losses to exceed $1 billion, double its earlier forecast.
“We expect that only by 2014 that we’ll potentially start to see some recovery” in the European auto market, de Waard said. He sees sales in 2013 being “roughly carryover” from 2012 and the range will depend whether governments decide to restore incentives such as scrappage programs. “If those things happen, you can see inflation of the market again.”
The European car market has shrunk for 11 consecutive months as governments retrench amid a sovereign-debt crisis, and the ACEA is forecasting a 17-year low for full-year sales. Ford cited “heavy incentives that we decided to largely refrain from” in a Sept. 18 statement about its August sales in the region. The Dearborn, Michigan-based company said it expects a “strong rebound” in September because of new models such as a Focus equipped with a 1-liter EcoBoost engine.
Ford is trying to limit its participation in self-registrations as it attempts to protect profit margins, de Waard said. He declined to offer specifics on Ford’s margin targets.
Ford also “has more to do” to adjust its factory capacity to declining demand, de Waard said, without offering specifics. The automaker said Sept. 25 it plans to cut “a few hundred” jobs in the region because of declining sales.
Ford is “most likely” to close its assembly plant in Genk, Belgium, and factories in Valencia, Spain, and Cologne, Germany, also “appear at risk,” Colin Langan, an analyst at UBS Investment Research, wrote in a Sept. 17 report. Shutting the Genk plant would result in potential annual savings of about $500 million and may be completed by the end of 2013, he wrote.
Ford is utilizing just 63 percent of its factory capacity in Europe, according to Morgan Stanley. The automaker needs to reduce capacity by at least 20 percent, Adam Jonas, a New York-based analyst for Morgan Stanley, said this month. The automaker’s European losses could reach $1.5 billion to $2 billion this year, he estimated.
Ford and other automakers in Europe recognize the need to reduce factory capacity as car sales collapse in the region, Mulally said this month. Automakers in Europe have enough factory capacity to build 18 million vehicles a year, he said, and sales are running at less than a 14 million annual rate.
Ford avoided bankruptcy by borrowing $23.4 billion in late 2006, less than four months after Mulally, 67, arrived from Boeing Co. (BA) The automaker put up all major assets, including its blue oval logo, as collateral. It recovered control of those assets in May after Moody’s Investors Service followed Fitch Ratings in upgrading Ford’s debt to an investment-grade credit rating.
Standard & Poor’s, the only major credit ratings company that hasn’t raised Ford to investment grade, said Aug. 10 it expects the automaker will act decisively to fix its European operations. The ratings company at the time boosted its outlook on Ford to positive.
Mulally in Amsterdam this month unveiled 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.
The automaker is trying to counter Europe’s slump as it readies succession plans for Mulally’s eventual departure. Mark Fields, Ford’s president of the Americas, is set to be promoted to chief operating officer, assuming global responsibilities to help turn around the unprofitable European operations, a person familiar with the plan said this month.
Mulally, speaking to reporters after a press conference on Sept. 18 in New York, said that he has no plans to retire.
Fields, 51, helped lead a transformation of its North American operations from record losses four years ago to record profits this year. The company earned $4.14 billion in North America in 2012’s first half and had an operating profit margin of 10.8 percent.