Ford Says Future of European Sites Hinges on Length of Slump

Ford Motor Co., the second-largest U.S. carmaker, said the size of its manufacturing base in Europe will be determined by how long the market there remains subdued.

While Ford needs capacity in hand to tap any rebound, it has a history of “right-sizing” production and will evaluate the future of plants should that be necessary, said Stephen Odell, head of the Dearborn, Michigan-based company’s European unit.

Industry-wide auto sales in the region totaled 13.6 million across 30 countries in 2011, lower than 2007’s pre-slump high of 19 million and shy of a more “normal” figure of 17 million that Odell reckons may not be reached for another four or five years. In the near term, Ford will look at taking out more working days while relying on new models to spur sales, he said.

“It’s my job to be profitable at whatever level the market is at,” Odell said in an interview in London. “We’re taking out temporary workers and cutting hours and we’ll continue to do that. In terms of capacity, we will watch it. We’ve been pretty proactive in the past and we’ll have to take a long-term view of how long the industry bumps along at 14 million units.”

Spain, Germany

European car sales hit a 14-year low in March according to European Automobile Manufacturers’ Association data, falling 6.6 percent to 1.5 million, as economic growth stalled. Ford said April 27 that first quarter net income fell 45 percent to $1.4 billion as a pretax loss of $149 million in Europe ate into earnings of $2.1 billion from North America.

The company is cutting some working days at its plants in Valencia, Spain, and Cologne, Germany, and has also curbed daily rates at a second German site in Saarlouis. Second-quarter European production will be 65,000 autos lower than a year earlier, Odell said, equivalent to a 15 percent reduction.

Ford says that what it defines as the European market will this year shrink to about 14 million autos, versus 15.3 million in 2011, of which it expects to win a “broadly flat” 8.3 percent share. Still, its European operations have been profitable in six of the past eight years, and decisions on capacity cuts or re-evaluating plants are “not for the short term,” Odell said.

Demand in Europe, where the company also has plants in Belgium, France, Romania, Russia, Turkey and the U.K., is suffering as the sovereign-debt crisis and austerity measures crimp purchases, he said, adding that the full impact of government spending cuts probably hasn’t been felt yet.

Governments face a tough call in seeking to reduce state spending while fostering growth, the executive said.

“Austerity is absolutely necessary,” he said. “You can’t spend more than you earn. But you need some sort of stimulation in the private sector.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE