Oct. 25 (Bloomberg) -- Ford Motor Co. will shut three European plants, its first factory closings in the region in a decade, and cut 5,700 jobs to stem losses that the carmaker predicts will total more than $3 billion over two years.
The shutdown of two U.K. factories and a plant in Belgium will remove production capacity for 355,000 vehicles, or 18 percent of the carmaker’s total in the region, Dearborn, Michigan-based Ford said in a statement today. The moves will yield gross annual savings of $450 million to $500 million annually, it said. Ford rose after saying its third-quarter earnings will be better than the second.
The carmaker is forecasting losses wider than $1.5 billion each this year and next in Europe, Chief Financial Officer Bob Shanks said on a conference call. Ford had estimated the loss this year would total more than $1 billion. The closings, more extensive than those planned or carried out by PSA Peugeot Citroen, General Motors Co.’s Opel unit and Fiat SpA, are in response to a car-market drop that may be the worst in 19 years.
“Ford is making the first move here and getting on with what they need to do,” said Matthew Stover, auto analyst with Guggenheim Securities in Boston. “This will strengthen their relative position in Europe. It sets them up for when the volume recovers.”
Ford rose 2.2 percent to $10.39 at the close in New York, the biggest gain since Sept. 7. The shares have fallen 3.4 percent this year.
Third-quarter pretax profit and earnings per share, excluding special items, will exceed the second-quarter results, even with the expanding loss in Europe, Ford said. The cutbacks in Britain and Belgium contrast with the 6,500 hourly jobs and 900 salaried positions that Ford has added in the U.S. this year.
“We’re going to have a very, very good year” at the group level, Shanks said.
Losses in Europe in 2013 will match this year’s because cost savings from the plant closings won’t be fully realized for two years, Shanks said. Ford is shutting the U.K. factories in the middle of next year and a Genk, Belgium, plant in late 2014, he said.
“The savings don’t actually kick in on Jan. 1, 2013,” Shanks said in an interview. “They don’t kick in until essentially the plants shut down. The savings are more late ’14 and beyond.”
The closings include a factory in Southampton, England, that makes chassis cabs for the Transit van, a stamping plant in Dagenham, on the outskirts of London, and a 48-year-old plant in Genk that builds cars and minivans.
Ford will also have “substantial” costs from cutting workers in 2013 and it will write down $100 million this year and $400 million in 2013 for the value of the factories it’s closing, Shanks said. There will be additional writedowns in 2014 for shutting Genk, Shanks said. He declined to give a total cost of the plant closings.
Europe’s car market shrank by 7.2 percent in the first nine months of the year to 9.72 million vehicles, according to the ACEA, the region’s automotive-industry association. Full-year registrations may drop 10 percent, the worst slump since 1993, with sales totals at the lowest in 17 years because of economic contractions caused by the European sovereign-debt crisis.
“It’s fairly evident that there’s surplus capacity across most manufacturers,” Stephen Odell, head of Ford of Europe, said on the call with analysts and journalists. “Given the protracted nature of the recession, at some point it has to be addressed.”
Including the elimination of 500 administrative jobs already announced, Ford will cut a total 6,200 positions in Europe, or 13 percent of its workforce in the region, it said. Operations in Europe may become profitable by the middle of the decade, it said in a presentation. Longer term, Ford said it expects to realize 6 percent to 8 percent margins in Europe.
“We’ll be able to get into a relatively small profit by mid-decade,” Shanks said. “Once we get Europe up on its feet and this plan fully implemented, we’re going to have a very profitable, healthy and, I think, growing business in Europe.”
The cutback at Southampton, which according to Ford’s website employs more than 530 workers, will eliminate the company’s last British vehicle-making operation. The company started making cars in the country in 1911. The Ford Otosan joint venture with Koc Holding AS, Turkey’s biggest group of companies, will take over production of the Transit when Southampton closes, the U.S. company said.
A separate facility in Dagenham manufactures engines. The town was the site of Ford’s most recent car-plant closing in Europe, when the U.S. company shuttered an assembly line for the Fiesta compact in 2002, getting rid of 2,000 jobs.
“I’m shocked,” said Dominic O’Callaghan, 39, a shop steward at Dagenham, in an interview today outside the stamping plant after union leaders announced Ford’s move. “I wasn’t expecting it. Basically, it’s a kick in the teeth.”
The Genk factory makes the Mondeo mid-sized sedan, S-Max wagon and Galaxy minivan. Production of those models will shift to Ford’s plant in Valencia, Spain, as the carmaker brings out new versions of the vehicles, it said yesterday. The entire 4,340-employee workforce at Genk will be cut, Belgian union officials said.
Ford’s other western European operations include its regional headquarters and car- and component-manufacturing sites in Cologne, Germany; a vehicle plant in Saarlouis, Germany; and sites that make transmissions in Bordeaux, France, and engines in Bridgend, Wales. A joint venture with the Getrag Group in the Liverpool, England, suburb of Halewood produces transmissions.
The plant closings “are absolutely appropriate for the current reality,” Ford Chief Executive Officer Alan Mulally said on the call. “We’ll continue to assess the situation and we’ll continue to take appropriate actions.”
Ford it working from a similar “playbook” for turning around its European operations that it used to revive its U.S. business, Shanks said. In addition to the plant closings, the automaker is bringing out 15 new models in Europe, including importing the Mustang sports car from the U.S.
The company’s European operations are in better shape today than Ford’s U.S. business was in the middle of last decade, Shanks said.
“Europe is not the bloated dinosaur that North America was,” Shanks said. “We had an extraordinarily uncompetitive product lineup, very poor quality, very weak brand, we had much more excess capacity than Europe has. In all other areas of the business, it was bloated. Europe just doesn’t have a lot of those issues.”