Howes: Ford gaining traction, trimming losses in Europe
Cologne, Germany — On a gray Tuesday in November, President Jim Farley stood before Ford of Europe’s managing directors meeting here and delivered a simple message: finish strong.
The reason is simple. Three years into a tough restructuring that resembles the workout former CEO Alan Mulally began engineering at headquarters nearly a decade ago, Farley and his team are gaining meaningful traction.
Sales are up and losses are thinning as the unit moves forward with a restructuring launched in 2012. Ford’s profitable commercial vehicle business, the European equivalent of the profit-rich pickup business back in the States, has moved from a woeful seventh place in Europe to first, thanks to a broad range of Transit models.
A suite of Blue Oval SUVs and crossovers, on track to replace hatchbacks here, will be arriving in showrooms soon. European dealers already have placed 10,000 orders for the iconic Mustang, to be offered with both left-hand and, for the market in the United Kingdom, right-hand drive models.
And rival Volkswagen AG’s diesel scandal offers Farley and Ford a rare chance to market a formidable alternative they’re already minting in plants across Europe: gas-powered EcoBoost engines. They offer the performance of diesel without the negative PR and regulatory angst likely to batter diesels for years to come.
“The base business is getting healthier,” Farley, Ford’s president of Europe, Middle East and Africa, said in a interview in his office here. “We really want to build a business that’s not just hovering around profitability.”
They’d better. In the world according to Ford, the patch Farley oversees theoretically should represent a third of the automaker’s business, a third of its profits and a lot of evidence that the Blue Oval can fatten its bottom line with more than F-150 pickups, Mustangs and a fleet of SUVs coming from U.S. plants.
It hasn’t been easy. Unlike rival General Motors Co., Ford elected to stand by its investment in Russia. Local rules require that Russia-based suppliers provide 45 percent of the content on assembled vehicles “or you end up with very large penalties,” says Barbara Samardzich, Ford of Europe’s chief operating officer.
The European turnaround plan claimed Ford’s assembly plant in Genk, Belgium; closed a stamping plant in Dagenham and a Transit assembly plant in Southampton, both based in Britain; restructured labor contracts; and put remaining plants like the one in Valencia, Spain, on a production schedule running three shifts seven days a week.
Necessary, all that, but not sufficient. Farley says progress cutting labor and manufacturing costs must be augmented by cuts in overhead and purchasing, the goal of “cost-attack teams” that are “really paying dividends for us.”
The numbers back him up. Ford of Europe lost $1.1 billion last year. Through three quarters of this year, pre-tax losses total just $381 million compared to $619 million for the same period last year. And pan-European market share is inching back up.
That signals improvement. But the automaker’s brass still is not prepared to say when the unit will return to profitability — confirmation of just how fraught it can be to get back in the black, and to stay there, without sacrificing the credibility of the enterprise and its leadership.
Ford’s midsize cars here are all-new. Interiors and materials have been upgraded. The Fiesta subcompact, Focus compact and C-Max compact minivan have been refreshed. In addition to the Mustang, European dealers soon will be offering the Edge crossover, a recognition that crossovers are the next hot trend sweeping a market that long clung to traditional hatchbacks and wagons.
All of which leads to a new sales frontier: emotion. As part of the turnaround guided by Mulally, Ford morphed into a company that sold technology — its EcoBoost engines, its aluminum-clad pickups, its Sync infotainment system that made the Blue Oval CEO a perennial star at the annual Consumer Electronics Show.
“We have to get customers feeling differently about the company,” Farley says. “Our ability to compete with BMW and Audi is awesome. We are right there with the premiums in terms of how people feel about their Ford, feel about their Audi.”
Tricky territory, that. Rarely in the recent history of the European auto business (or the U.S. one, for that matter) do traditional volume players like Ford or GM’s Opel brand legitimately position themselves as alternative to the German Big Three. Even VW didn’t prove successful with the Phaeton, its overwrought sedan.
Things change, however. VW is wounded. The diesel engine of its conjuring is undergoing a brutal comeuppance, thanks to the duplicity of engineers (and, most likely, executives) inside the Wolfsburg-based automaker. Regulators are salivating, and countries like France and Belgium are removing tax breaks for diesel fuel and diesel-powered cars.
Into that maelstrom drives Farley and his Ford team with a re-energized lineup, a plan to open 500 Ford Stores in major cities across Europe (200 by the end of this year), and a hot commercial vehicle business envied by competitors.
“We are the leader now,” Farley says of the Transit success. “We have even more potential. We’re just getting started.”
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM