In an earlier analysis of Ford’s lackluster share price, we noted that Europe and China posed a significant problem for the automaker’s bottom line. Europe, which was previously pretty good to the brand, has gradually lost its share of the market since 1994. While Ford still moves a lot of metal in the region, something’s definitely wrong.
On Wednesday, Ford announced that its European operations had endured a $73 million second-quarter loss. It’s anticipating a full-year loss in the region after earning $234 million last year. “We’re extremely dissatisfied with our performance in Europe,” said CEO Jim Hackett.
Something has to be done to avoid further setbacks. According to Jim Farley, Ford’s head of global markets, the clear remedy is concentrating on vans and crossovers because that’s where the money is. It’s a similar strategy to what’s being done in the United States, where Ford eventually aims to cull the lineup to a point where the Mustang is the only vehicle that qualifies as a traditional car. But is it the correct one, considering how we’ve arrived at this point?
Many claim Ford’s problem in Europe can be attributed to the market’s shift away from mid-level models. Consumers have trended toward bargain basement autos while premium models have also received a boost. While the Fiesta and Focus still sell incredibly well, pricier models like the Mondeo (Fusion) have seen their popularity plummet.
Unfortunately, the cheaper vehicles Ford sells in large numbers aren’t making it any money. Ford CFO Bob Shanks claims that the majority of Ford’s European vehicle range is unprofitable. “The low-performing part of our portfolio represents a majority of our volume, revenue and capital deployed in the region,” he said. The primary culprits were “cars and multi-activity vehicles [MPV/minivans] such as C-Max.”
According to Automotive News, the models that still generate positive cash flow in Europe include the Transit van, Kuga (Escape) crossover and Ranger pickup — as well as the imported Edge and Mustang.
Farley also noted that commercial vans earn 13 percent profit margins for the automaker in the EU, so it’s going to focus on those models and lucrative utility vehicles at the expense of passenger cars. “Clearly we have to redesign Europe, centering the operations on our profitable [light commercial vehicle] business,” he said.
With the Fusion likely leaving the U.S. market in 2020, the Mondeo is probably facing its own discontinuation, as well. Ford is also considering abandoning the C-Max, as well as the S-Max and Galaxy minivans.
R&D spending will be diverted away from cars and into commercial vans and SUVs, as Ford seeks ways to cut costs anywhere it can and get new products to market quicker in Europe. The company also hopes to form new partnerships with other automakers. “It’s important to recognize that partnerships, which are a part of our fitness toolkit, are already an integral part of our European operations and going forward we expect them to play an even greater role,” Shanks said.
However, we can’t discuss Ford’s money issues without mentioning “mobility.” Some have accused Ford of being too slow to get the right products on sale and too quick to chase a quick buck. A case could even be made that Ford’s current obsession with SUVs and crossovers will leave it vulnerable when the market inevitably shifts again. But the mobility unit is intended to protect against that by making Ford a leader in advanced technologies and supplementary businesses.
The idea of future-proofing a company comes with consequences, though. Ford claims its mobility arm lost $181 million in the second quarter of 2018. It is, however, in the midst of several extremely large investments to get the ball rolling and has little revenue to soften that blow. Hopefully, there’s an extremely lucrative business model behind the mobility push. Otherwise, Ford and a slew of other automakers will be kicking themselves in the coming years.
[Image: Ford Motor Co.]
I think Hackett and Farley are making boneheaded short-term profit seeking decisions that will lead to Ford’s ultimate long-term demise. I would be VERY alarmed if my last name was Ford.
This year Ford has been simply terrible at PR. The bring Hackett in with the specific goal of getting the stock price up (never a good place to start). Then they say “we are discontinuing all our cars because people don’t buy them.” Well, ok, but their replacements aren’t coming for several years and you just told the world you think your cars are crap. How’s that going to help sales? Then, along with that, they basically told enthusiasts to take a hike, cancelling the Fiesta ST, Focus ST and RS, and Taurus SHO along with the their regular cars. So you either want a Mustang or never mind. Sorry, but an Edge ST is only going to be bought by men who’s souls have been crushed by their wives, but who are secretly trying to retain a tiny thimble of manhood.
The results so far: sales suck, profits suck, and the stock continues to slide.
It’s not just PR, there has always been a strong current in the accounting/finance side of corporate North America that advocates “shrinking our way to success” by eliminating products that don’t meet pre-set financial targets, which means shrinking market reach. Strategic management looks more broadly and longer-term at preserving sustainability and growth potential. Short-term management embraces the bean-counter view.
Ford has obviously made it’s choice.
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The Transit is imported from Turkey, the Kuga from India and the Ranger from Thailand.
Looks like Fords about to do a Mary.
“Some have accused Ford of being too slow to get the right products on sale and too quick to chase a quick buck.”
^This^ I get a little tired of Ford telling us what’s coming. Ranger, Bronco, Aviator etc. all look great, but until they land in the showroom it’s pretty hard to sell. I just recently saw the Ecosport in my local Ford dealer’s showroom and my first thought was where were you 3 years ago? Ford, I love you, but if you’re not first to market (Mustang, Pinto) you’re last- Ricky Bobby
“…when the market inevitably shifts again.” I don’t think the market is going to shift back to cars, if anything the traditional own/lease concept will probably begin to erode in the next shift. Maybe Ford jumped the gun a little bit, the autonomous vehicle thing is further away than people think. Ride sharing and vehicle loaning programs will take a bite out of sales. It just might not happen right away. Maybe they should have kept making cars for a while longer, they’re hemorrhaging cash anyway.
This. Station Wagons, minivans, and now sedans. They were all once the dominant family haulers and now they hold a fraction of the market share they onelce did.
The crossover is the modern car. Get used to it.
True, in my opinion. Those Baby Boomers who aren’t yet dead want SUVs for ease of ingress and egress. The wee families nowadays can easily fit in same. Now that ‘sporty’ SUV versions are available that can mostly corner but can accelerate and stop like a 2006 Mustang GT at full-beans there really is no reason for the median population to buy anything other than an SUV. Given the choice, which may happen sooner rather than later, I see a huge Mercedes wagon in my future. Full Disclosure: We have an Equinox that couldn’t pull my boots off; an F-150 that can; an old CTS-V that likes new OEM bits and expensive gasoline in equal parts; and the slightly-older aforementioned Mustang GT ragtop. I’d chuck the lot of them for a BiTurbo Mercedes wagon. The Herself might be angry but I can deal with that.
As someone who recently replaced a car I totalled at the track, I think there are a sizeable number of people who still want a car-like driving experience. I haven’t had any seat time in the most dynamic crossovers, but there’s no way they could be more fun to drive than the cars they are often based on. Plus to some cars look better too.
However for the vast majority of folks high riders are the way forward, and Ford is smart to put their money there, leaving only the specialized low riders (i.e. Mustang) for enthusiasts. I think it’s a smart play.
To bring vehicles on line quicker in the US some regulatory changes are needed.
First, as we can see with Ranger. The Ranger exists! It has for years. All needs doing is load them on a ship. But there is one terrible tariff stopping that.
Secondly, use UNECE vehicle regulations or at a minimum allow them on US public roads to facilitate Ford and the US consumer.
It seems there are subtle underlying differences in the Big 3 business model compared to all other auto manufacturers.
Others are not overall performing as poorly as the Big 3 globally. And taxes and tariffs have little to do with this. GM sold out in the EU due to a lack of being competitive.
Maybe TTAC can do an article to get views on why US auto manufacturers don’t perform well on the global stage ……. even when manufacturing side by side in other countries under identical conditions. Tariffs have nothing to do with this poor performance.
“Maybe TTAC can do an article to get views on why US auto manufacturers don’t perform well on the global stage”
I’m sure that will be most interesting after we watch the multi-installment BBC series on “What Are the Aussie Autos?”
@BAFO – So it’s all good when US automakers, including Toyota and others, have to bend over forward and backwards, and still can not take existing US market cars and simply “load them on a ship”?
But it’s wholly a crime against humanity if US bound imports need to go over a tiny speed bump before entering the US market?
It’s not even close to being the same thing, either direction. And this isn’t about “regulations” regulations. There’s virtually no differences between US and UNECE regs at this point.
Except US regs are several times easier, and trust based. That’s how the VW TDI scandal was so easily facilitated, and the US duped. The EU demands documented proof, same as Japan. And the demands aren’t always clear.
And really, nor is this about “Tariffs” necessarily since all it takes for them is money. It’s those dirty, underhanded non-tariff barriers that kill the most, and obviously one-sided. Can you guess which side?
If we pick a single world standard for cars, thrn we *can* simply load them on a ship.
But, like getting the rest of the world to move away from the Metric System, the US just doesn’t have the power to strong-arm everyone into doing it their way. So, we can adopt the global standards… Or not.
We can stay a large-but-closed market with limited choices, if we want — or we can be open and with businesses which are competitive on the world stage. After 2016, the first option seems to be popular with the American electorate — though I personally prefer the latter.
It goes much deeper than just the differing standards, turn signals and whatnot. And there’s not a “global standard”, just more of the bigger world markets have adopted EU/UNECE regs.
Although it’s comedy how they set it all up. EU regulations zig everywhere US regs “zag”.
They have the metric system, OK, fine. There was no good reason to stipulate “liters per 100kms”. Alright, no big deal. Or engine output in the form of “wattage”, instead of Horse Power which is too easy to understand.
Still not a big deal, but it’s a complete joke. But yeah, yeah, some things are done better, you’ll say. For sure, if you set out to do absolutely everything different, a couple things might work out for the better. Mass vs Footprint?
Again all that’s not a big deal. Nor are tariffs, when it comes down to it. For those you just cut a big fat check. Simple!
But for “US market” cars to gain any kind of traction in the EU, including some by Toyota, Nissan, Honda, etc, they have to be completely designed specifically for the EU market, plus its system of taxes.
Otherwise they’re good for a strong niche, at best, just simply putting them on a boat.
IIRC, that US auto industry moved to metric in the ’80s.
“They have the metric system”
There are only 2 countries left in the world that use the “customary” system of measurement. USA and Burma.
It won’t help Europe or China, but never forget TRAIN STATION in Corktown will solve all of Ford’s woes.
A lot of the decisions made since Hackett became CEO aren’t giving me a ‘warm and fuzzy feeling’ about Fords direction …. He is being decisive, I’ll give him that, just looks like a lot of decisions are very questionable for building Fords brand ( but of course time will tell )
Unfortunately, the cheaper vehicles Ford sells in large numbers aren’t making it any money. Ford CFO Bob Shanks claims that the majority of Ford’s European vehicle range is unprofitable. “The low-performing part of our portfolio represents a majority of our volume, revenue and capital deployed in the region,” he said. The primary culprits were “cars and multi-activity vehicles [MPV/minivans] such as C-Max.”
If I’m interpreting that correctly, their best-selling vehicles are the ones that aren’t making money–and are thus on the chopping block. So with the discontinuations, Ford’s sales will be marginal at best, and probably so, if it continues, will Ford.
Right. Why wouldn’t Ford try to reduce costs on its best-selling vehicles, instead of simply abandoning them?
That’s the kind of MBA logic which turned HP from a technology company into a toner company.
We dodged a bullet when Carly Fiorina was knocked out if the Republican Primary, only to be hit by an even worse bullet.
“Ford claims its mobility arm lost $181 million in the second quarter of 2018.”
Q: How does one actually make money with a ‘mobility arm’?
****
Here’s a nit: The overuse of the word “claim” by the TTAC writers. Claims are statements that may or may not be substantiated upon further investigation, or future performance. Claims can be disputed until proof is provided, or until the predicted event actually happens. Some claims are more reasonable than others.
If Ford says they lost $181 million in this operation – a figure presumably captured in their quarterly/annual reporting – there is no point in disputing it. Does anyone actually doubt it?
But if Ford says the Bronco will go on sale in 2020, that is a claim awaiting verification.
Applying the word “claim” or “claims” to every utterance by a mfr or auto exec implies that we don’t believe them, even when their statement is easily verified.
There is plenty to dispute around here, but I’d like to see a brighter line drawn between The Truth About Cars and The Doubt About Cars.
Q: How does one actually make money with a ‘mobility arm’?
A: It’s all in the wrist.
Ha – thanks, and you’re welcome.
The headline is a bit ambiguous. Ford made it sound like they wanted out of cars completely in the US, whereas the European strategy is mainly about abandoning midsize saloons that Europeans no longer want. Ford spent a good chunk of change on the upcoming Focus. If it was the last Focus in Europe, I’d be stunned.
Anyway, the specialization strategy is a good one. New vehicle segments are growing much more rapidly than demand in the US and Europe. Manufacturers can no longer use production capacity to pursue low-margin declining segments like compact/midsize passenger cars.
Ford is also creating a dilemma for the other manufacturers. They should receive a bump in sales, but probably not a bump in willingness to pay. Toyota, Honda, et al will be forced to decide between boosting production of low-margin vehicles or capping production and risk the possibility of rising prices dismantling the entire compact/midsize segment.
Ford’s strategy is quite smart, but everything relies upon their ability to make superior CUVs in the next model cycle.
This isn’t forward looking….it is simply penance for decades of mismanagement….a time when cars didn’t get a report card…when screwed customers couldn’t communicate with one another and before basic consumer protection.
Take one look at the 2018 Toyota Camry and tell me sedans are dead…
They’re not dead, they’re dying. Let’s look at Camry sales for the last three years…
2017 … 387.081
2016 … 388.616
2015 … 429.355
Moving in the wrong direction
I’ve seen them. I wish they were dead. As my mother used to say, “That (thing) makes my flesh crawl.”
Crossovers are for circumferentially challenged land whales who can’t get in and out of passenger cars that were designed for humans. They are also for guys who have trapped themselves in a “Yes, Honey/No, Honey” existence that includes “family time”, trips to Home Depot, and possible 72-hour holds for suicide intervention. Unfortunately this encompasses such a large swath of the American public that automakers have to focus on these vapid conveyances and virtually quit making cars.
I’m thin, agile and single and love crossovers, go figure
Wow, Sub-600 we just learned what YOUR family life is like!
I have a crossover for the wife, an F150, and a Fiesta ST? Which of your stereotypes shall I apply to myself?
Ford used to have a large chunk of the prestige car market in Europe, with cars like the Granada/ Scorpio. That’s gone now, it’s all BMW/Audi/Mercedes. The large Fords used to be considered equals to those brands, but no longer.
It’s long been my opinion that the people who do the most to screw up a company are the money people. Bean counters and stockholders, who can’t see past a penny to the future. The company I work for had a chance to buy the RIGHT KIND of EDM machines years ago when they were making enough money to BUY OUT THE ENTIRE STOCK OF DIES from another company. They bought the wrong kind, EVEN THOUGH THE PEOPLE WHO SOLD IT TO THEM TOLD THEM IT WAS THE WRONG KIND FOR OUR BUSINESS. The machine had to be sold at a loss. Our CNC’s use metalworking coolant, but someone with the penny in his eye decided it would be cheaper to replace coolant several times a year than to buy an oil skimmer and use treatment chemicals, which ACTUALLY cost a fraction of the price of coolant and would allow the coolant to be used for a longer period of time..I could go on, but I’m very near retirement.