DEARBORN, MI – Economic uncertainty looms, but’s top official in Europe believes the automaker has the product, production plans and improving pricing power to keep its recovery going.
“Products, brand and cost are all delivering, in some cases better than what we thought they would do,” Stephen Odell, executive vice president-Europe, Middle East and Africa, tells reporters here in a roundtable discussion about the state of’s business in the regions. “We’re very much on track.”
Today the automaker reports first-half sales rose 6.6% in Europe to reach 605,400 vehicles, marking the company’s best performance for the period since 2011. The result slightly outrun the market, up 6.3%, keeping Ford’s share at a level 7.9%.
The period was capped by a 2% gain in June to more than 109,000 units.
Odell says Ford’s planned product barrage – 25 new products will roll out in the next five years – should help maintain momentum.
“And these are substantial launches, not minor launches,” he says. “That’s 25 major programs.”
The list includes the European debut of the U.S.-built Mustang muscle car and Canadian-assembled Edge CUV both joining the lineup next year. Also set for launch is a redesigned Focus – including a diesel model as part of the performance ST line – that goes into production in the fourth quarter. A new Mondeo sedan will begin output in Valencia, Spain, late in the year.
More than 52% of Ford’s first-half 2014 sales were of new or significantly refreshed vehicles, the automaker says.
In addition, Odell believes Ford will have its production capacity better aligned by year’s end, when output ceases at the Genk, Belgium, plant. Counting previous post-recession moves, including a shutdown of its U.K. assembly operation in Southampton and stamping and tooling facilities in Dagenham, Ford will have taken 350,000 units out of its production capacity, equivalent to 18% of its total.
Odell declines to comment on Ford’s targets for capacity utilization, which reportedly will reach 80% with the closing of Genk, but says, “We’ve taken our capacity to a level where we believe we can have sustainable profitability.”
Pricing Environment Tough
Ford’s pricing power also is improving in an extremely tough environment, the executive adds.
“The normal process would tell you as the industry improves you would see opportunities for less-aggressive transaction pricing,” he says. “That’s not the case, particularly because there is so much excess capacity in the marketplace.”
But the automaker has tied production closer to demand, reducing inventory at dealers. Although days’ supply, as low as 15 in Germany, likely will creep up as Ford begins importing vehicles from North America, “if you go back two or three years, our wholesale approach was a balance between push and pull; the dealers would pull and we would push,” Odell says. “Now, because the inventory levels are low, it’s pretty much pull.”
Ford has lessened allocation of demonstrators in markets such as Germany, a practice where new cars are sold as used models. Its retail/fleet mix of 72% is two points better than the industry average, the automaker says.
“We’re maintaining our channel discipline and we’re in a better position to shift our mix going forward,” Odell says.
Dealer profitability also has gained as a result, up about 50% in the year’s first half, Ford says.
The addition of the Mustang and Edge, plus launch of the upscale Vignale trim line that debuts on the Mondeo later this year, is pushing the Ford brand upscale, as well.
Non-luxury vehicles make up 75% of the European market, with premium models accounting for the rest, Odell says. “And we think we can absolutely operate in the substantial middle ground, not being an absolute-value brand. We know we can operate at the higher end of that.
“The Edge (and) the Mustang are opportunities to participate (upmarket) without being a premium brand,” he adds, noting Ford’s high-end Titanium trim line already accounts for 70% of the mix for some products. “We will participate with offerings that premium-intenders will consider.”
Vignale-model prices are expected to be announced at the Paris auto show later this year.
In other highlights from the wide-ranging discussion:
- Odell won’t put a figure on how many Mustangs will be sold in Europe, but he predicts Ford will have trouble at the Flat Rock, MI, plant keeping up with demand. The first allotment of 500 for Europe was sold out in seconds, he says, without buyers even knowing the price. “With the response to Mustang around the world, that plant is going to have to figure out how it allocates production for the next few years at least. There are a lot of pent-up customers.”
- Odell is “delighted” with the market performance of the tiny 1.0L EcoBoost 3-cyl. engine, which now accounts for one-third of Fiesta and Focus sales in Europe.
- The automaker’s recent labor agreement at its Cologne, Germany, plant that will keep the Fiesta in production there will yield $400 million in savings between 2017 and 2022. “That will continue to be a very efficient plant on two shifts,” he says.
- Unemployment – well above 20% in some markets and at 35% among people under 30 – may be the most serious threat to the European recovery. “You know there’s another economic shock out there somewhere,” Odell says. “The biggest impediment (to market recovery) is unemployment levels. Those fundamentals have to improve before we see the economy…start to get traction.”
- There are no plans to add capacity in the Middle East and Africa region, but Ford may look for ways to better utilize operations in South Africa, where it has both an assembly and engine plant. “One of the things we’re thinking about is what should our footprint be there,” he says, adding there’s some “interesting product news” on the way for the region later this year.
- The slumping Russian market has forced Ford to take 700-800 jobs out of its St. Petersburg operations. Industry sales are tracking in the 2.3 million-2.5 million range, well below the 3 million units expected. “We’ve got a very good business model in Russia,” the Ford executive says. “We’ve got great partners, and we know we can calibrate our business to whatever the short-term issues are.”
- Boosted by newly launched Transit and Transit Connect models, commercial-vehicle sales are on a roll, up 10% year-to-date and at their highest level since 1998. “And we’re still rolling out some of the series, particularly with the Transit,” he says. “So there’s a lot more to be said on that story.”
- With the addition of the Edge, Ford will bolster its already strong utility-vehicle lineup in Europe. “People are now talking about the complete portfolio of SUVs we have in Europe, using our global-SUV strength that we have,” Odell says. That goes for the small Kuga, as well, which he predicts could sell 100,000 units this year. “We’ve had to ramp up (Kuga) production to meet the demand.”
- There are no plans to bring Lincoln to Europe. Odell says the brand should have its hands full with its growth efforts in North America and China. The Vignale trim line will fill the near-luxury void in Europe and could be offered on a number of products, potentially even the North American-built Edge. “Clearly there’s an opportunity for us,” Odell says. “It can’t just be one product.”