Ford Europe CEO Sees Region’s Debt Woes Weighing on Car Buyers, Pricing

The auto maker is sticking with its forecast of 14.5 million-15.5 million total light-vehicle sales in Europe this year, a purposefully wide outlook given the region’s financial insecurities.

James M. Amend, Senior Editor

July 15, 2011

4 Min Read
Ford Europe CEO Sees Region’s Debt Woes Weighing on Car Buyers, Pricing

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Ford of Europe CEO Stephen Odell says the region’s growing financial crisis has “dented” consumer confidence, but considers sputtering vehicle sales part of a long-term turnaround for the region.

He also continues to see a resurgent Russia as a crown jewel on the auto maker’s Eastern edge.

Ford of Europe CEO Stephen Odell bullish on resurgent Russia.

“It’s a difficult market,” Odell says of Europe in a telephone interview with Ward’s from Ford’s Cologne, Germany, headquarters. “We’ve characterized it as a slow recovery over the next few years.”

European credit markets witnessed a sell-off this week, as its sovereign debt troubles reached new levels, prompting comparisons by analysts to the beginning of the 2008 global financial crisis.

Market indexes in debt-sacked Italy, as well as France, Germany and even the U.S. and China, sank on the activity and shook already-tenuous investor sentiment globally.

Odell suspects the news will, in turn, further affect consumer confidence weakened in the second quarter by new government austerity measures and concerns over potential sovereign debt defaults.

However, Ford is sticking with its forecast of 14.5 million-15.5 million total light-vehicle sales in Europe this year, a purposefully wide outlook he admits given the regiona’s financial insecurities.

Just a few years ago, the European industry tracked at a seasonally annualized selling rate of 19 million units. Through the first five months of this year, total vehicle sales in Europe rose 7.5% to 8.3 million from 7.7 million in like-2010, according to Ward’s data.

“There will be more pressure from a pricing perspective,” Odell says of already widespread discounting. “You could see a shift away from retail business to more fleet business, which is not bad but tends to have less margin.

“It will be an interesting second half,” he adds.

Odell also sticks with Ford’s projection for full-year profitability in Europe. The auto maker’s net income in the region doubled in the first quarter to $293 million from $107 million year-ago.

Ford will report second-quarter financial results in the coming weeks.

The good news, Odell says, is the auto maker right-sized its business in Europe before the recession, leaving it in a favorable position to maintain pricing if demand plummets again. The company wants to grow its business in the region in the coming years, but does not plan to add manufacturing capacity.

“Our capacity utilization is not 100%, but at the higher end,” he says.

A key part of Ford’s global plan, which calls for sales to rise 50% to some 8 million units annually by mid-decade, includes prospering in a resurgent Russian market.

Whacked by the recession, vehicle sales in Russian fell from an annualized rate of some 3.1 million total units in 2008 before the global downturn to about 1.5 million in 2009, Ward’s data shows. Sales rebounded to 2.0 million in 2010.

Through the first six months of 2011 sales in Russia have surged 54.2% to just over 1.29 million units, compared with 836,137 in like-2010.

Odell says a country steeped in natural resources, such as oil and natural gas, could not stay in the doldrums for long.

But the Russian government also has begun taking proactive steps towards establishing an economy more reliant on high-tech manufacturing, led by an automobile industry expected to surpass Germany as Europe’s largest market in the coming years.

Ford’s new joint venture with local producer Sollers will help the auto maker meet the Russian economy at its crossroads, Odell says. “Being a big player there, which historically we have been, is an important part of our strategy.”

The 50-50 JV calls for the production of 350,000 vehicles annually. The auto makers finalized the deal last month, which calls for Ford and Sollers to combine their manufacturing, distribution and service operations.

The initial agreement was witnessed by Prime Minister Vladimir Putin, Odell says. The Russian government intends to chip in some $1.4 billion in long-term funding to the operation, underscoring its commitment to the industry.

The JV will begin production later this year of a range of Ford passenger cars and light-commercial vehicles, including the Ford Mondeo, Focus and Transit van. Ford sells all three in the country, but imports the Transit van.

“That’s quite a large market opportunity,” Odell says of shifting to local production of the Transit, which aims at commercial and government customers.

Odell suggests the JV stands to benefit greatly from Sollers extensive commercial-distribution network, which combined with Ford’s retail hubs later this year would blanket both channels.

He declines to expand on plans for new products for the JV, but does not appear to be sold on the idea they should occupy the lower segment. The Mondeo and Focus are seen as more premium offerings.

“As the emerging middle class came to the fore they did not, historically anyway, necessarily want a low-cost product,” Odell says, noting the wanted a modern product to a specification that stated they had arrived.

“So I think the Russian automobile industry will develop in quite an interesting way.”

The JV will launch in the late-third or early-fourth quarter of the year. Executive appointments for the unit, which will include a Ford nominee for CEO and a Sollers candidate as chief operating officer, will come about the same time.

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