Ford Steps Up European Restructuring

Ford is expanding its European restructuring strategy with the planned closure next year of two U.K. production facilities, its assembly plant in Southampton, which builds the Transit commercial van, and stamping and tooling operations in Dagenham.

The news follows Ford’s announcement yesterday that it will shutter its Genk, Belgium, assembly plant by the end of 2014.

The closing of the three production operations will affect about 5,700 hourly and salaried employees, or 18% of Ford’s total European workforce.

“We recognize the impact our actions will have on many employees and their families in Europe, and we will work together with all stakeholders during this necessary transformation of our business,” CEO Alan Mulally says in a conference call with analysts and journalists today.

Ford says the actions are necessary given the overcapacity in Europe, which has led to high incentive levels by auto makers desperate to maintain sales volumes.

Ford of Europe CEO Stephen Odell says in the conference call Europe’s seasonally adjusted annual rate is expected to be 14 million units this year, down from 18 million in 2007.

But even with the higher volumes in 2007, Odell says the region still would be burdened by overcapacity.  “There is surplus capacity at most manufacturers,” he says. “I don’t know how or when that will be addressed, but at some point it has to be addressed.”

Ford currently is in talks with the Belgian government and trade unions over the Genk closure and says it has started discussions with U.K. unions today.

Chief Financial Officer Bob Shanks says separation costs associated with the Genk closure, which will displace 4,300 workers, are expected to exceed $100,000 a person. The auto maker hopes to achieve worker reductions in the U.K. through voluntary means, employee separation programs and redeployment to other Ford locations.

The planned actions will result in $450 million-$500 million in annual savings and a reduction in installed capacity of 18% or 355,000 units.

The plant closures are a result of Europe’s economic crisis that has caused vehicle sales to crash. The projected loss for Ford of Europe this year exceeds $1.5 billion, which includes $400 million related to dealer stock reductions, the auto maker says.

Odell says Ford is working to reduce dealer inventory to about 38 days’ supply by year-end. “We’re strategically de-stocking to historically low levels of dealer inventory, which has been enabled by recent improvements in logistic and (information technology) systems.”

Ford says the new business practice will have a long-term positive effect on profits for both the auto maker and its dealers, while customers will benefit from fresher vehicle inventories, quicker deliveries and improved resale values.

In addition to the planned closures, Ford has taken other actions to stem losses in Europe, including reduced line speeds, shorter work days and lay-off days. The auto maker also has cut temporary employment at several plants.

Additionally, Ford is cutting its European marketing budget and no longer will participate in the FIA World Rally Championship as a factory team after the 2012 season.

Despite the actions, Odell says Europe remains a very important market for Ford.

“Within the global industry, Europe is the second-largest region behind Asia/Pacific and Africa, and home to growing markets like Russia, Turkey and Eastern (Europe),” he says. “For Ford, it’s an important part of our company, slightly more than a quarter of revenue and volume and second in regions in terms of sales.”

Ford says the European market has suffered a 20% drop in vehicle sales since 2007. The 19 markets in which the auto maker operates have hit a 20-year low this year and are expected to remain flat or see further decline in 2013.

“By mid-decade (the European market) will grow modestly with volumes of about 15 million, still well below 2007 with 18 million,” Odell says. “The challenges facing the European car industry have become more structural than cyclical in nature and require decisive action.”

If Ford comes to an agreement with the Belgian government and unions to close Genk, production of the next-generation Mondeo midsize sedan and S-Max and Galaxy cross/utility vehicles likely will be moved to Ford’s Valencia, Spain, assembly plant, the auto maker says.

To make room for the three models, output of the C-Max and Grand C-Max CUVs would be transferred from Valencia to Ford’s Saarlouis, Germany, facility. Saarlouis would then become a fully utilized, flexible “mega plant,” Odell says.

Once the U.K. plants close, production of the Transit commercial van will be consolidated into Ford’s principal commercial vehicle manufacturing facility in Kocaeli, Turkey, in 2013.

Odell says the U.K. remains important to Ford, which has operated in the region for more than 100 years. Operations there will remain a center for powertrain development and production, and Ford plans to add a next-generation, low carbon- dioxide-emitting 2.0L diesel engine to its Dagenham engine plant that will power future Ford vehicles beginning in 2016.

The engine will be developed at Ford’s technical center in Dunton, Essex, England, and additional investments are expected at its Bridgend engine plant in South Wales in support of high-volume gasoline-engine production, the auto maker says.

Ford of Europe projects it will return to profitability by mid-decade, driven by increased industry volume and market share, growth in emerging markets, richer mix and margins and a more efficient manufacturing footprint.

But Odell leaves open the possibility that more restructuring may be necessary. “We will continue to review all areas of the business and take appropriate actions to strengthen our business.”

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