Why Ford's Turnaround Plan for Europe Is Working
New-to-Europe products like the iconic Mustang are helping Ford gain ground in Europe. Image source: Ford Motor Company.
Ford said on Tuesday that its sales in Europe rose 16% in June, outpacing the overall industry's growth, as new models boosted the Blue Oval's sales in the Old World.
Europe has been a trouble spot for Ford for several years now. The company has posted billions of dollars of losses in the region, even as it generated big profits elsewhere. Is the tide finally turning for Ford in Europe?
A familiar face is getting a strong reception in the Old World Europe has been a rough market for nearly all automakers, as lingering recessions in several key European markets have kept auto sales well below the pre-economic-crisis trend.
But Ford Europe had good news to report on Tuesday. Sales of the all-new Mondeo sedan were up 55%. The old Mondeo was a slow-selling Europe-only model; the new Mondeo, launched in Europe several months ago, is a near-twin of Ford's popular Fusion. Ford plans to build on its European success with an upscale version, the Mondeo Vignale, set to launch later this summer.
Ford's Mondeo is new to Europe, but that face has been familiar to Americans for a few years now: The Mondeo is a twin to Ford's popular Fusion sedan. Source: Ford Motor Co.
Ford is also making hay in Europe's commercial-vehicle market with its Transit van line -- and with the Ranger pickup. The Ranger is no longer sold in the U.S., but Ford still builds a version for overseas markets -- and it, along with the Transit vans, are doing particularly well in Europe. Ford Europe's commercial-vehicle sales rose 33% in the first half of 2015, giving Ford its highest commercial-fleet market share in nearly two decades.
Long story short, Ford's market share in Europe was 8.1% in the first half of 2015, up 0.2 points from a year ago. That's a big deal, and Ford shareholders should take note. Here's why.
Former CEO Mulally's plan for Europe is workingFord's turnaround in North America has been a shining success story. But Europe has been a different story. Ford Europe lost $1.75 billion in 2012, $1.6 billion in 2013, and just over $1 billion last year. Those losses have continued into 2015, but Ford executives say that an end to the red ink is not far away.
Why the confidence? Because way back in 2012, former CEO Alan Mulally put together a comprehensive turnaround plan for Ford Europe, and last month's sales gains are a sign that it's working.
That plan had three key parts:
- Restructuring. Ford closed two factories in the U.K. and a big assembly plant in Belgium, and made substantial cuts to its salaried ranks in Europe. The moves eliminated roughly 6,000 jobs -- and more important, they reduced Ford's manufacturing capacity in the region by 18%. That reduction means that Ford can run its remaining factories at a higher production tempo, making them more profitable.
- New products. Three years ago, Ford promised 15 new models for Europe by 2017. One goal was to expand into segments it hadn't previously contested in Europe. Some of those products have already arrived: Additions to the Transit van range have boosted Ford's commercial sales, and Ford already has 6,700 European orders for the Mustang, which arrives in Europe for the first time later this year.
- Brand strengthening. Ford Europe has moved to emphasize retail sales over rental-fleet sales, added more premium features to its models to boost profitability, and overhauled its dealer network to improve customers' experiences.
Since 2012, we've seen many signs of progress. These latest sales numbers are another sign that Ford Europe is moving in the right direction.
An end to Europe losses should boost Ford stockThe stated goal of the plan announced by Mulally in 2012 was to return Ford Europe to profitability by "mid-decade." Originally, executives were targeting a profit in 2015, but an unexpected decline in Russia has thrown off the timetable a bit.
Current Ford CEO Mark Fields and CFO Bob Shanks now say that they expect a profit in Europe in 2016, while 2015's losses will be lower than the roughly $1 billion lost last year. Ford Europe lost $185 million in the first quarter.
Even a break-even result would be a big win for Ford, eliminating a significant drag on its earnings. Add in the significant boost that Ford's North America unit should get from the all-new F-150 starting in the third quarter, and the near future looks pretty bright for Ford shareholders.
The article Why Ford's Turnaround Plan for Europe Is Working originally appeared on Fool.com.
John Rosevear owns shares of Ford. The Motley Fool recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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