Struck By Lightning

Driven to Write’s pound shop Max Warburton considers Ford’s ongoing European woes and wonders if lightning does indeed strike twice?

(Loss) leader. 2018 Fiesta. Image: (c) cardissection

There has been, one can be assured, better times to be a motor industry executive. But as chilly as it might currently be at the top table of most European automakers, Ford’s Group Vice President, EMEA, Steven Armstrong is in perhaps a more invidious position than most. Because while nearly every rival player is facing similar difficulties, Armstrong’s position is compounded by last month’s announcement of a second half pretax loss of $73 million, a likely prelude to an even heftier one being posted for the year as a whole.

Naturally, since Mary Barra elected to dispose of General Motors’ European arm last year, every fragment of business intelligence emanating from Dearborn, Brentwood, or Köln Merkenich has been minutely sifted through the singular prism of the Rüsselsheim lightning bolt. Which makes the spectacular turnaround being enacted by PSA’s Carlos Tavares upon the Opel nameplate even more painful reading for the denizens of Blue Oval towers.

Following years of losses, and two years sooner than forecast, Opel have posted a half year profit of €502 million ($587m). In addition, they stated that the business is not only operating at a margin of 5%, it has whittled the cost per vehicle down by €250, with a view to shaving off a further €450 per vehicle by 2020.

These numbers exceed our wildest dreams,” the all-seeing soothsayer of Sandford C Bernstein, Max Warburton gushed to his clients. With Tavares the current darling of the automotive investment community, one imagines that these numbers also well exceed the fevered imaginings of his Dearborn counterpart, CEO, Jim Farley.

But not only they do raise some searching questions as to how General Motors managed their perennially loss-making European satellite in the years preceding its 2017 fire-sale, they also cast into some doubt the management principles enacted by the American multi-nationals.

Crucially, Ford is losing money on the vehicles it sells in Europe. Or more pointedly, it isn’t making money on the Euro-specific models it expensively develops and sells to a market which demands sophistication, yet doesn’t appear to be prepared to pay for it with the Blue Oval of Dearborn affixed to its nosecone.

At the carmaker’s recent results announcement, a Ford spokesperson confirmed that attempts to increase the margins being earned on its mainstream Euro-fare has not been successful. Having developed pseudo-off-road (Active) and upscale (Vignale) versions of its saloon/hatch ranges, sales have fallen short of projections. The areas where Ford is making money are commercial vehicles (where the Blue Oval has traditionally been a strong player) and (no surprise here), in SUVs.

However, Ford’s offerings in the thinner air of this sector of the market are either showing signs of age (Kuga) or are barely competitive reworkings of far less sophisticated emerging market offerings (EcoSport). Both lack sparkle. Furthermore, the Blue Oval remains comparatively under-represented in what analysts term ‘utilities’. Ford’s imported vehicles have fared better; models like the Ranger pickup, Edge CUV and Mustang representing the bulk of the carmaker’s current Euro-earners.

Where lie CEO, Farley’s options? Breaking for the border must seem increasingly seductive, especially as Ford’s closest rival has already cut and run. Additionally, while the mood within the current Republican administration in Washington is of an increasingly and ideologically protectionist bent, heavy investments in Europe could become politically toxic. But who could take the European business off their hands?

Dearborn for now intends to move the dial in its favour by a more gimlet-eyed focus on SUVs and crossovers. The likelihood therefore is for the European market being rewarded for its continued apathy by being offered fewer homegrown vehicles like the Fiesta, Focus and Mondeo and more (profitable) American transplants.

Ford’s shift towards from conventional cars to SUVs and trucks has already been heralded in its home market earlier in the year, but it’s very likely now this process will be accelerated rapidly Eastwards during 2019. With matters as they are (and lacking an upmarket nameplate to compensate) it’s difficult to see what else they can realistically do to stem the red ink. And while this push might well yield dividends, the stronger likelihood is that it too will stumble and fall.

Meanwhile, most tea leaf prophets continue to see a wholesale retreat from the European market within three to five years being where the smart money is best placed.

Data source: Automotive News Europe.

Author: Eóin Doyle

Co-Founder. Editor. Content Provider.

10 thoughts on “Struck By Lightning”

  1. Heralded? A handful of news outlets praised the stock price jump of Ford, but a great deal of US dealers and clients are really upset at the news.

    Not only does this make the already low resale of Ford cars go even lower, but now the cheapest car they sell is the awful Ecosport, which only gets 29MPG. (1.0L, automatic!)

    A Ford Fiesta gets a literal 10MPG better than the Ecosport!

    Considering how Ford is basically GIVING away anything at their dealers, I’m curious to see how long they plan on incentivizing all of their products. You can get a new Escape (Kuga) for about the same price as a Focus (before haggling and incentives on the Focus). I drove past my local Ford dealer today, and they were advertising $8000 off a brand new Expedition SUV. How is that profitable?

  2. The Fiesta has been at the top of UK sales charts for a long time and seems to sell well across Europe. Why can’t Ford make money on it?

    Reason to be cheerful: this new Fiesta is clearly a reskinned version of the previous version, so much of the development costs are surely already sunk. Surely Ford can turn a profit now?

    If the Mondeo isn’t being replaced Stateside then I wonder how on earth it can continue in Europe. And maybe this calls the Galaxy and S Max into question too.

    They seem to have a good deal of money on the new Focus… but is this the last throw of the dice?

    1. Plainly the business model is bust or has been made to be bust just like GM cooked the books to make Opel look like a flop for two decades. I may have written about Ford´s plan for success already, my version. I don´t really want to repeat myself.

      I presume the Mondeo can be made in Europe (as it is?) even if the US version is canned.

  3. I saw my first new Focus in the metal yesterday. It was on trade plates, being driven to the dealership. At first when I saw the front I thought it was a new Fiesta. It’s as utterly unremarkable to gaze upon in real life as it is in photographs.

    1. I am almost tempted to go to the dealer and see if this is true. A note of caution. The current generation Swift (the one on sale now, I mean) looks unimpressive in photos. In the metal I can what they were getting at. Will the Focus end up like this for me or will it remain as Mr Topley sugggests?

  4. Richard: I suspect with your more qualified eye you will find something to admire in the new Focus. I never really got over the first one.

    1. On the one side, yes, maybe I´m qualified but on the other, if the public don´t get it the design has failed.
      Which brings me to the first Focus, which is still as fresh as newly plucked orange. It was astonishing when it was new and now, like many old Citroens, seems off to one side of the stream of time. It is so very much itself.
      The new Focus falls into the category of “contemporary vernacular” which, in a way, is very much Ford´s typical mode. I have simply no idea how one would go about finding out how that kind of form emerges except to say it is probably the result of consensus-seeking among the decision-makers at all levels. That is not the same as design-by-committee which is a term for an unhappy mix of forms. The Focus here is not that, it´s very homogenous.

    2. While it’s homogenous, I can’t see a lot of Ford in it. In this respect, I clearly see a difference in how Ford does things compared to the past. Throughout the eighties and nineties, the Escort was very characteristic with its little notch in its hatchback, as also seen in the Sierra and Scorpio. The front treatment also was very characteristic. Later they had the new edge designs, which were of course tamed down after the first models, but still gave Ford a design language of their own.
      Nowadays, I can just see a large grille, but nothing whatsoever in the overall shapes that makes the car recognisable. It’s a pity.

  5. It’s funny you should mention the original Focus and old Citroëns (off to one side of time is a perfect description); some of the vaguely Art Deco shapes on the Focus (check out the headlights) have often reminded me of the facelifted DS.

    1. Well spotted. I have only felt this similarity but never been able to put it into words. If Citroen had used that concept on their own car they´d have been hailed as a design giant for evermore. Those lights are a stroke of brilliance.
      Speaking of Art Deco, the last Ascona always made think of Art Deco and not in a good way. The final iterations had those overly-grooved rub-strips and it only made the car´s geometry all the more redolent of the 1930s (even if 1930s car were not Art Deco at all except for details). I am thinking of the Ascona “C”. I had another look and it still reeks of Art Deco. Here´s a nice side profile of the 3-door:

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