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