Ford's Plan for Europe Starts to Unfold

Did Ford (NYSE: F  ) just tip its hand about its plans for Europe?

Ford management has called  an "emergency meeting" with the three unions representing workers at its assembly plant in Genk, Belgium, according to a Reuters report. The news comes amid rising expectations that Ford will move to close the factory that makes the Mondeo sedan and Ford's European-market minivans.

The meeting is set to happen bright and early on Wednesday morning. Is Ford's plan for Europe about to unfold?

Putting changes in gear
It's no secret that Ford CEO Alan Mulally and his team have been planning drastic action for Ford's troubled European operation, which lost $404 million last quarter with more red ink expected.

But details have been scarce. Aside from a few hints, and an announcement that Ford would expand its product offerings in the region, Ford has kept quiet about its plans for returning the unit to sustainable profitability.

It looks like that may be about to change. Although Ford isn't commenting on the report, union officials have expressed concern about the unusual meeting and clearly fear the worst. While Ford has said that it will begin building an all-new Mondeo -- a near-identical twin to just-launched Ford Fusion -- in Europe next year, it hasn't said where it will be building the new sedan.

Now it's looking like the answer won't be "Genk." How is this likely to play out?

No. 1 on nearly everybody's hit list
While some analysts have pointed to Ford facilities in Spain and Germany as possible candidates for Ford's to-close list, the Genk factory has been widely thought to be the most likely victim. Genk is running far below its maximum capacity -- the outgoing Mondeo has been an unpopular model -- and in where Ford (and its rivals) clearly have too many factories, the slowest-running ones are the most likely victims.

And unlike in some European countries, where governments and unions have stiffly resisted any factory closings, there's precedent for closing a factory in Belgium: General Motors (NYSE: GM  ) shuttered a Belgian plant making Opels in Antwerp, back in 2010.

If it happens, it won't be cheap. Reuters quoted UBS analyst Colin Langan as saying that closing Genk would cost Ford 1.1 billion euros. That's not cheap -- but Langan also estimated that the closing would save the Blue Oval some 730 million euros a year.

That figure would go a long way toward bringing Ford Europe back to breakeven, but unless European economies start to improve soon (not likely), more action will probably be needed.

Tough times for Ford in Europe
Things are hard for nearly all of the automakers doing business in recession-slammed Europe, but Ford's had it harder than some: The Blue Oval's European sales were down about 15% for the year through September. That's considerably worse than the 7.2% drop seen by the overall market.

Why is Ford doing worse than rivals? In large part because of a strategic choice: While some automakers have resorted to heavy discounting to keep sales moving, Ford has tried to hold the line on pricing, hoping to preserve good margins on the sales that it does make. That's likely to be a good strategy in the long run, if it preserves Ford's pricing power in the region; but in the near-term, sales totals are suffering.

That in turn means that Genk may just be the first of several Ford plants to close. But whether -- and how soon -- Ford is able to close more factories may depend on how the closing of Genk plays out. Will the unions fight to keep the ailing factory open? Or are labor representatives finally ready to acknowledge what has been obvious for some time -- that Europe has too many car factories?

It's looking like we'll find out more on Wednesday. Stay tuned.

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Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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