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Ford May Cut Further in Europe

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It's no secret that for all of its success at home, Ford (NYSE: F  ) is having a lot of trouble in Europe.

The Blue Oval's European division posted a loss of $468 million in the third quarter, and Ford said that its losses for the full year could total $1.5 billion or more when all is said and done.

Ford's problems in Europe are deep and structural. Last month, Ford announced drastic steps to address those problems. Among them: Three factories will close, costing 6,200 workers their jobs.

That, plus other steps Ford is taking, should be enough to return its European division to profitability – even if the deeply depressed new-car market in the region doesn't recover.

But if it's not, Ford is now saying that it's prepared to go even further – even as resistance mounts to the changes it has already announced.

Determined to make a profit in Europe
Ford CEO Alan Mulally told reporters at a conference in Berlin on Wednesday that Ford is monitoring Europe's auto market and economic outlook very closely, and while the company has no current plans to make further cuts, it won't rule them out.

"The most important thing," Mulally said, "is to match our production to the level of demand."

That phrase is a regular refrain for Mulally. It's a key – maybe the key -- to the "One Ford" plan that revitalized the company in the U.S., and that it's now leaning on to turn around Europe. Matching production, and production capacity­, to what Mulally often refers to as "real demand" is the route to sustainable profitability in the auto business.

One rule of thumb in the auto business is that car factories break even when they're running at about 80% of full capacity. Ford's European plants have been running considerably below that for some time, and that's a situation that Mulally is determined to change.

Ford's steep losses in Europe stand in stark contrast to its huge profits in North America, where – not coincidentally – Ford is using extra shifts and clever scheduling to run its factories at an average 114% of capacity. Clearly, Mulally intends to move Europe in that direction.

But getting there may prove to be a challenge.

Sharp protests against Ford's plans
Labor protests in Europe can get ugly, and Ford got a taste of that ugliness this week. Protesters from Belgium, where Ford plans to close a major assembly plant, stormed Ford Europe's headquarters in Cologne, Germany, on Wednesday, smashing windows and launching fireworks at police.

The protest came as Ford executives were meeting with labor representatives in Cologne. Three police officers and a Ford employee suffered minor injuries, according to reports, and several protesters were arrested.

Meanwhile, union leaders in Britain have characterized Ford's plans to close a Southampton, U.K., plant as a "betrayal" and vowed to fight the action there. And the Belgian protesters are just getting started: A massive rally in Genk – site of the Ford plant slated to close – is planned for this weekend, with up to 50,000 expected to attend.

As Ford forges ahead, protests could get even more intense.

Necessary steps in hard times
Rival General Motors' (NYSE: GM  ) , which is also losing huge sums in Europe, has seemed reluctant to close factories – leading some to speculate that GM is unwilling or unable to confront its unions.

But by making clear that Ford will consider even more drastic steps if needed, Mulally has indicated that Ford will forge ahead, no matter the outcry.

And it should: While plant closings are grim choices, the simple fact is that Europe has too many car factories. Current new-car sales – and those projected for years to come – simply can't support them all at a profit. By bluntly acknowledging that reality, Ford is taking care of its own business – and arguably, helping to improve the long-term health of the European auto industry as a whole.

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