Ford's Latest Turnaround Takes Hold in Europe

Ford's new B-Max – a Fiesta-sized mini-minivan – has rapidly become a best-seller in Europe. High gas prices have made small kid-haulers like the B-Max popular with Europe's young families. Photo credit: Ford Motor Co.

Are things finally looking up for Ford (NYSE: F  ) in Europe?

Ford lost $810 million in Europe in the first half of 2013, and is almost certainly set to lose at least that much in the second half of the year.

But even as overall auto sales in Europe remain mired in their worst slump in decades, something interesting is happening at Ford: The Blue Oval's sales in Europe are up.

The market was down, but Ford's sales were up
Ford said on Tuesday that sales in the 19 countries it counts as "Europe" were up 2.3% in August. That may not sound like much, but analysts estimate that industrywide sales in Europe were down over 5% last month (official figures won't be released until later in September).

That means that Ford gained market share in Europe last month – it's up to 7.5% from 7% a year ago. Ford also pointed out in a statement that its retail market share in the five biggest Western European markets (the U.K., Germany, France, Italy, and Spain) was up for the seventh month in a row.

This all comes despite the fact that new-vehicle sales in Europe are hovering near lows not seen in 20 years, as deep recessions in countries like Spain and Italy have gradually led to slowdowns in places like Germany that depend on exports to other European markets.

How is Ford gaining ground in such tough conditions? And will the conditions get even tougher?

Ford's turnaround plan for Europe looks awfully familiar
Last fall, Ford CEO Alan Mulally and his team announced a comprehensive turnaround plan for Ford Europe, which was on its way to losing over $1.7 billion in 2012. I said at the time that that plan looked familiar – it's essentially the same "One Ford" strategy that put Ford on the path to big profits here in North America.

The gist of that approach is pretty simple: a single global line of vehicles produced to a premium standard, with just enough factories to meet demand. Top-notch vehicles – in any market segment – can command premium prices, which boosts profits. At the same time, busy factories are the most profitable kind – and having just enough keeps fixed costs low, which makes the company less vulnerable in a downturn.

That has worked wonders for Ford here in North America, where it has the happy problem of trying to keep up with demand for its hot products. Meanwhile, in Europe, Ford had too many factories and a so-so product lineup.

Enter Ford's turnaround plan: The company has already closed two factories in the U.K. and is set to close a big facility in Belgium next year. Meanwhile, Ford has already introduced several new or refreshed products in Europe – and is drawing on its now-global lineup to add more.

And those products are succeeding. Sales of the Kuga – Europe's version of the new Escape – were up 7% in August, and the new B-Max (shown above) has become the best-seller in its segment, Ford said.

But will things get worse before they get better?
Ford Europe chief Stephen Odell said on Monday that he thinks Europe's new-car market has hit "bottom" – but that doesn't necessarily mean that things are looking up. "There are no major signs of uptick but it does feel like we're running along the bottom," Odell told reporters at the Frankfurt Motor Show in Germany.

That's a view I've heard from other experts – it's hard to see how Europe could get much worse, but it's not likely to get a whole lot better any time soon. That said, Odell thinks Ford Europe will be profitable by the end of 2015.

Given Ford's losses in Europe last year, and losses that could total $1.8 billion by the end of 2013, even breaking even in Europe would be a big boost to the company's overall bottom line. The good news for Ford shareholders is that even if Europe's new-car market continues its slump, Ford appears to be on track to hit that goal within a couple of years.

A turnaround in Europe will do wonders for Ford's stock price. It's one of just a few critical things that needs to fall into place before Ford's stock can really soar. In The Motley Fool's special free report entitled, "5 Secrets to Ford's Future", we outline the key factors every Ford investor needs to watch. Just click here now for your free report.

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9/28/2016 4:01 PM
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