Ford Motor Company's (F +0.34%) rolling restructuring effort has reached Europe. The Blue Oval announced a series of leadership changes in its European operation on Friday, the first step in CEO Jim Hackett's effort to boost the region's profitability.
Ford recently began rolling out an all-new Focus in Europe. Will it reverse that move to boost profits? Image source: Ford Motor Company.
Who are these new leaders?
Ford said that it has appointed new leaders in Germany and the U.K. who will be charged with implementing a restructuring plan called Sprint to 6 Reset and Redesign.
- Gunnar Herrmann, currently the leader of Ford's German subsidiary, will also become executive director of business transformation for Ford of Germany;
- Graham Hoare, formerly the leader of Ford's testing operations, will become the executive director of business transformation for Ford of Britain.
Both will report to Steve Armstrong, president of Ford Europe, Middle East, and Africa.
What is the restructuring plan?
We don't know much about it yet. Ford said that it will share more details about its plan for Europe over the next year.
We do know that the name of the plan, Sprint to 6 Reset and Redesign, refers to Ford's profitability goal for Europe: a sustainable 6 percent operating margin.
It's not yet clear when Ford expects to achieve that goal.
What's the significance of Germany and the U.K.?
Germany and the U.K. are Ford's two largest markets in Europe. Ford is the market leader in the U.K., and it has a major presence in Germany -- specifically, a massive engineering and manufacturing site in the German city of Cologne.
Why does Ford want to restructure its European operation?
Because it's losing money despite good sales.
Ford lost $73 million in Europe in the second quarter, despite strong sales of an all-new model (the Fiesta) that was designed for profitability. The region lost an additional $245 million in the third quarter, though some of that was due to the costs of launching another all-new model, the Focus.
(The all-new Fiesta and Focus won't be launched in the United States, as Ford is discontinuing both models here due to slow sales. But both are still big sellers in Europe.)
Part of the problem that Ford is facing in Europe is simply high costs plus the regional preference for small cars. CFO Bob Shanks said in July that the majority of Ford's sales volume in Europe is made up of unprofitable models, including the small hatchbacks and the C-Max wagon.
Shanks said that Ford Europe does make money on its commercial vehicles; the Ranger pickup, the European version of the Escape, called the Kuga, and some of the vehicles it imports into Europe from other parts of the world.
Ford's restructuring plan will almost certainly include an expansion of the company's commercial-vehicle and SUV portfolios, but it's not yet clear whether models like the Fiesta and Focus will be discontinued entirely, as they have been in the United States. It's also not yet clear whether Ford will close any of its European facilities. Ford has about 54,000 employees in Europe.
Ford has also been hit hard by Brexit -- specifically, by the decline in the value of the British pound relative to the U.S. dollar and the euro. Ford is the U.K. market leader; Ford sells more vehicles in the U.K. than in any other European country; but the pounds that Ford earns in the U.K. are worth quite a bit less in dollar terms than they were a few years ago.
British Pound to US Dollar Exchange Rate data by YCharts.
It's not a coincidence that Ford Europe was solidly profitable in late 2015 and the first half of 2016, before the pound's value fell sharply in the wake of the Brexit vote.
The upshot: Again, Ford will make us wait for details
Hackett has talked about improving Ford's "fitness" since his very first day as CEO, in May of 2017 -- but details as to how he plans to improve the company's fitness have been slow to emerge. It's still not clear, for instance, whether Ford will follow rival General Motors' (GM +0.65%) lead in shutting plants in North America.
As of right now, we know Ford's goal for Europe -- that 6% operating margin -- and we know that something is underway. But it appears that details, including specifics around when Ford expects to hit its goal, won't be released for a while yet.
