Check out the latest Ford earnings call transcript.
Ford Motor (F 0.36%) will revamp its product line and eliminate thousands of jobs in Europe in an effort to return its regional business to sustainable profitability, the company said on Thursday.
CEO Jim Hackett has been working to improve what he calls Ford's "fitness" around the world. That effort has now reached Europe.
Ford's plan for Europe: What we know
Ford said that it is taking "near-term actions" to boost profitability and reduce costs, while at the same time revamping its European product lineup.
We don't have all the details yet, but here are some of the specifics that the company revealed on Thursday.
- Job cuts. Ford will cut thousands of salaried and hourly jobs in Europe by consolidating headquarters offices and closing at least one factory, a transmission plant in France. (No exact numbers yet, as it's still negotiating with unions.)
- Product cuts. The company has begun discussions with union representatives about ending production of the C-MAX and Grand C-MAX minivans at its factory in Saarlouis, Germany.
- Russia. The automaker is undertaking a "strategic review" of its Russia operation, and will announce its plan in the second quarter of 2019.
- A return to profitability soon. Ford's strategy aims to return Europe to some level of profitability "in the near term." It's targeting a 6% EBIT (earnings before interest and taxes) margin over the longer term.
- Revamping the lineup. Ford promised a "more targeted" vehicle lineup organized within three groups: Commercial vehicles, passenger vehicles, and imports. (The company's "imports" in Europe include, most notably, the Mustang.) Broadly, expect a revamped commercial-van lineup, several new SUVs, and more niche imports -- and likely, the end of the Mondeo sedan (the Fusion's European twin) as well as the C-MAX.
- Reducing costs by simplifying manufacturing. Following the approach it's taking elsewhere, the company will lower costs in Europe by reducing the number of variants and options on its existing vehicles, optimizing the most profitable configurations, and boosting production volumes of profitable models.
- Electrification. From now on, every new Ford in Europe will have a hybrid or full battery-electric option, starting with the just-introduced Focus.
The company promised more specifics later this year, after it works things out with union representatives.
Why it's important: Ford needs to stop losing money in Europe
This is the latest development in a rolling restructuring that Ford has estimated will cost about $11 billion over the next three to five years. Hackett is determined to improve Ford's "fitness," boosting its profitability while streamlining its processes for bringing new products to market. So far, the company's fitness-improvement effort has focused on eliminating low-profit products while streamlining manufacturing and product development to reduce costs and get new products to market more quickly.
Ford already has similar efforts underway in China and North America, but now its focus has turned to Europe. There's no question that Ford Europe needs attention: The automaker turned a profit in Europe in 2015, 2016, and 2017, but it has struggled recently.
Rising costs, pricing pressures, and Brexit-related issues trimmed Ford's Europe profit sharply in 2017 and pushed it into the red in 2018. The company posted a total of $199 million in losses in Europe through the first three quarters of 2018, and it has warned investors to expect a full-year loss.
The upshot: Ford will build on things that are already working well
Despite the losses, the news hasn't been all bad. Some of Ford's $245 million third-quarter loss in Europe was due to costs related to launching an all-new version of one of its European best-sellers, the compact Focus. Sales of Ford's (profitable) SUVs and Transit commercial vans were both strong in Europe in 2018. The all-new Focus should help the company build on that growth in 2019.
Ford has more profitable new products coming soon for Europe, including an all-new version of its big-selling compact Kuga SUV. (The Kuga is a near-twin to the Escape; an all-new version of the Escape is expected in the U.S. later this year.)
As in the United States, Ford's fitness-improvement effort for Europe isn't a radical shift: In essence, it's about building on the things that are working well while getting rid of the things that aren't. While the details will depend in part on the company's negotiations with the unions, its plan for Europe isn't a surprise -- and it stands a good chance of working.