It wasn't what you'd call a slow news week for Ford (F 2.28%). The company shook up the European auto market -- and made big headlines in several countries -- as it announced a sweeping revamp of its operations, including three factory closings
This coming week won't be a slow one, either. Ford will report its third-quarter earnings on Tuesday, an announcement that will be watched carefully all over the world.
Here's a look at these two big developments for the Blue Oval.
A big shakeup for Ford in Europe
Ford's big plan to fix Europe, where it lost $404 million in the second quarter, will take a few years to implement. Those years won't be easy ones: Ford said on Thursday that it expects to lose $1.5 billion in Europe this year, and a similar amount in 2013.
But the plan announced by CEO Alan Mulally and his team should return Ford's European operation to profitability by mid-decade, even if it doesn't fix the larger problems plaguing the auto business in Europe. Here are the key provisions:
- Three factories to close. Unlike in the U.S., where some of Ford's plants are actually maxed out, most of Ford's European factories are running well below capacity, thanks to a protracted slump in the region. Ford's solution is to consolidate production, closing a factory in Belgium and two in the U.K., and moving those assembly lines elsewhere. Those closures should save Ford between $400 million and $500 million a year, analysts say.
- New products for the region. Ford has traditionally offered only a few of its products in Europe, but it plans to change that. Popular Fords from other parts of the world, including the Edge SUV and the Mustang, will be rolled out to European customers -- 15 new-to-Europe vehicles in the next five years. Ford's hope is that by using existing products to compete in segments of the European market it hasn't traditionally contested, it will be able to pick up additional sales -- and profits -- with a relatively minimal investment.
- Better marketing. Ford has worked hard to change its image in the U.S. from Stodgy Old Detroit Truckmaker to a more green, high-tech, safety-aware company. It has taken time, but it's working -- Ford's image, like its products, has come a long way here in the past few years. It's planning to take much the same approach in Europe. Ford will also take steps to improve its customers' experiences at dealers, and to reduce dealer inventories -- both in hopes of improving transaction prices and increasing margins.
It's a good plan, all the more so because it's bolder than what most of Ford's rivals are doing. General Motors (GM 3.45%) continues to dither with plans to maybe fix Opel, while most of the European-based automakers are resisting the plant closings that are probably essential to a long-term recovery. But Ford, characteristically, decided to take action to fix its own business right now. Shareholders should be pleased.
Earnings this week: a preview
What should we expect when Ford reports earnings on Tuesday? Mulally and CFO Bob Shanks gave us a clue this past Thursday, when they said that Ford's third-quarter profits would come in ahead of last quarter's, even though the problems in Europe continue to generate big losses.
That suggests a couple of possibilities. Ford's U.S. sales gains have been just so-so -- in fact, the company has lost market share as rivals such as Toyota (TM 1.52%) and Honda (HMC 0.98%) have pushed forward. But there are reasons to think Ford's profits will be up in its home market: Spending on incentives has fallen in recent months, and Ford's premium pricing strategy, which works best when supplies of hot models are tight, may drive good gains.
Another possibility is that Ford's "Asia Pacific Africa" region may be posting increased profits. This region essentially broke even last quarter, but not because it wasn't successful -- Ford is doing quite well in places like China. In fact, the company has been making huge investments in new Asian factories, and those investments cut into last quarter's profits. But with sales up -- Ford's Focus has become one of China's best-sellers -- it's possible that this region will show a big gain for Ford this quarter.
