It's probably difficult for U.S. automotive investors to handle all of the good news coming from Europe these days, after so many years of plunging sales and evaporating profits. Just last quarter Ford Motor Company (NYSE:F) announced that, partly due to some pension accounting changes, it had posted its first annual profit in Europe since 2011, and adding to that positive news, Ford has started off the year outpacing the industry's sales. Let's dig into the details.
By the numbers
Looking at Ford's traditional 20 European markets (Euro 20), the company's sales jumped 18% compared to the prior year, to 91,700 units. That helped Ford expand its market share in the Euro 20 segment 30 basis points to 7.5%. Widening Ford's view, its sales jumped a similar 17% in its European 50 markets, selling 104,500 units. That sales performance pushed Ford's market share in its Euro 50 higher by 40 basis points to 7.3%.
While these were excellent results, the industry as a whole has also taken a turn for the better, posting gains of 14% and 10%, respectively, for the same markets.
When looking at Ford's sales figures through the first two months of 2016, its total sales of nearly 190,000 in its Euro 20 was the best combined January and February company result since 2010. Beyond just the sales figures, though, is an equally important story for investors: maintaining profitability.
Show me the money
Ford's sales in more valuable and profitable channels were up in February, with retail and fleet sales generating 75% of the automaker's sales. That's 700 basis points, or 7 percentage points, better than the industry average.
Also, Ford's bottom line in Europe should benefit from the surge in SUV sales in a region where smaller cars have historically sold much better. In February, Ford's EcoSport SUV and Kuga (Escape) increased their sales by more than one-third, and with the launch of the all-new Edge during the first half of this year, the automaker expects sales of its SUV lineup to increase by roughly 30% this year compared to 2015.
If that assumption holds true, not only will it benefit Ford's bottom-line results, it will be the first time Ford's SUV lineup will top 200,000 in annual sales in Europe -- further proving the SUV craze isn't limited to North America.
Another strategy for Ford to improve its bottom line in Europe is to expand its upscale Vignale line, which is an attempt to find a sweet spot between Ford's mainstream vehicles while not competing head-on with European juggernaut luxury brands. This year Ford will introduce the S-MAX Vignale, Edge Vignale and Kuga Vignale, in addition to the Mondeo (Fusion) Vignale already selling.
Ford's also making tough decisions when it comes to its footprint in Europe, recently announcing it would be slashing hundreds of white-collar jobs there in an attempt to cut about $200 million from its administrative expenses. When you consider that Ford's annual profit in Europe last year was $259 million, cutting $200 million in costs would be a quick way to boost profitability and stay on track to help reach the company's long-term goal of operating margins between 6% and 8% in the region.
Ultimately, it's been a few down years for automakers in Europe, but that's beginning to turn around, and Ford is certainly being proactive with its Vignale brand, increasing the offerings of its SUV lineup, and making tough decisions to maintain its profitability. Stay tuned: This region will continue to make a big difference quarterly in Ford's bottom line.