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Ford Seeks Downsizing in Europe

F GM

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Ford Motor Co. (F - Analyst Report) revealed that it would opt for production capacity cuts in Europe on top of its recent downsizing in the continent if the market conditions deteriorate further. At the end of last month, the automaker announced that it would trim production capacity in the continent by 18% or 355,000 vehicles.

Ford had revealed that it would retrench 6,200 jobs and close three facilities in Europe. The company plans to shut down a van factory in Southampton, Britain and an associated stamping and tooling facility in Dagenham, east London in 2013 as well as a major plant in Genk, Belgium the following year. These production cutbacks are expected to save about $450 million to $500 million in annual costs.

Ford saw a broader operating loss of $468 million in the third quarter of the year in Europe compared with $306 million a year ago. The decline was attributable to lower volume, offset partially by lower costs and favorable exchange rates. Further, the company expects to lose $3 billion in the region considering both 2012 and 2013.

The present Euro zone financial crisis has affected the operations of many global automakers, especially Ford and General Motors Company (GM - Analyst Report). Both the automakers have a significant exposure to the market.

In order to reverse the 12 years of losses in Europe, particularly from the Opel brand, GM formed a global alliance with PSA Peugeot Citroen . The pact will help both the automakers reduce at least $2 billion in costs. In order to strengthen the market position, GM also plans to expand Opel’s lineup by introducing 23 models by 2016.

Ford, a Zacks #3 Rank (Hold), posted a 17.6% rise in earnings per share to 40 cents in the third quarter of the year from 34 cents a year ago, driven by impressive results in its North American operation and, to some extent, its Asian operation. With this, the company has also beaten the Zacks Consensus Estimate by 10 cents per share. Total profit rose 15.6% to $1.6 billion from $1.4 billion a year ago.

However, total revenue in the quarter slid 3.0% to $32.1 billion due to lower revenues in South America, Europe and Financial Services operations that offset the marginal improvement in revenues in North America and Asia. However, revenues were higher than the Zacks Consensus Estimate of $31.0 billion for the quarter.

Ford plans to restore profitability in its European operations by mid-decade and aims to achieve a long-term operating margin between 6% and 8%. The company continues to anticipate 2012 market share in Europe to be lower than 8.3% in 2011.
 

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