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Ford to Pay Severance Benefit in Europe

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Ford Motor Co. (F - Free Report) agreed to pay $750 million as separation benefit to 4,000 hourly workers under a deal at its Genk, Belgium plant, which will be shut down by the end of 2014 due to the ailing European market conditions. However, Ford is yet to reach a deal over severance payment with the plant’s 300 salaried workers.

The severance payments will be treated as a special item for accounting purposes and spread over the next several quarters depending on the timing of the workers’ exit.

Currently, the Genk plant produces Mondeo sedan, which is known as the Fusion in the U.S. After the closure, Ford will transfer the work in Genk to its plant in Valencia, Spain.

The amount of severance payments will depend on age and seniority. Workers aged 50 or less will receive up to two-and-a-half years of pay while workers aged 52 or more will be entitled to a bridging pension until they reach 65.

The cash payout implies an average payout of $187,500 for hourly workers. This is less compared to what General Motors Company (GM - Free Report) paid as severance benefit in 2010 before closing its facility in Antwerp, Belgium General Motors paid nearly $527 million to 2,600 workers at its Antwerp plant, implying an average payout of $202,700.

Late 2012, Ford had revealed that it would cut production capacity by 18% in Europe on top of its recent downsizing in the continent if the market conditions deteriorate further. Ford had revealed that it would retrench 6,200 jobs and close three facilities in Europe.

The company had announced plans to shut down a van factory in Southampton, Britain and an associated stamping and tooling facility in Dagenham, east London in 2013 apart from the Genk plant. These production cutbacks are expected to save about $450 million to $500 million in annual costs.

In 2012, revenues from Ford’s European operations shrank 21.3% to $26.6 billion. The region had a much broader operating loss of $1.75 billion in the year compared with $27 million a year ago. The decline was attributable to unfavorable volume and mix. In 2013, Ford expects to lose $2 billion in Europe as it continues to be negatively affected by challenging economic conditions.

Car sales in Europe dipped 10.2% to 829,359 units in February, according to the European Automobile Manufacturers’ Association (ACEA), driven by continued weak demand and troubles faced by highly indebted banks in financing new car purchases for customers.

Among the U.S. automakers, Ford saw the steepest decline in sales in February. The automaker’s sales plunged 20.8% to 53,660 cars in February. It was followed by General Motors, which registered a 20.1% fall in sales driven by a 38% decline in Chevrolet brand sales. Among the European automakers, Volkswagen AG (VLKAY - Free Report) – biggest in the continent – posted a 7.2% decrease in sales, led by a 12% fall in its Skoda brand sales.

Korea’s Hyundai Motor Corp., and Japan’s Honda Motor Co. (HMC - Free Report) and Mazda are the only three automakers that registered sales gains in Europe during the month. Sales at Hyundai went up 1.4% while sales at Honda and Mazda escalated 27.0% and 13.1%, respectively.

Currently, Ford retains a Zacks Rank #3 on its stock, which implies a Hold rating for the short term (1 to 3 months).

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