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Ford will close three European plants at a cost of $1.5 billion

October 25, 2012|By Jerry Hirsch
  • Ford will close its plant in Genk, Belgium, next year as part of restructuring of European operations.
Ford will close its plant in Genk, Belgium, next year as part of restructuring… (Julien Warnand/EPA )

Ford Motor Co. has launched a broad restructuring of its European operations, a move that will shutter plants in England and Belgium, cost  about 6,000 workers their jobs and will incur a $1.5-billion loss for its business in the region this year.

“The challenges facing the European car industry have become more structural than cyclical in nature and require decisive action. The actions we are proposing come after extensive review and consideration,” said Stephen Odell, chief executive of Ford of Europe.

The automaker said its business in the U.S. and elsewhere is strong enough to offset the money it is bleeding in Europe. Excluding one-time items, its third-quarter 2012 pre-tax profit and earnings per share will top this year’s second quarter “despite the substantial loss in Europe,” Ford announced.

Previously, Ford said it expected to lose about $1 billion in Europe this year. Ford will release its full third-quarter financial results on Oct. 30.

The moves are a “solid step toward restructuring” Ford’s European business, said Peter Nesvold, a Jefferies & Co. analyst.

The auto industry has gone into a tailspin in Europe, as the region’s debt crisis has put many national economies into recession and slashed auto sales.

Ford said it is addressing a surplus in factory capacity resulting from a 20% plunge in vehicle demand across Western Europe since 2007.  Auto sales have fallen to a nearly 20-year low in the region this year and are expected to remain flat or continue to dip next year.

Automakers have been reluctant to close plants because of national regulations and union agreements.

“Ford is demonstrating the vision and industrial courage to make tough decisions today that will pay off long-term,” said Adam Jonas, an analyst at Morgan Stanley Research. “The biggest unknown is, can  others follow in Ford's footsteps?” 

Nesvold said he estimates the plant closures and layoffs will generate annualized cost savings of $450 million to $500 million, which “cuts the operating losses in Europe in half.”

They will help the automaker operate more efficiently in the region. Ford now operates its factories there at a 68% to 70% rate. But by reducing its production capacity, Ford’s plants will jump to an 86% to 88% utilization rate, Nesvold said.

A turnover of its model lineup also will stabilize Ford’s position in Europe, he noted.  Ford will be introducing 15 new vehicles over the next five years in the region. A similar product renaissance in the U.S. in recent years has helped Ford increase its profits domestically, he said.

“We are fully committed to transforming our European business by moving decisively to match production to demand, improve revenue through new products and a stronger brand, improve our cost efficiencies and take advantage of opportunities to profitably grow our business,” said Alan Mulally, Ford’s chief executive.

In Thursday morning trading, Ford's shares rose 14 cents, or 1.4%, to $10.31.


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