Ford Exec: European Market Will Not Fully Recover for Years
“There are indications that an end of the decline may come in the second half of this year. However, a recovery of the market, we estimate, will take at least five to six years,” the chief executive of Ford of Europe, Stephen Odell, told the German newspaper Frankfurter Allgemeine Zeitung.
In the first quarter, and for the past several years, Ford’s (NYSE:F) operations in recession-plagued Europe have left a dark mark on the company’s results. Yet, Ford has rolled out strong quarterly earnings several times this year, showing that automaker’s turnaround was on strong footing despite posting ongoing losses in the region.
The second quarter’s losses in Europe shrunk from the $404 million recorded in the year-ago quarter to $348 million, contributing to the 19 percent increase in net income the company generated. Now, the European car market is showing the first signs of improvement even though demand across the region fell to its lowest level since 1996 just two months ago.
In July, Ford’s European sales grew more than twice as fast as the overall industry, but Odell said annual sales are estimated to reach just 13.5 million in the 19 Western European nations, well below the 18 million sold in 2007 before the recession hit. This means that demand for new vehicles has stabilized in Western Europe, but it will likely not recover to pre-recession levels in the near future.
Ford is currently in the middle of restructuring its operations in Europe, following the same template that worked in the United States during the economic crisis four years ago: eliminate thousands of jobs, decrease vehicle production, and refresh vehicle lineups. In October of last year, Ford announced it would close three plants, a move that cut its continental production capacity by 20 percent and cut 6,200 jobs in Europe.
The company then introduced the B-Max subcompact wagon, the Kuga compact SUV, and the Ranger small pickup, which helped the Dearborn, Michigan-based automaker to increase its market share by 0.3 percentage points to 8.3 percent. It was the second consecutive month of gains and the highest May share recorded since 2009, according to Ford’s figures.
According to Odell, the automaker will not implement any additional restructuring measures, but Ford will “continue to keep production in balance with demand,” he added.
Increases in market share continued in June and July. “Ford of Europe outperformed the industry in June as new products and commercial vehicles helped improve sales in a down market and significantly increase market share,” while “Ford’s European sales in July grew more than twice as fast as the overall industry, driven by strong demand for new models such as the Fiesta, Kuga, B-MAX and Transit Custom.” Sales jumped 8.7 percent to 90,000 vehicles in the 19 traditional European markets during the month of July.
“It was welcome news to see overall vehicle sales improved compared with a year ago, and we are especially pleased that Ford’s sales rose faster than the industry,” Roelant de Waard, vice president of Marketing, Sales and Service for Ford of Europe, said in a July press release. “We are seeing signs of stabilisation in the market, but it is too early to say a recovery is underway given the continuing economic uncertainty.” But, as she told Bloomberg in a phone interview earlier this month, the worst is over.
The improvements in the European auto market coincided with the emergence of signs indicating that the recession in the 17 countries using the euro is coming to an end. Gross domestic product in the euro area edged up 0.3 percent in the three months through June, punctuating six consecutive quarters of contractions.
However, GDP expansion is only one piece of the economic story; any economic recovery must be accompanied by a recovery in hiring. Unemployment in the euro area remains at its record high of 12.1 percent.
“The connection between economic performance, fiscal deficit, and the car market is stronger than it’s ever been,” Allan Rushforth, chief operating officer of Hyundai’s European business, told Bloomberg. “Europe is a very mixed picture at the moment and it will remain so for some time to come.”
Odell said Ford has estimated it will lose $1.8 billion in Europe this year, down from the $2-billion loss forecast earlier in the year. “We will probably start to see signs of minor recovery in the first part of 2014,” Odell concluded, according to The Wall Street Journal.
General Motors (NYSE:GM), which is on pace to lose $1 billion in Europe this year, closed its Opel plant in Belgium in 2010 and may close another plant in Germany in 2014.
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