With the entire industry facing massive losses in Europe, Ford (NYSE:F) has taken the initiative to close plants and make deep, difficult cuts to its work force. At its peak, the European car market was absorbing about 17 million units per year. Now, demand has evaporated as the economy in the region continues to suffer. Car sales have fallen for five years in a row, with September new car registrations down as much as 37 percent year over year in Spain. This year will see about 13 million sales.
Continuously declining sales combined with staggering overcapacity has pushed Ford to once again raise its projected losses in the region, now at $1.5 billion for 2012, from $1 billion previously forecast. On Wednesday, the company confirmed its intention to close a plant in Genk, Belgium — a process that will terminate 4,300 employees, cost an estimated $1.1 billion, and produce an annual savings of $730 million. Production would likely move to Spain, where labor is less expensive.
Catalysts are critical to discovering winning stocks. Check out our newest CHEAT SHEET stock picks now.
According to the Left Lane News, union workers are staging a protest at the plant and blocking the gates so that delivery trucks can’t enter or exit. The factory currently builds components for the Ford Mondeo, and the demonstration is aimed at putting pressure on Ford management in Europe and in the United States. The company is meeting with officials on Friday to discuss, among other things, severance packages.
It’s unclear that union pressure will do much to change Ford’s mind. As part of the company’s turnaround plan in the United States, salaried workforce was cut by 30 percent, and plant capacity was reduced by 25 percent. Ford pushed for — and got — concessions from unions including lower wages for entry-level workers. At best, the company may concede to more lucrative settlements. The Catch-22 is that Ford can’t treat workers well and provide benefits for unions if it is losing money at the terrifying rate of $1.5 billion per year. Cuts must be made in some areas to save the overall market.
Chasing the news out of Belgium, Ford is expected to close two plants in England, generating a loss of about 2,000 jobs. Analysts seem to favor the decisions Ford is making so far. No one is happy, but it is widely recognized that difficult cuts and plant closures must be pursued. The European auto market of the future will be a very different place than it was pre-crisis.
Following suit, General Motors (NYSE:GM), which has been hemorrhaging money from its German-based Opel unit, is taking steps to close a plant in the country. The plant employs about 3,100 people, and could save the company as much as $2 billion. No deal has been reached yet.
As part of its overall strategy to reduce costs, GM is pursuing a parts-buying and logistics agreement with French manufacturer Peugeot. The deal, recently approved by German officials, could save the companies a combined $2 billion through 2015. Peugeot, for its part, was recently the recipient of some $9.1 billion in guaranteed financing from the French government.
These cuts come as, despite ongoing issues from the 2011 earthquake and a territory dispute with China, Japanese automaker Toyota (NYSE:TM) widens its global sales lead over GM. Toyota has sold 7.4 million vehicles compared to GM’s 6.95 million.
Don’t Miss: Europeans Won’t Be Happy With This Apple Update.