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Ford Will Close Six European Plants as Part of Global Downsizing

June 28, 2019
The cutbacks are a key part of Chief Executive Officer Jim Hackett’s $11 billion restructuring.

Ford Motor Co. will eliminate about 20% of its workforce across Europe and close six factories in a sweeping overhaul aimed at reviving the money-losing region as the company also moves to prepare for the future of electric and self-driving cars.

The restructuring, which has been announced piecemeal, will involve reducing its manufacturing footprint in Europe to 18 facilities by the end of 2020 from 24 at the beginning of this year. Germany, the U.K. and Russia will be hardest hit by the cuts, which total about 12,000 regular staff as well as workers employed at joint ventures, Ford said Thursday.

“Separating employees and closing plants are the hardest decisions we make,” Stuart Rowley, Ford’s president of Europe, said in a statement. “We are moving forward and focused on building a long-term sustainable future.”

The cutbacks are a key part of Chief Executive Officer Jim Hackett’s $11 billion restructuring, which also includes 7,000 salaried job cuts worldwide. Hackett, 64, is trying to boost Ford’s bottom line by exiting the slow-selling sedan market in the U.S. to focus on high-profit sport-utility vehicles and trucks. In Europe, where Ford is the top selling brand in the U.K., the automaker also is backing away from the traditional passenger-car business to focus on commercial vans and trucks.

“We have a winning hand in Europe and it’s called commercial vehicles,” then-Chief Financial Officer Bob Shanks said at a May 15 Goldman Sachs conference in New York. “We’ll have a smaller portfolio of passenger vehicles.”

Ford is cutting costs as it pours billions into electric and self-driving cars that are seen as the future of the auto industry. The company is close to sealing a deal with Volkswagen AG to join forces to develop these vehicles.

Falling Sales

In Europe, Ford has struggled for years in the crowded and mature market. Given its strength in the U.K., the automaker has been particularly hard hit by falling car sales there as a result of uncertainty surrounding the country’s exit from the European Union. Underscoring the industry’s woes, the European automakers’ lobby group on Thursday lowered its forecast for the region, predicting that deliveries will likely fall 1% this year. That compares with a previous prediction of 1% growth. Ford’s European sales through May dropped 8.3%, according to data from the ACEA industry group.

Ford’s German-traded shares rose 2.6% at 10:11 a.m. in New York. The American company’s stock is down 11% in the past 12 months.

Ford announced in January a major revamp for Europe but didn’t specify at the time the full extent of the job cuts. As part of the changes, six plants will be closed or sold by the end of next year, including the Bridgend engine factory in South Wales, a transmission plant in France and an assembly site in Russia.

Ford said its European operations are “on track” for significant improvement this year. Over the long term, the company is pushing to lift the division’s profit margin to 6% from 0.7% in the first quarter. Ford lost $398 million in Europe last year, before interest and taxes.

Abandoned Goal

CEO Hackett kicked off the companywide $11 billion restructuring in 2018 and has struggled to turn around the 116-year-old automaker. Ford abandoned a goal to reach an 8% global profit margin by 2020.

“Even with these measures, it’s very hard to see Ford returning anywhere close to 6%-8% margins in Europe,” said Arndt Ellinghorst, a London-based analyst at Evercore ISI.

The company’s woes aren’t limited to Europe. At its annual shareholder meeting in May, investors voiced their grievances over falling market share, the speed at which the company is cutting costs and the long way the stock still has to go to recoup steep losses in the last few years.

The challenges are forcing automakers to consider partnerships that once would have been unthinkable, such as the tie-up with Volkswagen that would expand an alliance struck in January to jointly develop commercial vehicles.

In addition to grappling with sluggish demand, carmakers are scrambling to meet stiffer environmental regulations starting in 2020. Based on its 2018 carbon-dioxide emissions, Ford faces a potential penalty of around 2.56 billion euros ($2.91 billion), according to researcher Jato Dynamics.

Consultant AlixPartners predicted the automotive industry will need to invest more than 245 billion euros globally in the next five years to comply with the tougher guidelines, even as worldwide demand stagnates or shrinks.

Ford said Thursday that all its European model lines will include an electrified option, and a future family of battery-powered vehicles will be assembled in Europe. The Dearborn, Michigan-based carmaker will add at least three new nameplates to its lineup in the next five years and may pare more slow-selling or gas-guzzling variants.

“Where a product line either does not contribute to our cash flow or is adverse to our CO2 compliance, we will consider actions,” Rowley said in an interview.

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