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Ford Warns the Worst is Yet to Come in Europe

Jan. 30, 2013
"It is possible to restructure the industry in Europe, but it will probably need fewer employees because there is excess capacity there," Ford chief financial officer Bob Shanks said. "The harder things are just beginning."

NEW YORK -- The worst is yet to come for Europe's troubled automotive industry, Ford chief financial officer Bob Shanks warned in an interview Tuesday.

"We need to have a better balance of production with true demand not artificial demand," Shanks told AFP. "But there seems to be unwillingness or inability on the part of many of the players -- both government and companies -- to do what it takes to create a healthy environment for the industry."

Shanks was speaking after Ford released 2012 results which were badly hit by a $1.8 billion loss in its European unit and warned that it will lose another $2 billion this year as demand for vehicles continues to fall, the euro strengthens against the dollar and Ford faces heavy restructuring costs.

Ford forecasts that European vehicle sales will fall to the "lower end" of 13 to 14 million vehicles this year from 14 million last year.

Unlike Fiat-Chrysler chief Sergio Marchionne, who spoke alarmingly at the Detroit auto show that "the machine is broken" in Europe, Shanks believes there is still hope.

"It is possible to restructure the industry in Europe, but it will probably need fewer employees because there is excess capacity there," he said in a telephone interview. "The harder things are just beginning."

Ford announced plans in October to close two plants in Britain and one in Belgium as part of a massive shake-up that includes the loss of 13% of the U.S. automaker's European workers, some 6,200 jobs.

"A fundamental restructuring is something that takes a while to take to fruition," Shanks said. "We just opened the door and we have a lot of work ahead of us."

Unfortunately, some carmakers are still trying to get back in the black without taking the necessary actions to restructure their bloated cost structures, he said.

The problem is that cutting prices to lure buyers away from competitors hurts the entire industry.

"There is tremendous pressure on prices and margins," Shanks said. "The question is how low can you be?"

Ford does not expect to be able to achieve the same types of profit margins in Europe as it is currently posting in North America even once the restructuring its complete, he added.

The automaker's once-troubled North American unit was once again a bright spot with record profits of $8.3 billion in 2012, a $2 billion improvement over 2011. The unit's operating margin for the year rose two points to 10.4 percent.

Ford's net profit fell sharply to 5.7 billion in 2012 from $20.2 billion posted a year earlier as a result of special items, accounting changes and the European losses.

Veronique Dupont, AFP

Copyright Agence France-Presse, 2013

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