More than a cause for celebration, Ford’s recent business turnaround in Europe was validation for the years of work the Blue Oval’s European division did to restructure in the market, overhauling its product lineup and paring down its workforce to cut costs and boost revenue. The first indication that the plan had worked came in 2015, when Ford Europe brought home $259 million in pretax profits after years of heavy losses, and the following year, the division took in $1.2 billion before taxes, despite the UK’s “Brexit” vote.
Yet trouble was on the horizon for Ford’s European arm, which earned just $234 before taxes in 2017. According to Automotive News, Ford has cited four main contributors: the rising cost of steel, the expense of launching an all-new Fiesta subcompact, warranty costs, and the decline in the value of the British pound in the Brexit vote’s wake, which by itself was responsible for a claimed $600 million in losses.
For the most part, these same challenges are expected to take a toll this year, too. Prices for “most key metals” are expected to rise again this year, Ford says, and the automaker will face “continued headwinds” from the pound’s lower value – although the currency is recovering. What’s more, a new Focus compact car will launch soon, making for another round of big expenditures. And down the road, should the UK follow through on splitting from the EU’s Customs Union, that could mean increased costs in the form of tariffs.
While the UK no longer produces automobiles for Ford Europe, it does supply engines to many assembly plants on the continent.
Despite all this, Ford is “committed, and we plan to stay,” Ford Europe President Steven Armstrong told Automotive News. He expects profits to be stronger this year than last, while the automaker continues cutting costs in the market, simultaneously boosting revenue by revamping its crossover/SUV offerings – an area in which its lagged behind rivals due to the subpar sales performance of the subcompact EcoSport.
SUVs and crossovers, on average, account for 28 percent of rival automakers’ total sales, says Automotive News; at Ford Europe, they account for 22 percent. Ford President of Global Markets Jim Farley says they want to grow that to 31 percent over the next “few years.”
If Ford’s efforts work, bolstering the automaker’s European-market margins to its targeted 6-to-8-percent, the company will have succeeded at turning one of its biggest cash losers into a viable enterprise with plenty of value. If not, the automaker could find itself following in the footsteps of its rival, General Motors, pulling out of the market altogether.