Ford Motor Company is reforming itself under CEO Jim Hackett, with plans not only to slash its car lineup in North America and exit the “traditional sedan” segment there, but to enact similar measures in other markets, reallocating capital from underperforming segments to those with a greater opportunity for profit. This is especially crucial in China, where a stale car lineup and a shortage of utility vehicles have hampered growth, but it could also prove beneficial in Europe and South America, where President of Global Operations Joe Hinrichs says Ford is “exploring every option you can imagine.”
South America has lost Ford approximately $4 billion over the last half-decade or so, and while the automaker’s operations in Europe are now generally profitable, that profitability is much more tenuous than in North America.
In the long-term, structural and product changes in these markets could set them up for future success, but the more immediate effects will be negative. In the course of reporting its second-quarter earnings for 2018, Ford revealed that expenditures relating to “reallocating capital… restructuring, and leveraging strategic partnerships” will cost the automaker an estimated $11 billion EBIT (Earnings Before Interest & Tax) over the next three to five years. The cash-related effects are expected to be closer to $7 billion.
“The team is making the hard decisions to raise the returns of underperforming assets where we can via fitness and alternative business models, and we will disposition the rest,” said Ford Chief Financial Officer Bob Shanks in a release. “This type of profound redesign will take time, and we will communicate as decisions are made, such as exiting traditional sedan silhouettes in North America.”
Ford, having already enacted a thorough restructuring in Europe to become profitable there again after years of losses, lost a combined $467 million between Europe and Asia Pacific in the second quarter of 2018. The automaker has revised its earnings-per-share guidance to $1.30-$1.50 per share, down from as high as $1.70 per share.
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