Tough Times for Ford in Europe
Oct 19th 2012 8:29PM
Updated Oct 19th 2012 8:34PM
Ford's (NYS: F) rough ride in Europe isn't over. The automaker's European sales fell another 15% in September, putting Ford down 15% for the year through September.
The Blue Oval's PR team tried to put the best spin on it they could, with a press release titled, "Ford Sales Stabilized in Continuing Difficult European Market." And Ford does have some small victories to talk about: its Fiesta is selling quite well, all things considered. But, the truth is, Ford is having a hard time keeping its sales going in the Old World.
There's some small comfort for Ford shareholders, though: Ford's far from alone in having big trouble in Europe.
A rough ride for nearly everybody
Through September, new-car registrations in Europe were down 7.2% versus year-ago totals. Ford's sales drop has been somewhat worse but, to some extent that reflects a business decision. Ford has, to its credit, refused to join in the deep-discounting war that is helping to prop up sales for some key rivals, preferring to preserve profit margins on the cars it does sell.
Those discounts are hitting some rivals hard. Volkswagen (OTC: VLKAY) has had tremendous results in China and North America this year, but European-market woes are expected to cut its third-quarter profits by 21% over year-ago totals, according to a Bloomberg survey of analysts. Volkswagen's European sales were down 8.4% in September; the company will report its third-quarter earnings on October 24.
Other rivals are being hit even worse. French automaker Renault, a partner of Nissan (OTC: NSANY), saw sales fall 29% in September. Fiat (OTC: FIATY) sales were down almost 20%, despite heavy discounting. Its European losses are likely to be hefty; the automaker is essentially being carried by Chrysler's strong U.S. sales at the moment.
General Motors (NYS: GM) isn't doing any better. Sales at its Opel subsidiary were down 16% in September. The good news for GM is that it may be moving closer to getting Opel's brutal losses ($361 million last quarter alone) off of its balance sheet, as reports have suggested that the subsidiary could be sold into a new joint venture with France's PSA Peugeot Citroen.
The bad news is that the structural problems that plague Opel - and Ford, and all of their rivals - are unlikely to get fixed any time soon.
Intractable problems with no solutions in sight
Many European countries are in deep recession, and government austerity measures imposed in the wake of the global economic crisis aren't helping. That has driven new-car sales to low levels not seen in many years, and nearly all automakers doing business in the region have been affected.
But the problem is really a structural one, not simply a temporary result of a tough economic cycle. Like the U.S. automakers before the great shakeout of the last few years, Europe's automakers collectively have too many factories, too-rich labor deals, and too much infrastructure to be sustainably profitable in the European market as it exists today.
It has become clear in recent months that solving the problem is going to take a lot of time and involve a lot of wrangling. Labor-friendly governments in countries like France and Germany are loath to sign off on factory closings of any kind in tough economic times. All hope to pass the pain on to somebody else. But factories have to close to return any sort of sustainable profitability to the industry.
General Motors' experience is illustrative. Late last year, when Opel's problems swung to the top of CEO Dan Akerson's to-do list, the widespread consensus was that GM would have to close a couple of Opel's factories, at minimum. GM's leaders in the region made an earnest effort to negotiate a solution with Opel's powerful unions and the German government, but the result was a vague plan to, maybe, close a factory several years from now.
Akerson's frustration with that plan led him to oust his well-regarded Europe chief, Karl-Friedrich Stracke. Meanwhile, Ford has hinted that plant closings are possible - but its near-term plan is to expand its product line, hoping to gain sales ground with vehicles like the Explorer and Mustang, which will be new to Europe.
The upshot: Something's got to give
How will this play out? It may be that one (or more) of the regional automakers will need to go bust in order to reduce overall production capacity to a sustainable level. That won't be Ford, and it won't be Volkswagen - but most of the smaller players (including Opel) are vulnerable to some extent. Stay tuned.
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The article Tough Times for Ford in Europe originally appeared on Fool.com.Fool contributor John Rosevear owns shares of General Motors and Ford. Follow him on Twitter at @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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