mackinaw Posted March 1, 2012 Share Posted March 1, 2012 From Bloomberg: "Lewis Booth, retiring April 1 as Ford Motor Co. (F)’s chief financial officer, said the automaker may lose $500 million to $600 million this year in Europe where the financial crisis is exacerbating industrywide overcapacity. "Ford’s pretax loss in Europe in the first quarter may exceed the $190 million the company lost there in the final three months of 2011, Booth told reporters yesterday in an exit interview at Ford’s Dearborn, Michigan, headquarters. Ford still expects companywide 2012 pretax operating profit to equal last year’s $8.8 billion, Booth said. “We’re going to have a tougher time in Europe than perhaps we anticipated at the beginning of the year,” Booth said. “We think Europe’s much more likely now to be at the bottom end of the scale we talked about, in the range of 14 million” auto sales. “We’ll continue to work on actions to improve profitability in Europe because we don’t want to continue to lose money,” Booth said. Ford will reduce the rate of European losses with new models coming this year and by “continuing to work on our cost base,” he said." Full article here: http://www.bloomberg.com/news/2012-02-29/ford-retiring-cfo-booth-says-loss-in-europe-may-top-500-million.html Quote Link to comment Share on other sites More sharing options...
Edstock Posted March 1, 2012 Share Posted March 1, 2012 B-Max couldn't have arrived at a better time; it offers something totally new in one of the hottest EU segments. Quote Link to comment Share on other sites More sharing options...
7Mary3 Posted March 1, 2012 Share Posted March 1, 2012 I have to wonder if Ford has an exit strategy prepared for Europe if things to not improve. I certainly don't think Ford's products are the issue, I think it is the business climate. And the financial crisis there appears to be getting worse. GM's pending deal with PSA has a lot of people scratching their heads. There does not seem to be any reason as to why GM feels the need to form an alliance with PSA. Is GM looking for a 'safe' partner to spin Opel off too? I am hearing rumors that there is a lot more to this deal than meets the eye. Some say watch what GM is doing in Switzerland (not part of the EU). I guess time will tell......... Quote Link to comment Share on other sites More sharing options...
Noah Harbinger Posted March 1, 2012 Share Posted March 1, 2012 I have to wonder if Ford has an exit strategy prepared for Europe if things to not improve. I certainly don't think Ford's products are the issue, I think it is the business climate. And the financial crisis there appears to be getting worse. What do you mean by 'exit strategy'? The term practically implies you think there's some benefit to completely ending operations in Europe? Quote Link to comment Share on other sites More sharing options...
ausrutherford Posted March 1, 2012 Share Posted March 1, 2012 Leaving Europe is not even a question even if you lose money. You do not abandon a good 1/6 of the world sales. Also remember that just cause Europe operations are not making money, does not mean vehicle lines that are also produced there do not for it. Im willing to bet that the Mondeo/Fusion would make more money in Europe+NA than just NA due to the amount of volume placed can get transferred around the company as a whole. In Ford NA had to develop every car worldwide, it would not be profitable either. 1 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 1, 2012 Share Posted March 1, 2012 (edited) Leaving Europe is not even a question even if you lose money. In Ford NA had to develop every car worldwide - if you can't turn a profit in a market, you leave it. - Product development costs are amortized across volume. Put another way: FoE doesn't pay all of the 'first unit costs' for the Focus, Fiesta, etc. Put still another way, the cost of developing products are spread out per product around the world. In corporate accounting terms: Ford's PD unit bills each business unit (Ford Americas, Ford Europe, APA, etc.) a certain amount per vehicle. If the cost to engineer the Focus is calculated at $1500 per Focus, then the cost per business unit is $1500 x units sold. ---- The reason why Europe is running at a loss is, as Lewis Booth clearly states, the mammoth capacity problem there. Ford PD spreads costs of development around the globe, but Ford manufacturing can't do that. The higher cost of EU manufacturing is borne by EU product, and not NA product, etc. Ford PD may charge FNA $1500 per Focus and FoE $1500 per Focus, but Ford manufacturing may charge FNA only $2000 per Focus, while FoE is billed $3000 per Focus due to lower capacity usage/higher labor costs/whatever. The EU market is in dire need of rationalization, and as he points out, the GM/PSA JV does nothing to address the underlying problem: There is a lot of capacity that needs to be mothballed. Edited March 1, 2012 by RichardJensen 2 Quote Link to comment Share on other sites More sharing options...
7Mary3 Posted March 1, 2012 Share Posted March 1, 2012 .............The EU market is in dire need of rationalization, and as he points out, the GM/PSA JV does nothing to address the underlying problem: There is a lot of capacity that needs to be mothballed. Bingo. And with the way the labor unions and pro-labor goverments are in the EU, how do you go about rationalizing that overcapacity? Go out of business or just walk away. GM wanted to sell Opel in 2009, but was concerned that it would put their intellectual property at risk, among other issues. An alliance with PSA might be a safe way out. PSA is in dire shape, and they compete almost exclusively in the EU. What does GM get out of this? Some nice diesel engine patents? A van? Or a parachute. As for Ford, what are they facing in the EU? What would it take to return to profitability? The wise executive always has a contingency. Greece now, Italy and Spain are up next. Where's the bottom? Quote Link to comment Share on other sites More sharing options...
jpd80 Posted March 1, 2012 Share Posted March 1, 2012 The EU market is in dire need of rationalization, and as he points out, the GM/PSA JV does nothing to address the underlying problem: There is a lot of capacity that needs to be mothballed. A problem made worse by European states subsidizing manufacturers and encouraging them to stay, It's a similar situation as Australia where our government removes import tariffs but supports local manufacturing with subsidies As an example, if a product cycle costs $800 million, Ford/GM puts up $600 million and the government puts up $200 million. Quote Link to comment Share on other sites More sharing options...
Biker16 Posted March 1, 2012 Share Posted March 1, 2012 I have to wonder if Ford has an exit strategy prepared for Europe if things to not improve. I certainly don't think Ford's products are the issue, I think it is the business climate. And the financial crisis there appears to be getting worse. It called a recession, It is a economic downturn, and Europe is the most competitive market in the World. not having premium high margin models to balance the high volume low margin models that are he mainstay of the EU hurt non premium brands like ford PSA, GM, renault, etc. I don't think drastic measures like mass plant closures are needed for FOE, but I do think marginal players should leave the market. I don't not feel ford is a marginal player in this market, they will contiue to grow maket share but the over capacity places a downward pressure on prices, that no maker can avoid. that said the option of shuttering the C/D plant in Belgium, may rise to the surface again, and building the Mondeo, S-max or galaxy, alongside the focus in Germany, and importing some vehicles from North America to the EU. the fragmented nature of the EU and it sluggish reaction to the debt crisis is a long term issue. the imdiate solution to a traditional debt crisis is to deflate the currentcy using the central bank, this increases the cost of imports and decreases the costs of exports, generally a good thing for a country with a struggling economy. but the fragmentation of the EU meant that Germany which was growing, was being held back by weaker EU members, hesitated to act faster to prevent the crisis, simply put in order for the Euro to survive each country must combine their debt, this mean higher borrowing costs for stronger countries, but much lower borrowing costs for everyone else. I would not put it past the ECB to take steps to devalue the Euro as a general stimulus to the Euro Zone, the worse their recession gets the more likely this will become. 1 Quote Link to comment Share on other sites More sharing options...
ausrutherford Posted March 1, 2012 Share Posted March 1, 2012 - if you can't turn a profit in a market, you leave it. - Product development costs are amortized across volume. Put another way: FoE doesn't pay all of the 'first unit costs' for the Focus, Fiesta, etc. Put still another way, the cost of developing products are spread out per product around the world. In corporate accounting terms: Ford's PD unit bills each business unit (Ford Americas, Ford Europe, APA, etc.) a certain amount per vehicle. If the cost to engineer the Focus is calculated at $1500 per Focus, then the cost per business unit is $1500 x units sold. ---- The reason why Europe is running at a loss is, as Lewis Booth clearly states, the mammoth capacity problem there. Ford PD spreads costs of development around the globe, but Ford manufacturing can't do that. The higher cost of EU manufacturing is borne by EU product, and not NA product, etc. Ford PD may charge FNA $1500 per Focus and FoE $1500 per Focus, but Ford manufacturing may charge FNA only $2000 per Focus, while FoE is billed $3000 per Focus due to lower capacity usage/higher labor costs/whatever. The EU market is in dire need of rationalization, and as he points out, the GM/PSA JV does nothing to address the underlying problem: There is a lot of capacity that needs to be mothballed. You can not leave Europe. By this logic, Ford should have left the NA market 5 years ago. Also remember that Booth is saying the loss of $600 million this year is due in large part to the start of the musical chairs(cars) that Ford is going through. Kuga going from Spain to Germany TC from Turkey to Spain (only the new model) They will get their capacity issues cleaned up especially by robbing Vauxhall/Opel sales in the UK and Germany. They were down around 20% in both markets in january while Ford was steady. There is also the matter of having Romania start full scale production this year. They also have two plants in Russia (with Sollers) to start operations this year to build the Transit and Explorer (among others). Then you have the new product costs...B-max, Fiesta facelift, B-Max, maybe EcoSport (or next year), new Transit line, Kuga, and Mondeo (launches early next year). All of this takes lots of cash. Im actually surprised they won't lose MORE money with all the work (and money) FoE has to do this year. 1 Quote Link to comment Share on other sites More sharing options...
mackinaw Posted March 1, 2012 Author Share Posted March 1, 2012 No doubt overcapacity on Europe is the main problem. Ford is actually doing very good here, their plants are operating at about 93% capacity. Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 1, 2012 Share Posted March 1, 2012 Europe is the most competitive market in the World. they will contiue to grow maket share but the over capacity places a downward pressure on prices, that no maker can avoid. I would not put it past the ECB to take steps to devalue the Euro The first statement is false. The second statement is derived from a false premise. The third statement requires a remarkable degree of incredulity. 1 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 1, 2012 Share Posted March 1, 2012 By this logic, Ford should have left the NA market 5 years ago. Also remember that Booth is saying the loss of $600 million this year is due in large part to the start of the musical chairs(cars) that Ford is going through. They will get their capacity issues cleaned up especially by robbing Vauxhall/Opel sales in the UK and Germany. - There's a difference between being unable to turn a profit and failing to turn a profit. - Citation needed - The overall EU market is down significantly, and the Eurozone is facing stronger macroeconomic headwinds than the US, and is experiencing lower population growth. The EU market is probably going to retrench just as the US market retrenched, and thus capacity needs to be reset. Assuming that you won't need to close plants because you'll take market share is what GM did. And it's why GM is where it is while Ford is where it is. 2 Quote Link to comment Share on other sites More sharing options...
Harley Lover Posted March 1, 2012 Share Posted March 1, 2012 (edited) Assuming that you won't need to close plants because you'll take market share is what GM did. And it's why GM is where it is while Ford is where it is. It appears to me that Ford's game plan (per Booth) is to raise transaction prices (and profit per vehicle) on their products as they introduce new products and add features, while continuing to improve their cost structure. Their capacity utilization appears to be sound, so there is less to be gained with eliminating capacity. They (not so) simply need to get more revenue per unit, while reducing cost per unit as much as they can. I think Ford's goal is to imitate VW's approach on the continent, and they are introducing the types of product that can help them improve their pricing over time. Edited March 1, 2012 by Harley Lover 1 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 1, 2012 Share Posted March 1, 2012 'improve cost structure' is inseparable from capacity actions and/or wage concessions. 1 Quote Link to comment Share on other sites More sharing options...
Biker16 Posted March 1, 2012 Share Posted March 1, 2012 (edited) <br>The first statement is false. The second statement is derived from a false premise. The third statement requires a remarkable degree of incredulity.<br><br><br>Which market would you say closest represent the Economic definition of prefect competition, Europe or the US. you could add china too. <br><br>growing market share in a weak market, means hat your competition is suffering more than you are, you are not expanding but they are contracting. <br><br>Where is the money the ECB is using to buy Sovereign debt coming from?..... thin Air. the ECB is in fact printing more Euros to buy Debt from member countries, which is in fact deflating the currency. <br> Edited March 2, 2012 by Biker16 1 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 1, 2012 Share Posted March 1, 2012 - Based on market volatility, the US is far more competitive. - Ford has not gained market share over the past five years. - The ECB still expects to be made whole on Greek debt it purchased at a discount. Such a position is essentially contractionary, as they bought the debt at a discount. 1 Quote Link to comment Share on other sites More sharing options...
DC Car Examiner Posted March 2, 2012 Share Posted March 2, 2012 How does a global company selling the same products worldwide determine whether the European division is profitable? Are there operating losses somehow, or is Ford Europe just footing the product development bill for cars sold elsewhere? Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 2, 2012 Share Posted March 2, 2012 (edited) How does a global company selling the same products worldwide determine whether the European division is profitable? Are there operating losses somehow, or is Ford Europe just footing the product development bill for cars sold elsewhere? See comments above. How it works under the current structure is that Ford has several internal business units that function as businesses, but their only customers are other Ford business units. For instance, when a Ford business unit needs new computers they are 'bought' from Ford's IT department. This same concept is now (post Mulally) applied to vehicle engineering and manufacturing. Some certain amount of money is allocated for the development of a new platform. Sales projections are made, and a certain amount is calculated per vehicle over the life of the product. This amount is debited from the business unit that sells the vehicle and credited to the Product Development business unit. In this way every business unit has revenue and expenses, and its own set of books. Now, as I noted earlier, it is quite likely that Ford's manufacturing unit bills the regional sales organizations (e.g. Ford of Europe) at different rates, as based on the cost of assembly, thus Ford's manufacturing unit would bill the "Americas" business unit less for a Focus built in NA than Ford's manufacturing unit would bill Ford of Europe for a Focus built in Europe. Note that if Ford were to import European built vehicles for sale in the US, the organization that would be paid would be Ford's manufacturing unit, not Ford's European sales organization. Also note that regardless of where a vehicle is engineered, the costs are assigned on a prorated basis to the business units where the vehicle is sold. Therefore, the Fusion could be engineered in Dearborn, Cologne, or East Overshoe, Indiana, and the costs would be assigned based on sales volume, not the business unit corresponding to the physical location where the vehicle was engineered. --- Now how does this turn into profit and loss for the whole company? The profit and/or loss of the internal business units (e.g. manufacturing), would be assigned to the sales organizations on the basis of ownership, exactly as though the internal business units were coops or partnerships owned by the sales organizations. I don't know how those fictitious ownership stakes are calculated, but presumably they would not depart widely from the percentage of revenue that each internal business unit derives from the outside sales organization. For instance, if 45% of all product development 'revenue' comes from Ford-Americas, then 45% of any profit or loss from the product development business would be credited/debited from Ford-Americas, if the business unit is run like a coop. And this would form part of the regional breakdown in the quarterly report. I don't know to what extent GAAP governs this sort of accounting, though. Edited March 2, 2012 by RichardJensen 4 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 2, 2012 Share Posted March 2, 2012 (edited) Thx for the neg rep, neg rep dude. I can just see you, hunched over your computer in the dark of your mom's basement, desperately wishing that you could vote me down more than one point per post. Edited March 2, 2012 by RichardJensen 3 Quote Link to comment Share on other sites More sharing options...
Noah Harbinger Posted March 2, 2012 Share Posted March 2, 2012 Thx for the neg rep, neg rep dude. I can just see you, hunched over your computer in the dark of your mom's basement, desperately wishing that you could vote me down more than one point per post. I think neg rep dude is secretly for you. Quote Link to comment Share on other sites More sharing options...
jpd80 Posted March 2, 2012 Share Posted March 2, 2012 (edited) Negatards must never carry the day. At least two of us here turned that neg into a positive.... RJ, I liked your post and agreed with everything you said Edited March 2, 2012 by jpd80 1 Quote Link to comment Share on other sites More sharing options...
Noah Harbinger Posted March 2, 2012 Share Posted March 2, 2012 (edited) I don't agree with EVERYTHING, but I generally don't think you should downvote on differences of opinion - just for forum sins like stating incorrect information, stating opinion as fact, bringing hobbyhorses into unrelated threads, and trolling. #19 was massively informative and deserves a dozen upvotes #13, I wanted to cancel out the negative vote, but my finger slipped - the buttons are too close to each other! Edited March 2, 2012 by Noah Harbinger 1 Quote Link to comment Share on other sites More sharing options...
RichardJensen Posted March 2, 2012 Share Posted March 2, 2012 #19 was massively informative and deserves a dozen upvotes really? Aw shucks, it was nothin' BTW: A good rule of thumb is that anyone with 'executive' or 'group' in his/her job title is in charge of a business unit. For instance, Derrick Kuzak is the outgoing "Group vice president, global product development" while Mark Fields is "Executive vice president, Ford Motor Company; president, the Americas" Quote Link to comment Share on other sites More sharing options...
jpd80 Posted March 2, 2012 Share Posted March 2, 2012 really? Aw shucks, it was nothin' BTW: A good rule of thumb is that anyone with 'executive' or 'group' in his/her job title is in charge of a business unit. For instance, Derrick Kuzak is the outgoing "Group vice president, global product development" while Mark Fields is "Executive vice president, Ford Motor Company; president, the Americas" Just on the break up of PD costs versus production costs and return to home room manufacturing center, a lot of the income streaming would also be tempered with local taxation and any funding support avaolable so the web of intrigue and "price transferring" actually can be legal or at least justified under certain accounting procedure. Gosh what a minefield. no wonder Ford has a lot of people across engineering, local regulations and PR.. 1 Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.