Ford plans 'significant' job cuts in Europe, expects Volkswagen ties




 

Ford said early Thursday it will cut hourly and salaried jobs in Europe as part of a "comprehensive transformation strategy to strengthen its brand and create a sustainably profitable business in Europe."

It did not say how many jobs it would cut, noting that talks with unions are just starting. The automaker has lost nearly a billion dollars in Europe in the last five years, and the long-expected cuts are part of a global "fitness" plan.

"I'm not going to get into specific numbers today," Steve Armstrong, group vice president and president, Europe, Middle East and Africa, said in a call with reporters. "You'll see reductions across the workforce. It's a European-wide review, not a country-specific process."

He noted that Ford employs 50,000 people across Europe. Cuts will be a "significant number of positions." He did not discount "thousands" when asked during the conference call.

"Ford of Europe has never really been sustainably profitable," he said, noting that the unit will show another loss for 2018. "As we look to the future of the business globally, (CEO) Jim Hackett and (CFO) Bob Shanks have been very clear: We can only afford to allocate capital to places where we can get a return on that invested capital."

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The company outlined plans for new all-electric vehicles and hybrids, and said it would leverage relationships, "including a potential alliance with Volkswagen AG, to support commercial vehicle growth."

"We are taking decisive action to transform the Ford business in Europe," Armstrong said in a statement.

"Ford is starting consultations with its union partners and other key stakeholders," the release said. "Ford is accelerating key fitness actions and reducing structural costs. In parallel, the fundamental redesign will include changes to Ford's vehicle portfolio, expanding offerings and volumes in its most profitable growth vehicle segments, while improving or exiting less profitable vehicle lines and markets."

Industry observers have long called for action by Ford in Europe, while also noting it is more difficult there than in the United States to negotiate job cuts.

"Ford Europe has been in desperate need of restructuring for at least a decade. It lost a billion dollars over the last five years, and after losing considerable market share between 2008 and 2013 it has been unable to gain any of it back since then," Jon Gabrielsen, a market economist who pulls data from SEC filings, said Thursday. "The announcement today may not even be enough to turn it around independently, but may instead be preparing the way for partnerships with Volkswagen that we hope to learn more about next Tuesday."

Talks with Volkswagen

The latest developments tie into why Ford is having wide-ranging talks with Volkswagen. Executives from each have indicated a collaboration could save the companies billions in research and development costs and aid each in the development of driverless and electric vehicles.

VW and Ford are already working with BMW and Daimler to develop a rapid electric vehicle charging network across Europe. Emissions standards continue to increase worldwide, with the major markets of China and California driving significant growth.

'Reduction of surplus labor'

Ford said its cuts will include job cuts as "reduction of surplus labor across all functions - salaried and hourly. An improvement in management structure, announced in December, already is underway through Ford's redesign of its global salaried workforce, that will improve the agility of the organization."

The company said it will seek "voluntary separations from employees" as it works toward its goal of 6 percent earnings before interest and taxes for Ford of Europe.

Ford noted it is Europe's No. 1 commercial vehicle brand in terms of sales volume, and more than one in four Ford vehicles sold today in Europe is a commercial vehicle.

Additional actions to increase efficiency already underway include:

Struggles in Europe

Ford rival General Motors has already pulled out of Europe.

Bob Shanks, Ford chief financial officer, has been reporting big losses in Europe, Asia and South America. He told financial analysts after quarterly meetings in 2018, "Clearly our European business requires a major redesign."

But industry analysts have been asking why change has taken so long.

For months, economist Gabrielsen has called Europe "unsalvageable."

In October 2018, Shanks and Hackett told investors Ford must be fundamentally redesigned. They promised to announce details as things unfold. While the company is highly profitable in North America, it generally loses money everywhere else in the world. Through the first nine months of 2018, it had shown only a small profit in the Middle East outside of North America.

Gabrielsen said, "In Europe, Ford has lost $973 million in the last five years - indicating that, no matter what they have tried, they failed to turn it around despite being at the peak of the cycle. Things will get far worse in the next downturn."

This week, investors looked favorably at Ford's decision to make big change.

"Ford has to take action as losses in Europe continue to mount," said David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc, Michigan, investment adviser who manages $2.5 billion in assets for clients that include a lot of Ford employees.

He said job cuts in Europe may be the result of Ford's discussions with Volkswagen, which have been going on for months.

"Both sides have made it clear the partnership's goal is to streamline operations and cut costs, though a collaboration on electric commercial vehicles in the region makes sense too," Kudla said. "VW has region and electric expertise and Ford has had great success with its small commercial van."

Ford Europe was expected to take the brunt of the company's $11 billion three- to five-year global restructuring announcement in July, he said. "Details of this may finally be rolling out from a company that has been criticized for being closed door for some time."

Changes for Ford in Europe aren't without challenge, Gabrielsen said.

Follow Detroit Free Press reporter Phoebe Wall Howard on Twitter @phoebesaid.

This article originally appeared on Detroit Free Press: Ford plans 'significant' job cuts in Europe, expects Volkswagen ties

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