By Covering Business March 11, 2012
By Nish Amarnath
Columbia Journalism School C’12
In the wake of the financial crisis, Ford Motor’s presence in Europe helped keep the company afloat. Today, it’s a liability.
Ford reported a rise in profits for the fourth quarter and fiscal 2011, but the company lost money in Europe, where precarious economic conditions and concerns over coming austerity programs weighed on demand.
As the U.S. recovery has accelerated, Ford has relied on its surging North American business to buoy its results. Ford reported 2011 pre-tax operating profits of $6.2 billion at its North American unit and $0.9 billion at its South American unit, the company’s only profitable divisions. In Europe, Ford lost $27 million last year.
Now, with more austerity on the horizon, Ford and its investors should expect more of the same until European demand returns or Ford can scale back some of its overseas operations.
Ford has a great deal riding on Europe. Outside of the Americas, it is gaining little traction with the rest of the world. The company reported its Asia and Africa unit lost of $92 million in 2011, citing “unfavorable volume” and the flooding in Thailand.
As recently as 2008, Europe was Ford’s saving grace. That year, the U.S. credit crunch decimated domestic auto sales, but sales in Europe held fairly steady; nearly 40 cents out of every dollar of Ford revenue came from Europe in 2008. By 2011, it was just over a quarter.
Europe is not an easy place to sell a car right now. The euro zone has fallen into a recession; its gross domestic product fell 0.3 percent in the fourth quarter, according to the EU’s latest estimate. Household spending dropped 0.4 percent.
However, the economy is only part of the story. Ford is losing out to its competitors in Europe. The company has been giving up market share because it resisted matching competitors with higher incentives on its vehicles, Lewis Booth, Ford’s chief financial officer, told The New York Times last year.
Ford says it making progress in key markets. “We’ve made solid inroads, particularly in growth markets such as Russia, Turkey and Eastern Europe, and Europe’s largest market, Germany,” Roelant de Waard, Ford’s European marketing chief said in a statement. “This is a very good sign that our brand is getting stronger.”
The company’s management is confident Russia will be insulated from instabilities in Western Europe. “It seems the Russian market does not have any jitters,” Ford’s Russia chief Ted Cannis told Reuters in October. “Demand remains strong.”
Still, growth in Russia will be a challenge. Car sales are projected to rise at 12 percent, down from 30 percent in 2011, according to the Association of European Businesses.
As part of a broader strategy, Ford plans to roll out more green vehicles in Europe over the next year. The company plans to introduce five electric and hybrid models in Europe by 2013. The Transit Connect, a plug-in marketed to businesses as a delivery vehicle, is scheduled to be available in 2013.
This article was written for the Columbia Journalism School’s seminar on business and economics journalism in the spring of 2012.
