It's Happening Again: Ford Europe Wants to Shift Attention/Money Away From Cars

In an earlier analysis of Ford’s lackluster share price, we noted that Europe and China posed a significant problem for the automaker’s bottom line. Europe, which was previously pretty good to the brand, has gradually lost its share of the market since 1994. While Ford still moves a lot of metal in the region, something’s definitely wrong.

On Wednesday, Ford announced that its European operations had endured a $73 million second-quarter loss. It’s anticipating a full-year loss in the region after earning $234 million last year. “We’re extremely dissatisfied with our performance in Europe,” said CEO Jim Hackett.

Something has to be done to avoid further setbacks. According to Jim Farley, Ford’s head of global markets, the clear remedy is concentrating on vans and crossovers because that’s where the money is. It’s a similar strategy to what’s being done in the United States, where Ford eventually aims to cull the lineup to a point where the Mustang is the only vehicle that qualifies as a traditional car. But is it the correct one, considering how we’ve arrived at this point?

Many claim Ford’s problem in Europe can be attributed to the market’s shift away from mid-level models. Consumers have trended toward bargain basement autos while premium models have also received a boost. While the Fiesta and Focus still sell incredibly well, pricier models like the Mondeo (Fusion) have seen their popularity plummet.

Unfortunately, the cheaper vehicles Ford sells in large numbers aren’t making it any money. Ford CFO Bob Shanks claims that the majority of Ford’s European vehicle range is unprofitable. “The low-performing part of our portfolio represents a majority of our volume, revenue and capital deployed in the region,” he said. The primary culprits were “cars and multi-activity vehicles [MPV/minivans] such as C-Max.”

According to Automotive News, the models that still generate positive cash flow in Europe include the Transit van, Kuga (Escape) crossover and Ranger pickup — as well as the imported Edge and Mustang.

Farley also noted that commercial vans earn 13 percent profit margins for the automaker in the EU, so it’s going to focus on those models and lucrative utility vehicles at the expense of passenger cars. “Clearly we have to redesign Europe, centering the operations on our profitable [light commercial vehicle] business,” he said.

With the Fusion likely leaving the U.S. market in 2020, the Mondeo is probably facing its own discontinuation, as well. Ford is also considering abandoning the C-Max, as well as the S-Max and Galaxy minivans.

R&D spending will be diverted away from cars and into commercial vans and SUVs, as Ford seeks ways to cut costs anywhere it can and get new products to market quicker in Europe. The company also hopes to form new partnerships with other automakers. “It’s important to recognize that partnerships, which are a part of our fitness toolkit, are already an integral part of our European operations and going forward we expect them to play an even greater role,” Shanks said.

However, we can’t discuss Ford’s money issues without mentioning “mobility.” Some have accused Ford of being too slow to get the right products on sale and too quick to chase a quick buck. A case could even be made that Ford’s current obsession with SUVs and crossovers will leave it vulnerable when the market inevitably shifts again. But the mobility unit is intended to protect against that by making Ford a leader in advanced technologies and supplementary businesses.

The idea of future-proofing a company comes with consequences, though. Ford claims its mobility arm lost $181 million in the second quarter of 2018. It is, however, in the midst of several extremely large investments to get the ball rolling and has little revenue to soften that blow. Hopefully, there’s an extremely lucrative business model behind the mobility push. Otherwise, Ford and a slew of other automakers will be kicking themselves in the coming years.

[Image: Ford Motor Co.]