Unions protest, but investors laud Ford Europe's 'bold' action

While unions called Ford Europe’s action to shut plants and curb losses a betrayal, investors lauded the company’s moves as bold and  necessary, and hoped that more financially pressed auto makers would follow suit.

Yesterday, Ford Europe announced it would shut three plants across Europe, two in Britain and one in Belgium, which would eliminate 6,200 hourly and salaried jobs, slash output by 355,000 vehicles and increase capacity use to over 80 per cent, a roughly 15 percentage point increase over the current rate.

Ford Europe is expected to lose $1.5 billion in 2012, and a similar amount next year, according to Moody’s Investors Service Inc.

Car sales in Western Europe are expected to drop at least eight percent in 2012, and slide again next year to reach perhaps a 20 year low. All the non-German mass car makers are in trouble with Peugeot-Citroen and GM Europe likely to lose more than $1 billion in 2012, while Fiat is expected to lose close to $900 million in Europe.

Renault is believed to be just about in the black. Germans like Volkswagen and its premium compatriots Mercedes and BMW are still making impressive profits, having subjected themselves to severe and expensive rationalization after the 2008 recession. The non-Germans need to slash capacity severely, and GM Europe and Peugeot-Citroen have announced cuts to take effect in the future.

But Ford won plaudits for taking decisive action, now.

“Ford’s E.U. restructuring efforts go deep, addressing 18 per cent of installed E.U. capacity and 13 per cent of its workforce, marking the most sweeping capacity reduction in the region in years,” said Morgan Stanley analyst Adam Jonas.

“Ford doesn’t have an exit strategy in the E.U., so they have to make this work. We think Ford’s initiative will be rewarded,” Jonas said in a report.

Deutsche Bank analyst Rod Lache also liked Ford’s plan, and reckoned it would also be followed by other hard-pressed manufacturers.

“Overall, this underscores our view that there’s a credible path to reduce Ford’s European losses. We’ve examined the plan and believe it should work. We are also encouraged by growing momentum behind European capacity and inventory realignment.” Lache said.

Ford of Europe CEO Stephen Odell said the plan concentrated on new models as well as production cuts, and expressed confidence in the future.

“The European market holds potential for profitable growth if we accelerate product development and move decisively to address our costs and overcapacity,” Odell said in a statement.

“Ford’s European problems solved? Definitely not, said Morgan Stanley’s Jonas.

“But it’s an important start and could set the tone,” he said.

Meanwhile unions were shocked by the pace of the planned cuts.

A spokesman for British union Unite described Ford’s decision to close the Southampton Transit van plant as a betrayal.

“Ford has previously made commitments to the future of Southampton, so we believe this to be a betrayal. There are no decisions on what our next steps will be, we will be guided by our members but we are determined to fight the closures.”