Some investors are lauding Ford Europe’s latest results as a sign that the worst is over for the continent’s loss-making car manufacturers, and that the company might beat its own projections and break-even next year.
Indeed it’s true that the slump in Western Europe’s car sales has probably bottomed out at close to 20 year lows. But this has been achieved at a huge cost in price cuts and incentives as non-German manufacturers effectively buy sales as they try desperately to move the metal and keep their production lines running. While the likes of Germany’s Volkswagen managed to keep their bottom lines healthy, Ford Europe, GM Europe, Fiat and Peugeot-Citroen have been mired in losses.
Earlier this year Ford Europe said it expected to lose about $1.8 billion in 2013 after red ink totalling $1.75 billion the previous year. CEO Stephen Odell said in September the company wouldn’t break even until 2015.
But in this year’s third quarter Ford Europe cut its losses to $228 million, from a loss of $468 million in the same period last year, and said the red ink spilled for all of 2013 would now be less than last year’s.
In the first nine months of 2013, Ford Europe’s sales fell 5.5 per cent to 660,100, according to Automotive Industry Data. The overall market fell 4.0 per cent.
According to investment bank Morgan Stanley, Ford Europe might even break-even in 2014, a year earlier than expected.
“Europe losses have shrunk significantly excluding restructuring, raising the possibility of a near-breakeven result in 2014,” said Morgan Stanley analyst Adam Jonas.
Deutsch Bank’s Rod Lache was also impressed.
“Ford is now even more clearly on a trajectory to cut European losses, with conviction likely to increase based on improved pricing evidence,” Lache said.
Despite Ford Europe’s losses, it has won plaudits from analysts who admired its tough decisions to slash over-production and headcount. Ford has removed 18 per cent of European capacity with the closure of a commercial vehicle plant in Britain and a car assembly plant in Genk, Belgium.
CEO Odell doesn’t expect the European market to mount a strong recovery any time soon, although he has said the sharp decline in sales has been stopped.