Ford cutting jobs in Europe, announces talks with labor (Details).

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, but thousands of reductions are expected. The automaker has lost nearly a billion dollars in Europe in the last five years, and the long-expected cuts are part of an $11 billion 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.”

The company in a news release 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.”

“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,” said Jon Gabrielsen, a market economist who pulls data from SEC filings. “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.”

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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.

Adam Jonas, auto analyst at Morgan Stanley, said in August 2018, “We now forecast Ford Europe losses to widen. … Excluding commercially oriented businesses, we do not believe the Ford brand has positive long-term value in the European retail passenger vehicle market. We can envision the majority of restructuring costs aimed at Europe alone.”

‘Reduction of surplus labor’
Ford said its cuts will include “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 emphasized that 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.

“In line with Ford’s global fitness approach to build, partner or buy, Ford of Europe will leverage relationships — such as the successful Ford Otosan joint venture and the potential alliance with Volkswagen AG — to support its commercial vehicle growth,” Ford said in its statement.

In addition, the company said:

Every Ford nameplate from the all-new Ford Focus onward will include an electrified option. This includes new nameplates and new versions of existing vehicles. From Fiesta to Transit, either a mild-hybrid, full-hybrid, plug-in hybrid or full electric option will be offered, delivering one of the most encompassing lineups of electrified options for European customers.
Ford also will build on its success in the growing utility segment in Europe. Ford SUV sales — comprising EcoSport, Kuga and Edge — hit a record in 2018, for the first time surpassing a quarter million vehicles sold.
A portfolio of imported iconic nameplates for Europe that builds on the heritage of the Ford brand will include Mustang, Edge and another SUV to be revealed in April, along with a new, Mustang-inspired full-electric performance utility in 2020.
Additional actions to increase efficiency already underway include:

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Production at the Ford Aquitaine Industries plant in Bordeaux, France, which manufactures small automatic transmissions, will end in August 2019.
Formal discussions have begun between Ford and its Works Council to end production of the C-MAX and Grand C-MAX at the Saarlouis Body and Assembly Plant in Germany.
Ford is undertaking a strategic review of Ford Sollers, its joint venture in Russia. Several significant restructuring options for Ford Sollers are being considered by Ford and its partner, Sollers PJSC. A decision is expected in the second quarter.
Ford plans to consolidate its UK headquarters and Ford Credit Europe’s headquarters at the Ford Dunton Technical Center in South East Essex. The action is subject to union consultation and local approvals.
Struggles in Europe
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.

David Kudla, CEO and chief investment strategist with Mainstay Capital Management, is a Grand Blanc investment adviser who manages $2.5 billion in assets for clients who include many Ford employees.

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“Ford has to take action as losses in Europe continue to mount,” Kudla said.

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.

“It is far more difficult to cut salaried or union jobs in Europe than in the U.S. and Canada,” he said. “Everything must be negotiated in great and difficult depth often taking an inordinate amount of time and frequently resulting in not being able to cut nearly as many job costs as one needs. Severances can also be much more expensive. The devil will be in the details of execution and only time will tell how much of what they are counting upon can be achieved.”

Overall, Gabrielsen said, the Ford plan announced Thursday sounds encouraging.

“The electrified option for all remaining vehicles makes excellent sense in the European market, which is well ahead of the U.S. and Canada in consumer interest and adoption rates and in electric vehicle friendly government regulations and incentives,” he said. “This will also give Ford the opportunity to develop more experience in this key area for the future in the U.S. and Canada before the market develops as far here.”

Later Thursday, Dan Grossman, CEO of Chariot, the on-demand shuttle service owned by Ford, issued a letter saying the operation would close by the end of the March. It ends routes in the United Kingdom on Jan. 25 and in the U.S. on Feb. 1. The San Francisco-based company was the first acquisition made by Ford Smart Mobility after it was formed in 2015 to acquire and invest in innovative mobility startups and technologies.

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