Ford’s inevitable European restructuring begins

Faced with its European operations losing over US$1bn this year, restructuring by Ford was inevitable. Temporary shutdowns, slower line speeds, cutting excess jobs, or a recruitment freeze can only make a limited contribution to reducing a vehicle manufacturer’s fixed cost base. The news that production will cease at the Genk car plant, the UK Transit …

Faced with its European operations losing over US$1bn this year, restructuring by Ford was inevitable. Temporary shutdowns, slower line speeds, cutting excess jobs, or a recruitment freeze can only make a limited contribution to reducing a vehicle manufacturer’s fixed cost base. The news that production will cease at the Genk car plant, the UK Transit factory and Dagenham press shop were not especially surprising.

Ford had already delayed the start of production of the new Mondeo until late 2013, a fortuitous decision which has given Ford enough time to move the new model to Valencia in Spain without disrupting the programme unduly. When the current S-Max and Galaxy finish in 2014, their replacements will also move to Spain. In turn, production of the C-Max and Grand C-Max will move from Valencia to Saarlouis in Germany where the Focus, which shares the same platform, is also made. The Transit plant in Turkey has enough capacity to absorb Southampton’s limited output (assuming that the nearby earthquake fault line doesn’t open up once again).

The announcements that the Genk car plant, the UK Transit factory and Dagenham press shop will cease production were not especially surprising.

These moves mean three Ford plants should be better utilised; in addition, the closed plants’ running costs will be saved, although quite how much is a matter of conjecture. Reports have suggested Genk’s annual running costs range between US$300m and US$730m. A proportion of these costs will still be incurred in Spain, so the immediate savings are not entirely clear and the long-term benefits will take time to be realised. Moreover, when redundancy and other costs are factored in (estimated by some analysts at over US$320,000 per worker, or US$1.4bn), the resulting sums and the cash drain on Ford’s resources are eye-watering. In its official statement on the closures, Ford says it expects the measures to reduce installed vehicle assembly capacity by 18% or 355,000 units, generating gross annual savings of US$450-500m.

Job losses in Belgium – at Ford, its direct suppliers (of which there are around 40) and other companies dependent on the plant – will total around 9,500. The closure will, according to the Belgian employer federation, Agoria, mean a 0.3% cut in Belgium’s annual GDP, clearly highlighting the significance of Genk to the Belgian economy. Around 1,300 Ford jobs will be lost in the UK, a smaller number at suppliers.

After Genk and Southampton have closed, Ford will have five major assembly plants in Europe, with a total capacity of around 1.8 million units. For all Ford’s bullishness about its new model line-up, filling these plants remains a challenge; they operate in a highly competitive market in which established players like Ford are under severe pressure

Suppliers who had priced contracts for the new Mondeo based on delivering to Genk will have to do some quick recalculations: many of them, as international companies, are likely to have operations in Spain, so moving work there should not be a major issue. Any such moves will certainly be welcomed by a Spanish economy currently experiencing some of Europe’s highest unemployment levels.

After Genk and Southampton have closed, Ford will have five major assembly plants in Europe (Valencia, Saarlouis, Cologne, Craiova [Romania] and Kocaeli [Turkey]), with a total capacity of around 1.8 million units. For all Ford’s bullishness about its new model line-up, filling these plants remains a challenge; they operate in a highly competitive market in which established players like Ford are under severe pressure. Closing Genk and Southampton should help Ford puts its finances in better order, but the benefits from the closures will not be realised quickly and will still result in significant costs to Ford in the process. And without an upturn in the European car and LCV markets and Ford increasing its share in both, further cuts may well still be required.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Greenstreetsoftware.info Ltd.

Ian Henry is a director of , an independent automotive research and consulting company based in London.

The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please  [email protected]

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