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Old 07-23-2003, 05:53   #1 (permalink)
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Ford unit in Europe dampens rebound

Overseas operations swallow profits; CEO orders veteran exec to fix problem

By Mark Truby / The Detroit News

DEARBORN -- Ford Motor Co.'s European operations, which as recently as last year were touted as its blueprint for success, have emerged as the biggest threat to the automaker's turnaround plan.

Ford of Europe, based in Cologne, Germany, posted a pretax loss of $774 million in the first six months of 2003 -- setting off alarm bells at the automaker's world headquarters in Dearborn.

Chairman and CEO Bill Ford Jr. is concerned enough that he recently directed Executive Vice President David Thursfield to go to Cologne and oversee day-to-day operations at Ford of Europe, according to a high-ranking Ford executive familiar with the decision.

Thursfield ran Ford of Europe until August 2002 when he was brought to Dearborn to run the automaker's global purchasing and international operations. He still holds the title of chairman of Ford of Europe and has vast experience selling cars in the European market.

"Bill wants David over there working on this until the problem is fixed," the executive told The Detroit News this week. "Bill is saying, 'I will have no more surprises.' "

Ford is a year and a half into a turnaround plan designed to deliver $7 billion in pretax profits by mid-decade. The automaker expects to earn $1.3 billion this year after losing $6.4 billion in 2001 and 2002.

Company executives said in early 2001 that Ford's European operations would be a pillar of strength as the automaker restructured its ailing North American operations.

Instead, Ford of Europe is becoming a sinkhole that is swallowing profits earned at other units. Ford operations in North America, Asia-Pacific and South America are all performing up to expectations this year, executives said.

"The turnaround of Ford in Europe is a bit of a myth," said Garel Rhys, director of Cardiff University's Center for Auto Industry Research in Wales. "What Thursfield did was stop the decline of Ford of Europe."

While Ford's unit sales, revenues and market share are up this year in Europe, the company blames falling net prices, an unfavorable product mix and lower industry sales for wider losses. Like the U.S. market, falling prices and lower industry volumes are battering mass-market brands, such as Ford, in Europe.

Beginning next week, Thursfield will be spending about three weeks a month in Europe. Bibiana Boerio, director of finance strategy for Ford's international operations, and John Walker, head of human resources for Ford's international operations, have also been dispatched from Dearborn to help fix Ford's troubles in Europe.

The group will work with Martin Leach, president and chief operating officer of Ford of Europe since August 2001, to cut costs and raise revenues.

Best known as an engineering and product development specialist, Leach entered the job with relatively little experience running a major operating unit.

Leach recently put out a memo to employees stressing the needs for cutbacks. "The situation in the European automotive industry and at Ford has rapidly deteriorated in the past weeks," Leach wrote. "In order to keep our head above water, we must cut costs even further."

Last week, Ford executives forecast an improvement in Ford's financial performance in Europe during the second half of 2003. Still, Ford spokesman Ken Zino said Ford of Europe is freezing new hires, cutting overtime and travel and relying on attrition to save money. Other cost-cutting measures are under review.

In the past three years, Ford of Europe has tightened its belt, cutting 2,000 jobs, eliminating 600,000 units of capacity by closing three plants, ending car production in the United Kingdom and spinning off its transmission operations into joint ventures with German partners. Key plants were reconfigured to be flexible enough to turn out multiple models.

"We've done fundamental changes to the way we do business," Thursfield told The News in 2001. "This will be far and away the largest turnaround Ford of Europe has ever achieved."

The European auto market is roughly the same size as the giant U.S. car and truck market and just as competitive.

While Americans love large sedans, SUVs and pickups, Europeans favor fuel-sipping, often diesel-powered cars, wagons and compact minivans. Profit margins tend to be slim in Europe even for the strongest players.

In 1999, Ford of Europe promised to bring to market 45 new vehicle by 2005, launching offerings like the mid-size Mondeo sedan, compact Focus and a funky two seater called the Ka. Later this year, Ford will begin selling the Focus C-Max, a taller version of the Focus five-door hatchback.

While the new product line has been well-received, the Ford brand remains burdened by a reputation for dullness, average quality and mediocre customer satisfaction. Convincing Europeans to consider a Ford again hasn't been easy. Ford of Europe's market share remains at 9 percent -- up slightly from last year but well below historical levels.

In 1994, Ford of Europe grabbed 12.1 percent of the market, then lost share in each of the next six years

"The new products are excellent but everybody else is making excellent products as well," Rhys said.

Volkswagen AG, Renault and PSA/Peugeot-Citroen are now among the strongest European competitors. General Motors Corp.'s Opel brand has struggled to consistently make money and retain market share. Italy's Fiat SpA continues to hemorrhage cash and is cutting jobs and operations.

Further restructuring is a possibility down the road.

"Ford is going to have to face some radical surgery," said Graham Maxton, an analyst with Autopolis, a strategy consulting firm in the United Kingdom.
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