Ford Launches Phase One of Its Restructuring Plan; Changes Target Money-losing European Arm

Ford Europe announced it had shuffled its leadership on Friday as part of a larger restructuring plan, appointing executives in Germany and the United Kingdom to oversee “ Sprint to 6 Reset and Redesign.” The strategy seeks to achieve a 6 percent EBIT (earnings before interest and taxes) margin, investing only in products and services that it believes best support long-term, sustainably and profitable business.

“Ford is implementing key leadership and organizational changes to improve the fitness and agility of its European operations as it undergoes a fundamental reset and redesign of its business,” the company said in an announcement that emphasized creating operational agility.

While the full scope of the plan has yet to be announced, layoffs and factory closings seem highly probable. Ford said announcements concerning the details of the restructuring are expected between now and the beginning of 2020. Europe is expected to be the primary focus during the initial months, however. Ford Europe lost nearly $250 million in the third quarter of 2018, significantly worse than it managed in 2017. The company now expects to see a net loss for the region this year.

Head of quality, Gunnar Herrmann, will front the restructuring process in Germany, while Graham Hoare will perform similar work in the United Kingdom. Hoare was previously responsible for Ford’s testing and development operations. Meanwhile, Kevin Reynolds, executive director for strategy, has elected to retire after more than 40 years with the company.

“Gunnar and Graham bring vast expertise to their new roles leading our reset and redesign plan in their respective countries,” Steve Armstrong, group vice president and president, Europe, Middle East and Africa, said in a statement. “Working closely with the rest of the European leadership team, they will play a key role in creating a long-term sustainably profitable business for the benefit of our customers, employees, partners and communities.”

Some of those employees are likely in for some harder times in the interim, though. Morgan Stanley previously suggested that the bulk of Ford’s $11 billion global restructuring plan will focus on Europe, leaving the region to endure the bulk of 25,000 global job losses it believes Ford has planned. Analyst Adam Jonas valued the automaker’s European businesses at “negative $7 billion.” While Ford was fast to refute Jonas’ claims, saying it had not provided Morgan Stanley with any pertinent information, it also did not say those claims were overblown — just that they were speculative.

“We forecast Ford Europe to post an accumulated loss of $3.6 billion from 2019 through 2021 with increased losses each year. By 2021, our forecast of Ford Europe’s Adjusted EBIT margin is negative 4.5% which we estimate would make Ford the least profitable [automaker] in that market,” Morgan Stanley said in an October report.

In July, Ford CFO Bob Shanks noted that most of Ford’s European vehicle range was unprofitable. By his estimation, the worst offenders were comprised “principally of cars and multi-activity vehicles such as C-Max.”

The company’s larger vans, utility vehicles, and the Mustang, however, are performing comparatively well. Most seem to believe that Ford will cull those unprofitable models from its European lineup while attempting to get more SUVs and crossovers to market. Ford has indicated this will likely be a core aspect of its restructuring plan.

[Image: Ford Motor Co.]