Ford to shift focus to SUVs and vans to boost European profits

30 July 2018

Ford is to focus on SUV and commercial vehicle sales as it looks to return its European operations to profit.

The manufacturer announced a €62.5 million loss in the second quarter of 2018, whereas in the same period last year it recorded a €75.3 million profit, meaning the company now expects a full-year loss in the region. Announcing the results last week, CEO Jim Hackett said: ′We are extremely dissatisfied with our performance in Europe.’

There are a number of reasons why the US-based company is suffering in Europe, with Chief Financial Officer Bob Shanks suggesting that the company’s ′low-performing part of the portfolio represents a majority of our volume, revenue and capital deployed in the region. He went on to suggest that this consisted mainly of cars and multi-activity vehicles, such as the C-Max model.

During the carmaker’s financial results announcement, Shanks went on to highlight that the company’s highest performing models were the Transit, Kuga SUV and Ford Ranger pick-up.

Jim Farley, Ford’s head of global markets, said commercial vans are earning 13% profit margins for the automaker in Europe. Therefore, Ford is shifting its focus to concentrate on vans and SUVs to hit its long-term target of a 6% margin in the region, he said.

′Clearly we have to redesign Europe, centring the operations on our profitable LCV business,’ he added. SUVs were also part of that plan. Capital allocation plans now align with the SUV and the LCV business opportunities, Farley said.

Ford has been one of the hardest hit carmakers following the exchange-rate problems experienced in the UK after the country’s Brexit referendum. Following this, the value of the pound has fallen in what is the manufacturer’s largest European market.

The pound’s fall explains the ′majority of our deterioration’ in profit in Europe, Farley said. ′In 2016 we made €1 billion in Europe and most of it was in the UK. Brexit and the continued weak sterling has been a fundamental headwind for our European business,’ Farley said.

He also acknowledged that Ford has been slow to expand in the SUV segment in Europe: ′One of our underlying issues is that we are behind on the shift to utilities and now our portfolio under-indexes on this highly profitable and growing segment,’ he added.

Ford currently sells three SUV models in Europe, the small EcoSport, the compact Kuga and the midsize Edge model. The automaker announced during its results presentation that the Kuga and EcoSport sales reached record highs in the second quarter of 2018. However, the company has said that new model launches by 2020 will help to increase the product mix.

Any change in strategy to focus on SUV and commercial vehicles will ultimately mean the carmaker could stop producing certain models. Already the C-Max is one possibility, while the manufacturer may also look to leave the executive saloon market by phasing out its Mondeo. This is already underway in the US, with the Fusion, based on the Mondeo platform, expected to be discontinued by 2020.