It’s back to the drawing board for those investors who thought Ford Europe might be in the black anytime soon.
Yesterday’s announcement from Dearborn, Mich. that Ford Motor Ford Motor Co had slashed its profit forecast for 2014 to $6billion from a $7billion to $8billion range included news that Ford Europe would lose about $300 million this year in Russia, put back the forecast of breaking even here in 2015, and decimated the 2020 Europe profit target of six to eight per cent down to three to five per cent.
International Strategy Investment (ISI) has raised its loss estimate for Ford Europe in 2014 to $1.2 billion from its previous forecast of a $487 million loss.
“In Europe, the company also provided 2015 guidance which fell short of expectations with Ford presently anticipating a pre-tax loss of $150 million compared to prior guidance that the company would be profitable next year,” said ISI analyst George Galliers.
The turmoil in Ukraine following Russian aggression has coincided with a weakening of the European economy which has spooked consumer confidence. The biennial Paris Car Show, which opens October 4 through October 19, was supposed to be the venue for a celebration of the end of the Great Recession. Now speculation centers on whether this is a stutter on the way to recovery, or a sudden turn for the worse.
After Ford Europe’s second quarter results, ISI said this backed up its forecast that Ford Europe will make a swing in profits totaling $1.8 billion by 2015 from 2013.
Ford Europe made its first profit in the second quarter since 2011, with commentators saying it looked set fair on the road back to profitability as it benefitted from tough decisions to shut down some production. Ford has removed 18 per cent of European capacity including the closure of a commercial vehicle plant in Britain and a car assembly plant in Genk, Belgium.
Ford Europe made $14 million in the second quarter compared with a loss of $320 million in the same period of 2013. Ford Europe last made a profit in the second quarter of 2011, with $176 million.
Ford recently revealed adventurous plans for its product line-up in Europe, including the introduction of the Edge SUV for the first time. Ford will sell the Edge here in 2015, and the storied Mustang sports car.
At the Paris Car Show Ford will show the new Mondeo large sedan (Fusion in the U.S.) which is going on sale next year after a two year delay. Ford will also show its face-lifted Focus small sedan and its renewed S-Max minivan.
ISI’s Galliers said the profit forecast cutback in Europe was down to weaker end-market expectations, especially in Russia, as well as pension expenses in Germany.
“However, the fact that the company is now only targeting a three to five per cent margin in Europe (prior 6-8 per cent margin) by 2020 also indicates to us that on reflection the company has possibly concluded that improved contribution on European models is unlikely to be as substantial as had previously been anticipated,” Galliers said.