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Ford to Close Two Europe Plants, Eliminate 4,900 Jobs

Wednesday, 24 Oct 2012 04:44 PM

Ford Motor Co. will shut two European assembly plants, its first car-factory closings in the region in a decade, and cut almost 4,900 jobs to stem losses that the company predicts will exceed $1 billion in 2012.

A factory in Southampton, England, that makes chassis cabs for the Transit van will close as early as next year, two people familiar with the situation said, asking not to be identified revealing internal plans. A 48-year-old plant in Genk, Belgium, that builds the Mondeo mid-sized sedan, S-Max wagon and Galaxy minivan will close by the end of 2014, Dearborn, Michigan-based Ford said Wednesday in a statement.

The European sovereign-debt crisis is set to lead to the biggest annual drop in car sales in 19 years. Manufacturers such as PSA Peugeot Citroen, General Motors Co.’s Opel brand and Fiat SpA have responded by shutting or outlining plans to close factories in an effort to restore earnings. Ford Chief Executive Officer Alan Mulally said last month that the European industry needs to “size to the real demand” to become profitable.

The Southampton factory built fewer than 30,000 Transits last year, while “about 200,000 is the industry standard for an efficient plant,” said Brian Johnson, a Chicago-based analyst at Barclays with an overweight recommendation on Ford. The carmaker’s other European sites have capacity to make 230,000 vehicles a year, so Southampton is “clearly subscale from that standpoint.”

U.K. Meeting

Stephen Odell, head of Ford’s European operations, is scheduled to meet employee representatives from all its U.K. factories tomorrow at the carmaker’s research center in Dunton, England, though no topic has been specified, said Roger Maddison, a leader of the Unite union. Ford held a meeting Wednesday with labor leaders at Genk before announcing plans for the Belgian site.

The Genk plant employs almost 4,340 workers, while Southampton employs more than 530, according to Ford’s website. Union officials said the Belgian factory’s entire workforce will be cut.

“We will make any further announcements at the appropriate time once the relevant stakeholders have been informed,” John Gardiner, a spokesman at Ford’s European headquarters in Cologne, Germany, said in an e-mail. “Going forward, we will continue to assess the economic situation and all areas of our business and take appropriate action.”

Final Factory

Ford has been making cars in Britain since 1911. The carmaker’s last auto-factory shutdown in Europe was a plant in Dagenham, England, in 2002 that made the Fiesta compact, a move that cut 2,000 jobs. The closing at Southampton will eliminate Ford’s final vehicle-making factory in the U.K., the people familiar said.

The closing of the Genk plant is “a knife in the back” after workers there accepted an earlier pay cut, Rohnny Champagne, an ABVV Metaal union leader, told reporters at a gathering of workers following the meeting with management.

Ford also has an engine plant in Bridgend, Wales, with 970 workers, and stamping and engine manufacturing facilities in Dagenham, with 2,970 employees. A joint venture with the Getrag Group in the Liverpool, England, suburb of Halewood produces transmissions and employs 720 people.

The automaker’s shares gained 1.7 percent to $10.17 at the close in New York. They have slid 5.5 percent this year.

‘Better Trajectory’

“This was some low-hanging fruit that not only Ford, but other manufacturers are having to take a hard look at,” said Michael Robinet, managing director of consultant IHS Automotive in Northville, Michigan. “This certainly goes a long way toward putting Ford on a better trajectory with respect to future capacity utilization.”

Ford also has manufacturing sites in Valencia, Spain; Saarlouis, Germany; and Bordeaux, France. The next versions of the vehicles now made in Genk will be produced at the Spanish plant, while two models currently made in Valencia may be shifted to Saarlouis, Ford said today.

Ford’s Turkish joint venture with Koc Holding AS would probably be the beneficiary of the Southampton plant’s shutdown, according to Barclays analyst Johnson. The Ford Otosan business has capacity to manufacture 320,000 Transits, following an expansion of capacity this year, while it’s only likely to make 250,000 of the vans by year-end, he said.

Fiat’s Move

Fiat, the Turin, Italy-based owner of Chrysler Group LLC, shut a factory in Sicily last year. Peugeot, Europe’s second- biggest carmaker, plans to close a factory near Paris in 2014. Opel brand is looking at ending production at a factory in Bochum, Germany, at the end of 2016 after closing a plant in Antwerp, Belgium, in 2010.

Fiat Chief Executive Officer Sergio Marchionne, who currently holds the rotating presidency of the European carmakers association, has sought a coordinated approach to eliminating surplus auto production. LMC Automotive estimates that unused capacity in Europe will rise to as much as 10.6 million vehicles next year from 10.3 million in 2012.

With the sovereign-debt crisis spreading beyond Italy, Spain and Portugal, profit-sapping car discounts are on the rise. Dealer incentives in Germany, Europe’s biggest market, rose to 12.2 percent off the list price in September, the highest level in at least two years, according to trade publication Autohaus PulsSchlag.

Ford’s European sales have dropped 12 percent this year, outpacing the market’s 7.2 percent fall.

Capacity Use

The Genk plant, which opened in 1964, was considered vulnerable by analysts because the models it produces are near the end of their life cycles. Ford has said it used only 68 percent of Genk’s manufacturing capacity last year, below the 80 percent threshold typically considered profitable.

The Belgian plant’s shutdown will probably save Ford $300 million a year, Adam Jonas, a New York-based analyst at Morgan Stanley with an overweight recommendation on the U.S. company’s stock, said in an interview. Savings from closing the Genk factory may take three years to be fully realized, he said.

“Ford can’t be the only one that does this,” Jonas said. “If the rest of the industry doesn’t do a Ford, doesn’t do a Genk, then Ford subsidized everybody else and paid the price, and you’d still have an industry that really didn’t shrink.”

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Ford Motor Co. will shut two European assembly plants, its first car-factory closings in the region in a decade, and cut almost 4,900 jobs to stem losses that the company predicts will exceed $1 billion in 2012.
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