|Chennai||Rs. 28730.00 (1.13%)|
|Mumbai||Rs. 29740.00 (-0.13%)|
|Delhi||Rs. 29200.00 (0%)|
|Kolkata||Rs. 29350.00 (0%)|
|Kerala||Rs. 28000.00 (0%)|
|Bangalore||Rs. 28400.00 (0%)|
|Hyderabad||Rs. 28470.00 (-0.11%)|
Ford Motor Co, which clung to the road with a timely swerve before the 2009 crisis that bankrupted General Motors Co, may now be pulling a similar stunt in Europe.
The Dearborn, Michigan-based automaker is scrapping three European plants and thousands of jobs while its rival appears to be stuck on the starting grid. The speed of Ford's restructuring plan — and the comparatively slow pace of GM’s — has become more important during a protracted slump in Europe’s auto market, with sales down another 7.2 per cent so far this year.
Both companies unveiled hefty third-quarter losses in the region and warned they could lose a combined $6 billion or more in Europe in 2012-13.
The bad news weighs heavily on GM's troubled Opel unit, which has lost billions of dollars over the past decade, has a long history of ill will with its labour unions, has seen its products and brand image pummeled in the media and has shown the door to all but a handful of its top executives.
More than anything, however, the cost of making cars is simply too high, with too many workers still on the payroll given sagging demand in most of western Europe.
Opel is lagging Ford in Europe because it “totally missed the golden opportunity” to make deeper cuts during the last crisis, said Mirko Mikelic, portfolio manager at Fifth Third Bank, who oversees assets including GM preferred shares and Ford debt. “Most investors would like to see some capacity cuts” at GM, he said. “It doesn't necessarily have to be the same timing as Ford ... but we hope GM will take similar steps.”
The euro zone crisis has exacerbated the auto sector's overcapacity, locking companies into paying high fixed costs to build fewer vehicles. GM and Ford plants in Europe operate at less than 75 per cent of installed capacity, analysts say.
Unlike Opel, Ford of Europe now has a clearer path to recovery after announcing 6,200 job cuts with the closure of a major assembly plant and two smaller factories, starting next year. Ford will shutter a British van factory and associated stamping plant in 2013, with the bigger site in Genk, Belgium to close the following year.
More cuts may follow if these prove insufficient to achieve regional profitability by mid-decade and a 6-8 percent operating margin in the longer term, the company added.
GM, by contrast, has been preoccupied with forging an alliance with struggling French automaker PSA Peugeot Citroen that likely will not generate significant gains before 2016. Opel is also mired in union negotiations to close a plant in Bochum, Germany - but not until the following year.
The latest Opel talks deadline expired as GM published its quarterly results on Wednesday. Unions announced earlier in the week that negotiations had been extended and may continue into 2013, with no new date set for their conclusion.
'Still bloody out there’
“We know we are behind,” said Steve Girsky, GM vice chairman and interim Opel chief, citing Opel's deteriorating brand image and “poor relations” with German unions. “It's still bloody out there, but we're making some progress,” he told analysts. “Small wins lead to big wins.”
GM has repeatedly changed tack over Opel since an abortive attempt to sell it in 2009 to a Russian-backed coalition.
The carmaker declined to comment on a Financial Times Deutschland report that it is hiring Volkswagen executive Karl-Thomas Neumann to take over as Opel CEO in mid-2013. The job has already been vacant for more than three months since the last incumbent was sacked.
The 2009 crisis forced GM to close a factory the following year in Antwerp, Belgium, and the company is trimming more jobs through buyouts and early retirements expected to yield 2,600 departures this year. Opel employs about 40,000 European workers to Ford’s 47,000, excluding joint ventures.
“Despite the terrible economic environment in Europe, we’re not sitting still," Girsky said this week on a conference call. "There are some green shoots sprouting at Opel, in the mud.” Unveiling a 15 per cent quarterly profit decline, weighed down by European losses of $478 million, GM said new models would improve Opel's situation next year, even as the European market shrinks a further 4-5 per cent by the company's own estimates.
Like Ford, it pledged to break even by around 2015.
The GM plan “allows investors to at least stop obsessing over Europe and refocus attention on North America”, said Jeffries analyst Peter Nesvold. “While we felt as though Ford's had more granular details, the end goal is the same.”
GM years behind Ford
The European cutbacks at Ford are expected to generate savings of $500 million annually by 2015, compared with a cumulative $500 million in cost savings pledged for Opel in 2013-2015.
But Ford says structural costs also will increase over the next several years as it broadens its product range in Europe to include more expensive, higher-margin vehicles.
Ford's European recovery plan aims to boost its sagging 7.8 percent market share, while GM's outlook is premised on sustaining its current 8.6 percent share. Executives at both firms say they also are focused on reducing stocks of unsold cars, while trimming variable costs to lift per-vehicle margins.
Ford's $468 million quarterly loss in the region was drowned by a North American earnings surge that reflected its earlier turnaround at home - now cited by executives as a blueprint for Europe.
In 2006, two years before the Lehman Brothers collapse ushered in the global financial crisis, Ford stepped up a restructuring effort in North America that scrapped tens of thousands of jobs and several plants.
By 2009, the company was solid enough to stay afloat as GM took a government bailout and Chrysler was sold to Fiat - both through Chapter 11 bankruptcy proceedings.
Beyond the disposals, Ford seeks more gains by building future cars and trucks from just five basic platforms, compared with nine distinct vehicle architectures currently deployed.
The push to consolidate underlying technologies - led by rivals VW and Hyundai - is already lifting earnings at home. Ford's North American operating profit amounted to 12 percent of third-quarter sales, pulling further ahead of GM's 7.8 percent margin.
"We track how we're performing versus Ford very closely and we've got a good understanding of the gap," GM's U.S. finance chief Chuck Stephens told reporters and analysts this week. "Obviously it's widened thus far this year. Ford is about two years ahead of us (in) getting scale on global architectures."
Ford's lead over GM is closer to four years in the European restructuring stakes. And even then, Bochum's 2017 closure should not be taken for granted, some observers warn.
"It's such a long way out, and once the market gets better in 2014 or 2015, (GM) will be pressured by the German government to reconsider," said George Galliers, a London-based analyst with Credit Suisse. "It's better to make a painful break than to draw out the agony."