Ford Discovers Profit in Europe After Workers Waive $63 Million

Jul 24, 2014 6:24 pm ET

July 25 (Bloomberg) -- Ford Motor Co. is finally making money in Europe. The automaker, which hasn’t made a profit on the continent in three years, returned to the black last quarter after workers in Germany agreed to waive their bonuses.

As part of concessions to keep production of the Fiesta subcompact car at a factory in Cologne, Germany, employees gave up a 25-year anniversary payout totaling $63 million. That was enough to help Ford end losses at its European operations and post a profit there for the first time since 2011.

The company has been working to turn around a business that reported a $1.6 billion deficit last year and wasn’t targeted for profit until 2015. The bonus waiver enabled Ford to post pretax earnings of $14 million in the second quarter. Even so, it projects losses in Europe that will deepen again in the second half.

“It’s not easy to get into the black again in the European market,” said Stefan Bratzel, director of the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany. “Ford was deeply unprofitable in a highly competitive market. The sustainability of this result remains to be seen.”

The carmaker, the second-largest brand in Europe, stumbled as the region’s sovereign-debt crisis caused demand to drop to a two-decade low, hitting mid-market brands hard. Ford reacted aggressively, starting moves in October 2012 to shutter three factories, including an assembly plant in Genk, Belgium, which will cease production at the end of this year.

Russian Cuts

Shares of Ford, based in Dearborn, Michigan, rose 0.3 percent to $17.84 at the close in New York yesterday, taking their gain this year to 16 percent.

The company has continued to trim expenses, like the agreement in Cologne, where it targets savings of $400 million. In April, its Russian joint venture began eliminating about 950 jobs at two plants in response to the falling ruble and deteriorating demand in the country.

Stephen Odell, Ford’s Europe chief, has flanked the cost- cutting push with 15 new or refreshed models. Those vehicles accounted for 52 percent of its first-half sales in the region, helping the unit boost deliveries 6.6 percent. Car sales in Europe grew 6.2 percent in the first half, with the market on track to post its first annual gain since 2007.

The introductions will continue with an overhauled Mondeo sedan and an upgraded Focus compact later this year. Costs to bring out the vehicles as well as seasonally slower sales in the third quarter will contribute to a second-half loss that exceeds the $180 million in the first six months of 2014, Ford said yesterday.

Still, the surprise second-quarter profit, after last year’s $306 million loss, is a sign of strength.

“Europe was a great, great outcome,” Chief Financial Officer Bob Shanks said yesterday. “It clearly shows the transformation plan is working, and we’re clearly on the way to a profit in 2015.”

--With assistance from Tom Lavell in Frankfurt.