Ford and other carmakers in Europe realize need to cut factory capacity

Article by Anita Panait, on September 10, 2012

Ford Motor Co. and other carmakers in Europe are now acknowledging the reality that they need to reduce capacity at their plants in response to the dwindling vehicle sales in the continent, chief executive Alan Mulally told Automotive News in an interview. Ford’s CEO said the Europe had issues “in the past” and people did many things to subsidize the auto industry in the region.

He remarked that for a carmaker to increase its profitably, it has to be able to match up with real demand, adding that people are realizing that there is a need to deal with that reality. According to Mullaly, carmakers in Europe have the factory capacity to produce 18 million vehicles annually.

However, carmakers only have an annual sales rate of less than 14 million in Europe, which means there is really an excess capacity. The Ford CEO said the problem in Europe is a clear structural issue. Mullaly told Automotive News that Ford has yet to announce how to deal with it own excess capacity in the continent.

According to Morgan Stanley, Ford is just employing 63 percent of its factory capacity in Europe. Analysts have said that vehicle plants need to utilise at least 80 percent of their production capacity to be profitable. Adam Jonas, an analyst for Morgan Stanley, told Automotive News that Ford needs to cut its capacity in Europe by at least 20 percent, which if not implemented, could result to the carmaker incurring $2 billion in losses in Europe for 2012.

Topics: ford, europe

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