Ford Results Provide Another Reason Why Europe's Economy Matters to U.S. Firms

Ford Says Overseas Losses Will Triple in 2d Quarter has this to say:

"Ford Motor Company’s chief financial officer said Thursday that the automaker’s international losses would triple in the second quarter, primarily because of much weaker European sales. The executive, Robert Shanks, also disclosed that Ford would consider closing an assembly plant in Europe should demand keep falling.

Ford lost $190 million in the first quarter in its international operations, with Europe accounting for nearly 80 percent of the total. Since then, the market has grown worse, and Ford losses are mounting.

“We lost $190 million in the first quarter, and it will be three times greater than that in the second quarter,” Mr. Shanks said in an interview on Thursday at Ford’s headquarters.

A loss on international operations of $500 million to $600 million in the quarter, which ends Saturday, will depress Ford’s overall earnings for the period. Previously, the company had forecast that international losses for the second quarter would be roughly the same as the first quarter.

“We have good results in North America and solid results at Ford Credit, but international losses will be triple,” he said. “The overall company profits will be substantially lower.”

Up until now, Ford has suffered less from the downward spiral in European vehicle sales than its Detroit rival, General Motors, which is planning to close at least one assembly plant on the Continent.

Mr. Shanks said Ford could no longer rule out the option of shutting one of its five European plants.

“We do have excess capacity,” he said. “It’s too soon to say, but we’re going to have to develop a plan that gives us an opportunity to do that.”

Ford has an 8 percent market share in Europe and last year broke even in the region at an industrywide sales level of 15.3 million vehicles. But with sales running at an annual rate of 14 million, Ford cannot make money, Mr. Shanks said.

“This is not a cyclical issue, it’s a structural issue,” he said.

The forecast for Ford’s overall second-quarter results underscores how badly the European market is hurting even the healthiest players.

Mr. Shanks, who took over as Ford’s top finance official earlier this year, said the difficulty in reaching a solution to the European economic crisis could force automakers to make decisions soon on restructuring.

“If the leaders of Europe aren’t able to come up with a really good plan to satisfy the financial markets, there could be severe consequences,” he said."

My Take

GM is struggling in Europe and now Ford is reporting it has major operating problems as well.

It's an interconnected world, for sure. Slow sales in one market often will mean tougher conditions elsewhere.

Thus, as the various European economies continue to deteriorate, U.S. based companies will suffer.

And as more U.S. companies experience operating issues in Europe, the U.S. economy will have an even harder time getting to a solid recovery.

Thus, let's hope the two day European summit now underway does something unexpected and helps the worldwide situation.

Thanks. Bob.