* Ford has worst 3-mth European sales drop
* Unpublished data shows 2012 incentives jumped 30 pct
* Company says turnaround plan on track
By Deepa Seetharaman and Laurence Frost
DETROIT/PARIS, March 21 Ford's plan to cut
jobs and close plants, once hailed as proactive, may not be
enough to halt losses in Europe - where moves to rein in
margin-crushing discounts have sparked a further sales plunge.
The U.S. carmaker initially earned investors' praise, and
unions' wrath, for three plant closures and 6,200 layoffs
designed to reduce excess production capacity, while rivals
including General Motors put off the tough decisions.
But less than five months later, Ford's slumping sales show
it still has some way to go and may struggle to win back
business from competitors as it rebuilds profitability.
Ford's European slide since December, the worst three-month
sales performance by a mass automaker, reflects efforts to end a
discount blowout in which it hiked incentives to shift a glut of
cars, according to industry insiders and unpublished data.
The company has said it is pulling back from "unprofitable
channels" including sales to car rental firms, even at the risk
of losing market share.
"Share is interesting, but share doesn't pay the bills,"
Ford's Europe chief Stephen Odell told reporters at the Geneva
auto show earlier this month. "You have to have a business
The euro zone crisis has shone a light on the region's
overcapacity, which locks carmakers into paying high fixed costs
to build fewer vehicles. Car sales fell to a 17-year low in 2012
and are expected to drop further this year.
In October, while GM was still in union talks over the
possible closure of a German Opel plant after 2016, Ford
announced the job cuts and the closure of factories in Genk,
Belgium, and two British locations.
Ford was the second big automaker to act on overcapacity
after PSA Peugeot Citroen, whose solvency hangs on a
rescue plan and plant closure unveiled three months earlier.
The 18-percent capacity cut will restore European
profitability by mid-decade, Ford pledged at the time - provided
it also maintains its slice of the contracting market. Further
cutbacks could follow if the strategy falls short, executives
But Ford registrations tumbled 23.4 percent in the first two
months of the year, more than twice the market decline, data
from the European Automobile Manufacturers' Association shows.
Its market share fell 1.2 points to 6.6 percent.
"The assumptions they made when they published their plan
are no longer valid," said Philippe Houchois, a London-based
analyst with UBS.
"You can only restructure when you've got a view of where
the market is going."
Production in Genk, earmarked for closure next year, has
only just resumed after industrial unrest following the
restructuring announcement. Ford said this week it will pay $750
million (582 million euros) in severance to workers at the
The disruption accounts for part of the dent in Ford's
sales, which also suffered from distribution bottlenecks
affecting the replacement of its Fiesta and Kuga models.
Ford increased its 2013 European loss forecast in January to
$2 billion from $1.5 billion and predicted global pre-tax profit
in line with last year's $8 billion.
Sales incentives come in many forms and are difficult to
track. By some measures, however, Ford's European discounts
significantly outpaced competitors' last year.
Ford's average retail incentives jumped more than 30 percent
to top 2,750 euros ($3,500) per vehicle in the region's top five
markets, according to data from an independent market research
firm seen by Reuters.
The Ford figure was more than 500 euros above the
mass-market average, which rose by a more modest 11 percent in
Germany, Britain, France, Italy and Spain.
Company spokesman Mark Truby said he could not confirm the
2012 figures and insisted Ford's turnaround was on track.
"Our incentive levels are below industry average among
Europe's volume automakers," Truby said.
"We're fundamentally transforming our business in Europe by
significantly increasing new product, improving our brand image
and addressing costs."
The company's stock has risen 6.5 percent to $13.36 over the
past 12 months, compared with a 16.4 percent gain for GM.
The new Fiesta and Kuga models posted stronger orders in
February, Ford said this week, promising to revive deliveries
ahead of the late-2013 arrival of its EcoSport mini crossover.
Carmakers from Daimler AG to Renault
have also warned that European demand continues to weaken.
But responses have varied, with brands like Renault and Opel
vowing to maintain market share while GM's Chevrolet and others
give ground to defend prices.
Ford has yet to resolve the dilemma between pricing and
market share, which may deepen as German premium brands compete
more aggressively against its mid-market cars, some observers
"It's going to be difficult," said Tom De Vleesschauwer of
consulting firm IHS Automotive. "It seems impossible in the
current climate to have both."