(Bloomberg) -- Ford Motor (NYSE:F) Co. will eliminate about 20% of its workforce across Europe in a sweeping overhaul that reflects the challenges facing carmakers in the region.
The restructuring, which has been announced piecemeal, will involve reducing its manufacturing footprint in Europe to 18 facilities by the end of 2020 from 24 at the beginning of this year. Germany, the U.K. and Russia will be hardest hit by the cuts, which total about 12,000 regular staff as well as workers employed at joint ventures, Ford said Thursday.
“Separating employees and closing plants are the hardest decisions we make,” Stuart Rowley, Ford’s president of Europe, said in a statement. “We are moving forward and focused on building a long-term sustainable future.”
Ford, struggling in the region’s crowded and mature market for years, has been particularly hard hit by falling car sales in the U.K. as a result of the uncertainty surrounding the country’s exit from the European Union. Underscoring the industry’s woes, the European automakers’ lobby group on Thursday lowered its forecast for the region, predicting that deliveries will likely fall 1% this year. That compares with a previous prediction of 1% growth.
Ford announced in January a major revamp for Europe, but at the time didn’t specify the full extent of the job cuts. As part of the changes, six plants will be closed or sold by the end of next year, including the Bridgend engine plant in South Wales, a transmission plant in France and an assembly site in Russia.
Tough Targets
Ford said that European operations are “on track” for significant improvement this year. Over the long term, the company is pushing to lift the division’s profit margin to 6% -- lower than a previous goal of 8%.
“Even with these measures, it’s very hard to see Ford returning anywhere close to 6%-8% margins in Europe,” said Arndt Ellinghorst, a London-based analyst Evercore ISI.
The company’s woes aren’t limited to Europe. At its annual shareholder meeting in May, investors voiced their grievances over falling market share, the speed at which the company is cutting costs and the long way the stock still has to go to recoup steep losses over the last few years.
The challenges are forcing automakers to consider partnerships that would have once been unthinkable. Volkswagen (DE:VOWG_p) AG may approve expanding an alliance with Ford when it meets in two weeks, according to people familiar with the matter.
In addition to grappling with sluggish demand, carmakers are scrambling to meet stiffer environmental regulations starting in 2020. Based on its 2018 carbon-dioxide emissions, Ford faces a potential penalty of around 2.56 billion euros ($2.91 billion), according to researcher JATO Dynamics.
Consultant AlixPartners predicted that the automotive industry would need to invest more than 245 billion euros over the next five years globally to comply with tougher guidelines, even as worldwide demand stagnates or shrinks.
Ford said Thursday that every model line in Europe will include an electrified option and said a future family of battery-powered vehicles will be assembled in Europe. The Dearborn, Michigan-based carmaker will add at least three new nameplates to its lineup over the next five years and may pare more slow-selling or gas-guzzling variants.
“Where a product line either does not contribute to our cash flow or is adverse to our CO2 compliance, we will consider actions,” Rowley said in an interview.
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