US auto manufacturer Ford has announced that it will invest some EUR800mn (US$980mn) in its plant in Genk, Belgium, following negotiations with labour unions. In an 18-month programme, the company will continue producing the Mondeo, S-Max, and Galaxy models at the site. BMI believes that ongoing cost-saving measures at the site have made this a more attractive facility to keep open, despite the company's desire to reduce over capacity in Europe.
Recently, there had been some media speculation that none, some, or all of the models would be continued at the plant. Ford Genk employs some 4,500 staff on site, while 1,500 more work for Tier 1 suppliers using a conveyor system for supply, and a further 800 employees are involved at Tier 2 suppliers. As part of the deal to keep production at the site, the labour union agreed to deliver 12% savings costs - an achievement that has already been in place for the past year and a half. BMI believes that these ongoing cost-saving measures formed part of the company's decision to keep current production at the plant and to invest in the facility.
Over the first eight months of 2012, Ford's sales in Europe have fallen some 12% year-on-year (y-o-y), to 645,000 units. The passenger car market across the region declined 6.6% y-o-y in this period, to 8,592,000 units.
|Short Term Uptick|
|Passenger Car Production, CBUs|
Indeed, Ford is projecting losses of more than US$1bn from its European operations this year, and has begun examining its competitiveness in the region, including its model portfolio ( see our online service, August 15, 'Ford's Falling Profits Suggest Possible Restructuring'). Ford's Q212 net income fell 57% y-o-y to US$1.04bn, with its European operations losing US$404mn. BMI believes that Ford, like other mass market manufacturers, is likely to need to take strong measures to abate the decline in profit margins in the region. Indeed, we believe Ford, and others, will need to actively address over capacity issues, and expect to see plant closures or cutbacks in production across the industry in the future.
BMI forecasts passenger car production in Belgium to increase 0.9% in 2012, to 567,000 units. In other Western European markets, particularly Italy, Spain, and France, vehicle production has declined sharply amid dwindling regional and domestic sales. We believe that Belgium is a relatively attractive investment destination, and expect to see some more investments in the future.