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Two Big Challenges Facing Ford Motor Company (F)

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Ford Motor Company (NYSE:F)It’s no secret that Ford Motor Company (NYSE:F) has been on a roll over the past few years.

After a wrenching restructuring, Ford Motor Company (NYSE:F) has been able to launch a string of strong, competitive products that have been stealing sales from its longtime rivals — and generating record profits here in the U.S.

Ford’s profit margin in North America has been among the highest in the business, and the numbers have been impressive.

But for all of its success here at home, Ford is still facing some challenges. Here are two big ones.

Challenge 1: Europe
Why does Europe matter to Ford? It matters because Europe is a big part of Ford’s business, and lately it has been losing a ton of money. Ford lost over $1.7 billion in Europe last year, and $462 million more in the first quarter of 2013. It has warned that it could lose $2 billion this year. That’s not because Ford Motor Company (NYSE:F) made huge mistakes, it’s because recessions in Europe have clobbered new-car sales: They’re now at lows not seen in 20 years, and they may fall further before things start to improve.

Ford’s small Fiesta is one of Europe’s best-selling cars. Photo credit: Ford Motor Co (NYSE:F).

Ford Motor Company (NYSE:F) is the second-biggest auto brand in Europe after Volkswagen , and cars like its Fiesta, shown above, are big sellers. Last fall, Ford announced a comprehensive turnaround plan for Europe that is closely modeled on the approach that has made Ford such a success here in the U.S. The company will cut production by closing three factories, one in Belgium and two in the U.K.

It’s also introducing more of its global products to Europe, including vehicles like the Explorer and Mustang that haven’t traditionally been part of its European lineup. And it’s emphasizing more profitable retail sales over sales to rental-car fleets, and cutting back on discounts, in an effort to make sure that it’s maximizing the profits on the cars it does sell.

Ford says that all of these changes should get it back to at least breaking even by the end of 2015, even if overall European auto sales don’t improve between now and then. Ford Motor Company (NYSE:F)’s approach has a lot of credibility with Wall Street, because of the success of Ford’s U.S. turnaround, and it’s a good bet that this story will end well for Ford. But it’s a complicated situation, and it’s one that Ford shareholders should monitor closely.

Challenge 2: Quality
Ford’s new cars and trucks are huge improvements over the old models, reviewers and owners say. But they’re getting knocked in quality surveys. The latest J.D. Power Initial Quality Survey knocked Ford’s most prominent entries, even while giving rival General Motors Company (NYSE:GM) high marks. And Consumer Reports has lately been on Ford’s case as well. But everybody agrees that these are the best Fords ever. What’s the deal?

There are two deals, actually. First is that Ford has had some troubles with the launches of new products. To some extent this is the fault of Ford’s suppliers, rather than Ford itself: Issues with faulty parts on all-new vehicles marred last year’s launches of both the Escape SUV (which had several recalls) and the Ford Fusion. Those issues have all been resolved, but they hurt Ford Motor Company (NYSE:F) in the J.D. Power standings.

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