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Volkswagen AG (ADR) (VLKAY): Why Is Ford Motor Company (F) Losing in Europe?

Ford Motor Company (NYSE:F) is doing quite well here in the U.S., but it’s another story in Europe. Th company lost $1.75 billion in the Old World last year, the brutal result of a protracted car-sales slump that has hit the entire industry very hard.

Nearly all of the automakers doing business in Europe have seen big sales declines over the last year. Deep recessions in many European nations have led cash-strapped consumers to put off new-car purchases for now.

Ford Motor Company (NYSE:F)

But in recent months, Ford has lost more ground than most of its rivals. Europe’s overall auto sales fell 11.4% in February, but Ford’s fell even more — down almost 20% from year-ago totals.

It was a similar story in January, and in December, too, when Ford’s sales were down a whopping 27%.

We know Ford Motor Company (NYSE:F)’s latest cars are good. So what’s going on? And what does this slide mean for Ford’s efforts to get back to making money in Europe?

A discount war that crushed profits
As Europe’s auto sales have plummeted to a near-20-year low, many of the mass-market automakers have responded as you’d expect — with deep discounts. European market leader Volkswagen AG (ADR) (PINK:VLKAY), flush with profits from China and North America, cut prices aggressively in an effort to hold on to, or even gain, market share at less-well-funded rivals’ expense.

Naturally, those rivals have done their best to respond with price cuts of their own. Ford Motor Company (NYSE:F), long Europe’s No. 2 car brand behind VW, did plenty of discounting — until last fall, when mounting losses led the company’s senior management to rethink the company’s approach in Europe from top to bottom.

A plan to return Ford Europe to profitability
That rethink led to a comprehensive turnaround plan, announced by Ford CEO Alan Mulally last October. The plan, intended to restore Ford Europe to profitability by mid-decade, is well thought out and comprehensive. Most analysts gave it a good chance of succeeding, and Ford’s stock rallied in the days after the announcement.

Under the plan, Ford will close a factory in Belgium and two in the U.K., eliminating more than 5,000 jobs and saving as much as $500 million a year. Ford will also sharply expand its European lineup, drawing on its strong global product portfolio to expand its offerings of SUVs and commercial vehicles in Europe. The expanded product lineup should allow Ford Motor Company (NYSE:F) to capture additional sales in segments it hasn’t previously contested in Europe, at minimal cost.

Ford also said it will engage in “brand strengthening,” improving its marketing and taking steps — such as reducing dealer inventories, and cutting sales to rental-car companies — to improve transaction prices.

Or put another way, over the past few months, Ford has been selling its cars and trucks with fewer discounts.

Is that shift in strategy costing Ford more sales than it had expected?

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