In a bold move, Ford Motor Company has announced that it will close three European based plants and cut approximately 5700 jobs to stem ongoing losses in its European operations.  The plants involved include two plants in the United Kingdom and a plant in Belgium.  The bulk of Ford auto production on the continent will shift to its manufacturing plant in Turkey. With these actions Ford hopes to attain $450 – $500 million in savings.

The ongoing European financial crisis continues to have economic and global supply chain consequences, particularly concerning the automotive sector.  During the 2008-2009 global financial crises, many European countries protected their automotive sector through subsidies and other programs. Many industry watchers were thus painfully aware that there was already a hefty basis of excess production capacity prior to the current crisis.

Many OEM manufacturers are now struggling with developing pragmatic plans to deal with the realities of the European auto market.  Similar to what occurred in the U.S. during 2008-2009, no country wants to politically orchestrate the destruction of an automotive supply chain that fuels jobs and income for many. At the same time, consumers do not have the economic means or confidence to go out and purchase a new automobile.

General Motors has struggled for some time with its strategy for Europe, threatening plant closings in Belgium and Germany, among others, only to run against strong political and union based opposition. The company just announced a stepped-up alliance with French based PSA Peugeot Citroen to jointly develop and produce several vehicles on shared platforms. On the topic of Peugeot, it just announced that it received financial bailout assistance from the French government.  Fiat SpA continues to telegraph a need to take action, threatening the closure of Italy based and other plants. Volkswagen has encountered a discernible impact on European based sales having recently reported declines in revenues and margins.

Through its actions, Ford has made a bold move in Europe, despite the political and other fallout.  But, unlike some of its other European based competitors, Europe is not the central component an overall Ford global strategy. As we in the U.S. continually hear reinforced in the ongoing U.S. presidential campaign, the U.S. OEM’s General Motors and Chrysler were saved because their existence and consequent supply chains were essential to any consequent economic recovery.  That is turning out to be true as new investment continue to flow into U.S. based OEM and supplier plants.

Collectively, Europe’s political and automotive industry business leaders will have to deal with industry realities.  They include a very difficult problem of having far too much production capacity, while not permanently destroying the core supply chain network that can fuel future product innovation, economic and job-based growth. In 2008, Supply Chain Matters opined that core automotive supply chain capability must be preserved.  We continue with that belief. It comes down to a focus that moves beyond saving any individual company but rather preserving an industry capability that is essential to economic prosperity.

In the meantime, this week’s Ford announcement will only add additional pressures for industry and governmental action.

Bob Ferrari