The Wall Street Journal

Why Ford and GM Scaled Back in Europe

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Decades after expanding to Europe, Ford and General Motors have both scaled back in the region, in part to gravitate back to their sweet spot: trucks and SUVs. WSJ explains why the two U.S. auto giants struggled to turn a profit in the European market.

Photo composite: Heather Seidel/The Wall Street Journal

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(thoughtful music)
- [Narrator] Take a look at this map.
It shows 23 plants that Ford
has in Europe from the UK to Russia,
but recently, Ford laid out plans
to cut six of these European factories.
- So six of 'em, they're gonna sell one.
They're closing several, they're gonna lay off about 20%
of their workforce there, which is about 12,000 people.
- [Narrator] But Ford is not the only U.S. automaker
that's scaling back in Europe, two years ago
General Motors pulled out of the market almost entirely,
selling their European brands to French car maker Peugeot.
Both companies expanded to Europe decades ago
as a wider strategy to scale globally,
but they both had trouble making money in the region.
Let's take a look at these two charts.
This one shows Ford's operating costs
in Europe over the past six years.
The gray is profits overall,
and the red is profits in Europe.
Now let's go to GM, this chart shows GM's losses in Europe
over the 20 years before they pulled out of the region.
So, why has it been so hard for these two auto makers
to turn a profit in the European market?
- So the first reason is that
Europe's always been a real tough market.
Ford and GM have always been sort of
middle of the pack there, I mean the real powerhouses
are Volkswagen, Renault, Peugeot,
and when you're sort of a middling player in Europe,
when you already have small profit margins,
it just makes life a lot harder for the U.S. brands.
GM is making a decision to only compete
in markets where they're the number one
or number two operator, and so they felt like
they've lost money there for 20 years,
and they didn't wanna continue to do that.
- [Narrator] And while GM has largely
pulled away from Europe, Ford is looking
to scale back and shift focus.
- What's behind this is a change of business strategy.
They're selling fewer passenger cars to individual buyers,
and they're focusing more on their commercial market
where they're strong, which is cargo vans and trucks
to business buyers and governments.
Bigger vehicles generally equate to bigger margins.
There's less competition, they're the number one commercial
van auto maker there, so they already are more profitable
in that space and they feel like if they focus
on growing that, they could boost margins even more.
- [Narrator] The second reason U.S. auto makers
are scaling back has to do
with Europe's tight environmental rules.
- Another big factor that GM talked about a lot,
when it pulled out, was emissions standards.
Europe has some of the most stringent in the world,
and they're only gonna get tougher,
and that's gonna cost a lot of money
for the car companies to comply
because they're gonna have to invest in
hybrids and battery electric cars.
It's mostly battery technology.
Battery cells, the costs have come down some,
but most experts think we're still
six, eight, 10 years out from an electric car
being sort of on-parative cost wise with a gas powered car.
- [Narrative] The last major reason
is that Ford and GM are gravitating
back to their sweet spot, SUVs and trucks.
- I mean these U.S. car companies are really good
at making big SUVs and big pickup trucks.
I mean Ford's, the best selling truck in the U.S.
is Ford's F150, it has been for years and years.
GM sells the Chevy Silverado, and the Chevy Suburban.
These are huge vehicles that aren't sold in Europe.
The gas prices are too expensive.
You know, the streets are narrower.
People don't have as many big garages like we do in the U.S.
And so, I mean that's what Detroit has focused on,
and that's where they make virtually all their money.
And that's why they've never really been all that great
at making small cars, and the European brands
have a big advantage over the U.S. brands there.
So they're playing to their strength.
Companies like GM and Ford, for decades
they tried to build scale, not only in Europe,
all around the world because it's
a really capital intensive business, and you need scale.
And now what you're seeing is,
they've got other needs to spend that capital elsewhere.
Electric vehicles, autonomous vehicles.
So they realize they can't be all things to all people
in all markets, and they've gotta pick their battles.
They've gotta choose where they're gonna spend their money.
(soft music)

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