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Ford abandons "build cars and buyers will come" model

Editorial Staff

In the 1970s, The Ford Motor Company had acres of open storage filled with made-in-England cars that they could not sell. The culture was to keep factories open albeit below capacity. Now they, and other manufacturers, are facing the same dilemma. Ford says it's not going to make the same mistake again.

Ford used to have three main plants in Europe: Genk in Belgium, Cologne in Germany and Dagenham in England. There were many other smaller plants, a number of which have been closed in the intervening three decades. This week, Ford has announced that Dagenham and Genk will both close within the next two years. Additionally, a smaller plant in Southampton, England, will also close.

Ford is losing money in Europe at an alarming rate: it has just raised its estimate for this year from USD1,000 million to 1,500 million - and says it may be more. It hopes to recoup USD500 million from the closures and says that it hopes to bring itself into profit by the middle of this decade. Those sums don't add up, especially not over that timeframe.

Europe is suffering a decline in new car sales - in 2008, when the financial crisis was just beginning to be noticed, new car sales were 18 million. This year they are on target to fall just shy of 14 million.

The French government is providing what may yet be considered, by the EU, illegal aid to PSA Peugeot Citroën (which has now lost the Talbot part of its name) by providing credit guarantees to Peugeot's trade and consumer finance arm, so facilitating purchases.

General Motors has been steadily closing plants, or reducing their size, for more than a decade with the UK's Vauxhall unit taking major hits for the benefit of the German Opel factories. However, the Bochum plant in Germany is now slated for closure within the next three four years. Both the German government and the unions are enraged.

Ford is chasing lower costs: production of the new Mondeo is said to be set to be in Spain - where it produces various models - instead of Genk.

On some figures, Ford is currently operating at only two thirds of capacity across Europe. Some other manufacturers are operating at figures hovering around 50 - 60%.

That's a chunk of workforce and expensive machinery standing idle - or building cars that will just sit in a field until someone orders it.

Historically, that led to deep discounting, selling of cars at below cost and the creation of innovative financing techniques to shift the unsold cars off the balance sheet. These days, customers don't buy stock cars in the same number as they used to: since the now defunct MG-Rover put its "build to order" terminals in showrooms more than a decade ago, customers have become used to choosing a base car and adding a huge range of options, including colour combinations, that were previously "pre-selected" by the manufacturer. And while figures show that white cars with grey interiors outsell most other combinations, there are not enough programmable buyers to make sure that ready-made metal will sell in sufficient numbers to keep manufacturers afloat.