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Ford Eyes Plant Closure in Belgium

Stocks in this article: F GM

COLOGNE, Germany -- ( TheStreet) -- Moving to reduce its overcapacity in Europe, Ford (F) said it plans to end production at its plant in Genk, Belgium, pending consultation with employees.

Production would cease by the end of 2014, leading to the reduction of 4,300 positions.

If the plan is confirmed, the automaker would expect to transfer production of the next-generation Ford Mondeo, S-MAX and Galaxy to its plant in Valencia, Spain. That could lead in turn to a move of production of the C-MAX and Grand C-Max compact multi-purpose vehicles from Valencia to Saarlouis, Germany.

The plan would help to address manufacturing overcapacity stemming from a more than 20% drop in total industry vehicle demand in Western Europe since 2007, Ford said. New-vehicle sales in the region have reached a nearly 20-year low this year and are expected to remain flat or fall further next year.

"The proposed restructuring of our European manufacturing operations is a fundamental part of our plan to strengthen Ford's business in Europe and to return to profitable growth," said Stephen Odell, CEO of Ford of Europe, in a prepared statement.

Ford and GM (GM) are expected to lose about $1 billion each in Europe this year.

"Both face the same problem: excess production capacity," Jefferies analyst Peter Nesvold said recently. "This is an industry-wide problem in Europe, where overall capacity utilization is 75%. It's even more pronounced at Ford and GM, which are only at about 70% utilization. Europe needs to cut 20% to 30% of industry capacity, similar to what the U.S. domestic industry was facing in 2008."

In the U.S., however, restructuring involved negotiations with one labor union and one government.

"The European auto industry must coordinate multiple sovereign governments with multiple unions, whereas the U.S. industry only had to negotiate with one government and one union," Nesvold said. "It's next to impossible to get everyone to move in the same direction.

Ford reports earnings Oct. 30, while GM reports Oct. 31. Analysts surveyed by Thomson Reuters estimate earnings of 29 cents a share for Ford and 59 cents for GM. UBS analyst Colin Langan recently reduced his estimates to 29 cents for Ford and 58 cents for GM in order "to reflect the relative sales underperformance in the European Union.

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