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Ford's Fields on Europe: 'You See Headache, We See Opportunity'

Stocks in this article: F GM

DETROIT -- ( TheStreet) -- Ford's (F) rising star Mark Fields sketched out a surprisingly bleak picture of the world auto industry Wednesday, but said Ford's strategic approach should enable it to avoid the potential pitfalls.

Fields spoke to a Barclays Capital investor conference in his first public appearance since Alan Mulally said on Nov.1 that he would remain CEO at least until 2014, but would turn over some key responsibilities to Fields and focus on strategic planning. Fields was promoted to chief operating officer, effective Dec. 1.

At one point during the conference, Barclays Capital analyst Brian Johnson introduced the topic of the troubled European auto market by telling Fields that "after Thanksgiving, this becomes your headache." Fields quickly corrected Johnson with a single word: "Opportunity."

Ford's plan is to be profitable in Europe by the middle of the decade. Fields noted that even in the third quarter, when Ford lost $452 million in Europe, Ford pricing in the region improved. "Our share was down a bit, but the net pricing was positive," he said.

It is clear that one of Ford's greatest strength is the success of its U.S. turnaround and the ability to use that as a blueprint in other regions. One aspect of the turnaround, Fields reminded, is matching capacity to growth. Another is to maintain a focus on new products.

"Our approach when we went through the downturn in North America was that we would sell the furniture before we cut the product program," Fields said.

While Europe's problems are well known, Fields noted that South America and the U.S. also present challenges for the auto industry. In South America, where Ford is the No. 4 automaker with 9.5% of the market, Ford earned nearly $4 billion from 2008 through 2011. But in the first nine months Ford's profit in the region shrunk to about $100 million, reflecting added industry capacity, unfavorable currency exchange that cost Ford about $400 million in the third quarter, and restrictive regional trade policies.

In Brazil, the region's largest market and Ford's fourth-largest market, "excess capacity is going to put more pressure on pricing and margins, particularly in the B segment (compacts), the largest segment in Brazil," Fields said.

"The environment in South America has gotten tougher, but we are confident that the plan we laid out will address the new realities," he said. The plan includes a focus on new products built on global platforms: the new products should attract buyers, while the broader use of global platforms means reduced costs. South America accounted for 9% of Ford's 2011 revenue: Europe accounted for 28% and Asia-Pacific accounted for 16%.

In North America, which accounted for 47% of revenue, industry sales are growing and Ford earned $2.3 billion in the third quarter. But Ford's fourth quarter will not be as strong as the third.

"We continue to see consumers trading down to smaller vehicles," Fields said. "Less trucks, more small cars and those vehicles have smaller margins."

Moreover, "What we've seen the last year or two is a pretty reasonable pricing environment, but even in the last couple of months, we have seen incentives go up," Fields said. Some competitors, whom he did not name, are offering high incentives on models that are just one year old, whereas in the past such high incentives were typically not offered until a model was three years old.

While the Ford F-150 pickup has long been the country's best vehicle, it is facing competition from a new Dodge pickup and from GM's (GM) new 2013 Chevrolet Silverado, scheduled to be unveiled next month. Fields was coy regarding the question of whether Ford will bring out a new F-150. "We take leadership very seriously," he said. "We also know that as a leader you have a target on your back. That's what drives our product planning going forward."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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