announced a major restructuring effort of its European operations Friday, ending car production at its Dagenham plant in England and slashing the plant's workforce by about 25%.
Ford, the world's second-largest car maker, said it planned to stop assembling vehicles at the factory by the first quarter of 2002. The company will offer a voluntary layoff package for about 1,900 employees. The unions at the plant have vowed to block the move.
"Fundamental to the entire review process was Ford's outlook for vehicle assembly capacity in relation to expected demand," Nick Scheele, chairman of
Ford of Europe
, said in a statement. "In 1999 Ford of Europe had the capacity to build 2.2 million vehicles, but sold only 1.65 million. The company does not anticipate that situation altering dramatically in the near future unless decisive action is taken."
After years of applying failed remedies to its money-losing operations in Europe, analysts said the drastic two-year plan could provide a necessary cure for the company's European problems.
Wendy Beale Needham, an analyst at
Donaldson, Lufkin & Jenrette
, said previous "quick fixes" failed to address the fundamental problem, namely the company's inability to derive sustained profitability from its European operations. From 1991 to 1999, Ford lost $1.2 billion in Europe.
"This is the first time in our career that Ford appears to be serious about tackling its problems in Europe, and it will take hard choices and tough actions to bring those assets back to profitability," Needham wrote in a report.
Needham, who rates Ford a buy, said the impact of the restructuring could help the Detroit-based car makers' margins, noting that had Ford achieved the same margins as
in Europe, Ford's 1999 earnings per share would have been 38 cents higher. Ford's 1999 earnings per share totaled $5.83 per share.
"In 1999, one of the best years the European industry ever had, Ford earned $28 million, or 2 cents per share, in the region, and it accomplished the profit with tax credits; pretax the company lost $90 million," Needham said. "
, which has similar market share and lacks the Jaguar and Volvo luxury brands, earned $423 million in Europe last year."
Ford said it would make a five-year investment of $500 million in its Dagenham engine plant, including the creation of 500 jobs, which will result in a net reduction of 1,400 jobs at that site. The job reductions are on top of the 1,350 cuts at its body and assembly plant, which were announced by Ford in February.
Shares of Ford were up 11/16, or 1%, to 53 5/8 in midday trading Friday. (Ford closed up 7/16, or 0.8%, at 53 3/8.)