Here is an article from the Wall Street Journal today about Ford closing down their European operations as part of a major restructuring. What appears to be happening is that Ford is increasing its focus on the U.S. auto market, which currently more than offsets its losses in Europe. Ford is clearly showing its commitment to compete with GM and Toyota in the U.S. as well as Asia, and it seems to make sense given multiple complications in Europe with car sales.
GM is also making similar considerations regarding their unprofitable Opel unit. Clearly, Europe is not a region auto makers feel comfortable operating in right now, given extremely poor sales and a bleak future in the near as well as long-term. With these auto makers retreating from Europe, the region will be further impacted and most likely see further contraction. It is reassuring, however, to see these companies’ continued focus on their core products and servicing the U.S. so they stay on top in this market. Do you all think it’s a good idea for them to be exiting Europe right now?
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In my opinion, GM never really entered the European market. Although GM bought the Adam Opel AG in a very early stage (1929) and thus officially entered the European market at about the same time as Ford, the company was never able to attain high profits in Europe as well as build up a brand name. While Ford cars became more and more popular in Europe due to their prices, GM is left with nothing, now that Opel makes operative losses. In fact, Opel has made a loss of more than one billion dollars since the beginning of this year. Opel claims to be back on track in 3 to 4 years by investing in innovative engines but I am not really sure whether anyone in Europe, especially Germany, will buy an expensive fuel-saving Opel. The brand still has the stigma of being cheap. GM’s answer is now to lay-off 2600 workers, which is totally understandable since it tries to reduce costs in a time when Europe faces a crisis that will probably not be over in the next two years. Ford has the same answer. Nevertheless, from my perspective, this answer emphasizes GM’s focus on China, the market that already contributes heavily to GM’s profits. However, this could bear the risk of losing the European market once and for all. Once the European crisis is over – and I’m pretty sure that it will be over at some point – GM will stand no chance in Europe.
One challenge for GM in Europe is that the best-selling cars in China were designed in Germany. It doesn’t know what to do with its European manufacturing and marketing operations but it has profited indirectly from its presence in Europe, with the greater array of engines, transmissions and body architectures that stem from that. I’m scanning a nice little book now on GM in China (as a possible text for Econ 274 next term), lots of details on the origins of vehicles and the process of getting them modified for the specific needs of the China market.
It seems in Ford’s European venture, designing cars to meet European tastes and preferences, took the focus off its American cars. Companies like Toyata and Honda were able to continue and improving and for a while produce a superior product to the American manufacturers. WIth Ford focusing for of it RandD on America it has the chance to once again create superior products that the American consumer demands.
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