Ford fears new potholes in Europe

LAST YEAR, Ford Motor broke ranks with other vehicle companies when it announced major cuts in its troubled European operations, including the closure of three factories, to address a sharp downturn in sales and an oversupply of vehicles.

On Tuesday, Ford startled the industry again by predicting that Europe, a critical market, would get worse before it begins improving later this year.

Ford said European car sales, including commercial vehicles, could fall as low as 13 million this year, and its annual losses in the region could reach $US2 billion ($1.91 billion). Europe is Ford's second-largest market after North America.

"The industry did 14 million last year, and that was the worst in 20 years," Ford's chief financial officer, Bob Shanks, said. "The industry is continuing to decline and we think 13 million is the trough."

The dire predictions for Europe overshadowed what were otherwise positive fourth-quarter results.

The company reported a 54 per cent rise in adjusted fourth-quarter profit as strong earnings in North America compensated for heavy losses in Europe. Ford said it earned $US1.6 billion in the fourth quarter.

For the full year, Ford earned $US5.67 billion, a 5 per cent drop from $US5.97 billion in 2011, excluding tax-valuation changes.

The market in western Europe remains abysmal, but some analysts agree with Ford's assessment that sales may be close to a low point and could start to recover late this year as the eurozone crisis subsides.

Analysts at Goldman Sachs forecast that European vehicle sales would fall another 2.2 per cent in 2013, to 12.9 million vehicles. But they will rise 3.9 per cent in 2014, Goldman predicts, as customers start to feel more secure about their economic prospects.

In the meantime, companies such as the General Motors Opel unit and PSA Peugeot Citroen are trying to make broad reductions in jobs and production capacity. The recovery, if it comes, could be too late for many workers - and some manufacturers.

North American sales have been a bright spot for the world's carmakers, and Ford is no exception. Its overall revenue in the fourth quarter was $US36.5 billion, up 5 per cent, and for the full year sales were $US134.3 billion, down 1 per cent.

Healthy sales of new vehicles in North America resulted in good profit margins, particularly in the US, where the overall industry grew 13 per cent last year.

Ford plans to reduce its production capacity in Europe by 18 per cent and eliminate 5700 jobs by next year. The company will close an assembly plant in Belgium and two factories in England.