Paul Horrell25 October 2012

Ford announces factory closures

European manufacturers seem to be cutting their losses. But is this right? Paul Horrell reports

Ford announces factory closures

Nearly all the European mass carmakers are in deep, deep financial trouble. Ford today outlined a plan to cut its losses. Inevitably, that means closing factories.

The reason is that having car plants at less than full capacity is ruinously expensive. They only make money when they're going flat out. But car sales in Europe have collapsed from 18 million a year in 2007, to 14 million now. And the Korean brands are building significant numbers of cars here, putting more pressure on the old European names.

Ford has targeted its Genk plant in Belgium to shut, with the loss of 4300 direct jobs. And the Transit factory in Southampton will go too as its production moves entirely to Ford's plant in Turkey. That'll cost 1400 jobs in Southampton and the stamping shop in Dagenham that feeds it.

But those Transit cuts will be voluntary separations because people might choose other jobs within Ford. Luckily for Britain there are extra jobs coming in making a new diesel engine in Dagenham, and technical jobs in developing it in Dunton.

Ford reckons that shutting these plants will save up to $500m (£310m) a year. Overall, Ford's European losses are a staggering $1.5billion (£900 million) a year. So Ford also needs to improve revenue with better cars.

Peugeot is also trying to cut a plant, the giant Aulnay complex near Paris. And while President Hollande objected initially, it now seems like he might be persuaded. All the mainstream European manufacturers except the VW Group also have too many factories. That's Fiat-Alfa-Lancia, Peugeot-Citroen, Renault and Vauxhall-Opel, as well as Ford.

It's not an easy decision to shut plants. It means bitter rows with unions, it's bad for a company's image locally. And it generally costs the company about £70,000-£100,000 per worker made redundant. It also takes time, partly because - even though European Community rules preclude it - some national Governments quietly give incentives to keep plants in their territory open. Maybe that's why Britain and Belgium have seen several plants close while Germany and France hardly ever do.

With too much capacity, the manufacturers try to keep their plants running by cutting prices. This costs money, but not as much as under-using the plants and workers they're paying for. But while these cheap cars are nice for us car buyers in the short term, in the long term the manufacturers won't be able to invest in good new cars. For instance, all this manufacturing instability means we won't get the new Mondeo until late 2014. That's three years after they first showed us pictures of it.

Maybe what's needed is for one manufacturer to go out of business altogether, so the rest can take up their market share. But who would you want that to be? And what exactly would you say to its workers?

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