Ford's Attempt to Revive Europe Sales

Ford's Escape/Kuga looks to help revive sales in Europe. Photo Courtesy of Ford.

It's been a great couple months for Ford (NYSE: F  ) and its investors; we've witnessed the stock price almost reach $16 as of Thursday. It's come a long way from its 52-week low of $8.82, much to the delight of Ford investors. One of the major remaining overhangs on the stock is losses in Europe, and when the company manages to improve the situation in the region, we could witness yet another positive catalyst for the stock price. I'll explain management's expectations, and how Ford is attempting to boost sales in Europe.

By the numbers
In the first quarter, General Motors (NYSE: GM  ) announced it had lost $175 million in Europe, which was an improvement from last year's first quarter, but still added to a staggering grand total of about $18 billion. While Ford's total losses aren't nearly as massive as GM's, it still has work to do; its first quarter losses hit about $462 million in Europe and it still expects to lose $2 billion this year. In a region where many countries face 20% unemployment or worse, people simply aren't jumping to buy cars.

Management from GM and Ford both hope to see the region stabilize in 2014, allowing both to break even around mid-decade. Until then, both will be cutting costs and capacity at numerous plants.

According to USA Today, Ford estimates that closing its plant in Belgium at the end of 2014 will cost roughly $750 million in cash expenditures. Ford is also closing two other plants in U.K. and will attempt to lower its overall capacity.

Ford isn't falling into the same trap we saw during the U.S. financial crisis where automakers dished out thousands of dollars in incentives in an attempt to maintain market share. Rather it's boosting its advertising and conceding market share to keep losses from growing substantially.

Advertising campaign
As Ford increases its overall advertising budget for Europe, it plans to keep its TV and print spending flat this year, according to AutoNews Europe. The increase will be felt in its digital platforms, which includes social media – a budget increase from 15% in 2012 to 35% in 2014.

The campaign is attempting to call out one specific technology feature per model, attracting different target markets. The Fiesta, which has done well attracting younger consumers, is going to feature the ability to link a smartphone to Ford's Sync entertainment system.

Ford's Escape has sold extremely well in the U.S. and has a chance to top 300,000 units sold for 2013 – a rare feat for Ford vehicles other than the F-Series. It's been welcomed with very positive reviews in China, and Ford expects it to be the most successful of its Europe advertising during the Champions League finale concluded last weekend.

"We think the audience is very close to the people we want to reach for the Kuga and SUVs in general," Elena Cortesi, Ford of Europe director of earned and social media, told AutoNews Europe, "and we're explaining the car mainly through the automatic tailgate."

Bottom line
It's been a nice ride for Ford's stock price recently, but two years from now if the company can break even in Europe it could send an additional $2 billion straight to bottom-line profits. That would clearly be a huge positive catalyst for the stock price. It's also reassuring to see that management has learned from mistakes made during the U.S. financial crisis and the ensuing recession, and is not resorting to massive incentives to sell vehicles.

I like the strategy to increase advertising and build its brand while conceding some market share to stabilize losses. Overall, things look bright for Ford and its investors, and the market is finally taking notice.

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