Ford warns of $1bn Brexit blow

Posted on July 28, 2016

Ford logos are seen at the assembly line of the Ford car factory of Saarlouis, December 6, 2010. REUTERS/Vincent Kessler/File Photo©Reuters

Ford is considering closing plants in the UK and across Europe in response to Britain’s vote to leave the European Union, as it forecast a $1bn hit to its business over the next two years.

The US motor company, which is the biggest car brand in the UK, will also raise prices on cars sold in Britain before the end of the year. Bob Shanks, Ford’s chief financial officer, said a price rise was needed to “claw back” money lost through foreign exchange movements.

    Sterling has fallen by 11 per cent against the dollar since the vote on June 23, leaving companies that sell into the UK facing lower revenues in the months ahead.

    Ford warned of a difficult second half of the year for carmakers, with weaknesses in the US and Chinese markets adding to headwinds caused by Brexit and currency swings.

    Mr Shanks said a combination of sterling’s devaluation and an expected hit to the UK car market would cost Ford $200m this year, and another $400m to $500m each year over the next two years.

    “We’re going to have to look more at cost,” he said, adding the company would find a way to “claw that back”.

    Questions have been raised over prospects for the UK’s car industry in the wake of the Brexit ballot, with analysts questioning whether British plants can win fresh work during a period of uncertainty over trade and its position in the single European market.

    Ford’s two remaining UK plants are at Bridgend and Dagenham, making engines which are exported to other EU countries for final assembly. Ford then reimports many of these engines in completed vehicles for sale in the UK.

    Analysts have warned that some carmakers would be forced to close plants in the UK if it faces trade barriers with the rest of Europe after Brexit.

    Ford has already closed all its remaining UK carmaking plants in the last five years, as well as one in Belgium with the loss of 5,700 jobs.

    When asked if the group would shut its remaining UK manufacturing operations, Mr Shanks replied: “Everything is going to be on the table across Europe”.

    The group is committed to achieving a margin target of between 6 and 8 per cent, he added.

    Part of this strategy will see the company raise prices in the UK. “There’s no question that there will be price increases,” said Mr Shanks. He indicated the company would move first “as the market leader” and said he would expect to see price rises “this year”.

    His comments follows a warning by Carlos Tavares, the chief executive of PSA Peugeot Citroën. He said on Wednesday that “everybody is now waiting for somebody to make the first step” in raising prices in the UK to offset foreign exchange movements.

    General Motors, which owns Vauxhall in the UK and Opel in Europe, last week said that the fallout from the Brexit vote would cost it $400m this year, while PSA Peugeot Citroën has said that every 1 per cent drop in sterling against the euro cost it €30m.

    In the second quarter, Ford reported margins of 5.8 per cent in Europe, up from 2.3 per cent a year earlier, lifted by record European profits on the back of strong sales.

    But the company missed expectations for its global businesses because of weaker sales in China and the US, sending shares down by 7 per cent.

    Net profit fell 9 per cent to $2bn in the second quarter, which was below expectations.

    Ford warned of “weaker than normal conditions” for the second half of the year, and said there was an “elevated economic uncertainty restraining business investment, with downside risk to global growth”.

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