As Ford Exits Australia, a Lesson for U.S. Car Company Plans in Europe

Ford Focus 2012
Ford Focus 2012

Ford Motor Co. (NYSE: F) did the right thing in Australia, at least financially. It will stop building cars there. Its business in the country cannot work financially, the company says. It is a lesson to the American car companies that do business in another market where they operate in the red - Europe. The Australia move is a template for what Ford and General Motors Co. (NYSE: GM) need to do in the world's most economically troubled region, which is, like Australia, also one in which labor costs are too high.

Ford, and GM to a greater extent, believe they need to stay in Europe for strategic reasons, because the market is so large and eventually will recover. That recovery could be many years off, and it will not bring down GM's costs. Neither will it reverse GM's market share decline or recover the losses the company has incurred in Europe for well over a decade. Ford was smart enough to abandon a region where it had no hope of a turnaround. GM should make the same move in Europe.

Bloomberg reports that GM has lost $18 billion in Europe since 1999. After posting a full-year loss of $1.8 billion last year, the largest U.S. car company said it will lose another $2 billion this year. And, as the overall market in Europe continues to shrink, GM's part of that shrinking pie has dropped sharply. The AECA announced that in Europe overall sales fell 7.1% in the first four months of this year. GM's sales have been worse than most of its competitors over that period. Its unit sales have fallen 10.5% to 317,546. In contrast, rival Volkswagen's sales are off only 3.4% to 997,186.

GM is in a losing game in Europe, as Ford was in Australia. Like Ford, it should cut its losses and run.

Filed under: 24/7 Wall St. Wire, Autos Tagged: F, featured, GM