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Ford warns of plant closures to combat $1 billion Brexit blow

Peter Campbell
Adam Jeffery | CNBC

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

The U.S. motor company, which is the biggest car brand in the UK, will also raise the price of cars sold in Britain before the end of the year. Bob Shanks, chief financial officer, said a 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.

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Ford warned of a difficult second half of the year for carmakers, with weaknesses in the U.S. and Chinese markets adding to headwinds caused by Brexit and currency swings. The warning, combined with Ford missing expectations in the second quarter, because of weaker sales in China and the U.S., sent its shares down more than 9 per cent to $12.52 in late-morning trading in New York.

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

"We're going to have to look more at cost," he said. 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 the plants can win fresh work during a period of uncertainty over trade and the country's position in the single European market.

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

Ford falls short of estimates

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 past five years, as well as one in Belgium with the loss of 5,700 jobs.

Asked if the group would shut its remaining UK manufacturing operations, Mr Shanks said: "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 mean higher 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 he would expect 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 the fallout from the Brexit vote would cost it $400m this year. PSA Peugeot Citroën has said 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 weakness in other key markets resulted in net profit falling 9 per cent to $2bn in the second quarter, below expectations.

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

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