Ford Closing Plants, Cutting Jobs in Europe

With losses increasing in Europe, and the outlook for sales looking grim, Ford Motor aid it will now close a second final assembly plant in that continent and cut nearly a fifth of its capacity.

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"We are reflecting reality or what's happening in Western Europe," said Ford CEO Alan Mulally. "These are appropriate steps to take given the current reality."

The reality is an auto market with sales (down 12 percent year-to-date) running at their slowest pace since the early '90s and losses increasing due to a price war that has automakers raising incentives in order to generate sales. (Read More: Americans Buying Fewer New Cars in Lifetime.)

Ford Europe Losses Grow, Plants Closing

Ford has increased how much it expects to lose in Europe this year. The company said it now sees Europe losses of at least $1.5 billion, an increase of $500 million from earlier guidance. As a result, Ford is slashing its footprint and work force in Europe with the following moves.

• Closing the Southhampton, England and Genk, Belgium final assembly plants.

• Closing a stamping plant in Dagenham, England.

• Reducing capacity in Europe by 18 percent.

• Shedding 13 percent of its work force in Europe (approximately 5,700 jobs).

Stephen Odell, Chairman and CEO of Ford of Europe, said the cuts are necessary since the European market is expected to remain weak for the foreseeable future. "One of our key principles is to right-size production to demand and that's what we're doing," Odell said.

Europe Outlook Challenging

While Ford believes it can return to profitability in Europe by mid-decade, it expects the auto market in western Europe to struggle for a while. (Read More: Ford CEO Plots Europe Comeback.)

The auto sales rate on the continent is running at roughly 14 million for the year (by comparison, the U.S. is between 14.5-15 million for 2012) and shows few signs of improving.

"It does feel like we're running at a very low level, but we could see next year's level to fall slightly further," Odell said. "We'll see sales at these levels until we see employment rebound."

The losses in Europe are particularly troubling for Ford since the company gets about a fourth of its sales in that continent where it has traditionally been one of the stronger auto brands, especially in key markets like Great Britain. (Read More: European Car Market Contraction Sharpens in September.)

Better Than Expected Q3 Overall

Despite the horrendous situation with its European operations, Ford as a company enjoyed a better-than-expected third quarter. The company said total company pre-tax profit and operating EPS will be better than second quarter. The company will release full earnings next Tuesday. The company's optimism is because of a strong finish to the quarter, especially in North America.

Ford reiterated it expects to post solidly profitable earnings for the entire year. "We're still going to have a very, very good year this year," said Bob Shanks, Ford's chief financial officer.

—By CNBC's Phil LeBeau