The small industrial city of Genk, Belgium, prospered alongside the rest of Europe after World War II, first through its rich coal deposits and later when global businesses like Ford Motor Co. set up shop in the 1960s.
The coal mines have long since closed. On Wednesday, Ford said it would shutter its half-century-old Genk plant – a blow for a region battling record-high unemployment, and a sign of the longer-term economic challenges that could make Europe a drag on the world economy for years to come.
Attracted to a rich market that was a mainstay of the industrial world, American and other car makers invested heavily in Europe — in Ford’s case establishing five plants in four nations of what is now the euro zone. They are now adjusting to a market where sales have collapsed, wages have been pushed out of line with world standards, and factories are operating far below capacity.
“This is a reality check moment,” for the auto industry in Europe, IHS Automotive analyst Ian Fletcher said, projecting that three other factories may close in the next year or two, including a major Peugeot facility near Paris. “They are just leaking money.”
Recent actions by the European Central Bank appear to have calmed fears about a crack-up of the euro currency union. But it has done little to stem the tide of bad economic news, including another downturn on Wednesday in an index that measures corporate purchasing plans.
Ford officials said they will hold talks with the Belgian government, as required under local labor laws, before closing the plant and eliminating roughly 4,300 jobs. Local reports from the Flanders region said several thousand other related jobs were at risk, particularly among suppliers whose businesses were closely integrated with the Ford plant.
Though some of the plant’s production may be shifted to other factories, including to one in Valencia in the recession-hit nation of Spain, auto industry and other analysts said there will likely be few job gains at those other facilities because they are running so far below capacity.
After twin recessions since 2008 and a lingering financial crisis, vehicle sales throughout Europe have fallen some 20 percent since their 2007 peak. Once-vibrant auto industries in countries like Spain have shed employees by the tens of thousands, while national champions like French automaker Peugeot have turned to government help – including a $7 billion loan guarantee announced on Wednesday.
Ford officials said that as they reviewed their investments in Europe, they saw little hope of a rebound. Ford Europe managed to stay profitable during the continent’s first financial crisis and recession but is expected to lose a billion dollars this year as the euro zone continues to slump.
“Everybody has over capacity…and that problem has been kicked down the road,” said Ford spokesman Mark Truby. “The recovery will be slow and gradual.”
The Genk plant produced some 430,000 Ford Mondeo and Galaxy vehicles in 2001, according to IHS’s Fletcher; this year’s production is expected to be 140,000.
The Ford announcement comes amid a broader restructuring of investment in Europe as companies, banks, pension funds and others assess the fate of a region struggling to keep the euro currency union intact while facing prolonged slow growth. Just as American money market and other investment funds pulled away from European government bonds – a run from what was seen as high-risk government debt in countries such as Greece and Portugal – American and other companies are cutting back to match lowered expectations.
Japanese automakers have largely based their plants in eastern Europe, Fletcher said, taking advantage of cheaper labor and more efficient factories. The German auto industry remains strong but has benefited from strong exports of luxury brands, such as Mercedes and BMW, to China.