Ford’s closure in Brazil leads to the loss of 5.000 jobs and sheds light on the country’s high production costs

After more than a century operating in the country, Ford leaves Brazil claiming a global restructuring

Photo: REUTERS/Paulo Whitaker
  • After more than a century operating in the country, Ford will close three plants in Brazil this year, taking pretax charges about 4.1 billion of dollars;
  • As a result of the plant closures, Ford will end sales of the EcoSport, Ka and T4 models once inventories are sold;
  • Ford plant closures to aid overseas profitability, analyzes J.P. Morgan.

Ford Motor Co said on Monday (11) it will close its three plants in Brazil this year and take pretax charges of about 4.1 billion of dollars as part of the 11 billion of dollars restructuring that the company claims is global – remembering that in 2019, the company’s historic unit in São Bernardo do Campo (SP) had already been affected.

Production will cease immediately at Ford’s plants in Camaçari and Taubaté, with some parts production continuing for a few months to support inventories for aftermarket sales. The Troller plant in Belo Horizonte, Brazil, will continue to operate until the fourth quarter. The plant closures affect about 5.000 employees, mostly in Brazil. 

“We know these are very difficult, but necessary, actions to create a healthy and sustainable business,” Ford Chief Executive Jim Farley said in a statement. “We are moving to a lean, asset-light business model by ceasing production in Brazil.

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As a result of the plant closures, Ford will end sales of the EcoSport, Ka and T4 models once inventories are sold. Production in Argentina and Uruguay, as well as sales in other South American countries, will not be affected.

Crisis – Ford said that industry vehicle sales fell 26% in Brazil last year and are not expected to rebound to 2019 levels until 2023 with an emphasis on less profitable fleet sales.

The association that represents vehicle manufacturers in Brazil, Anfavea, said last week that sales of new vehicles in Brazil are expected to grow 25% in 2021, after production dropped 31,6% em 2020, reaching 2.5 million units sold this year. But, despite the growth, the sales projection still represents an idler on production of 50%, since the capacity of the national industry is 5 million vehicles per year.

Anfavea said in a brief statement that the decision of the U.S. automaker confirms what the association has been warning for more than a year about idler on local production and the lack of measures to reduce the Brazil’s high production costs.

Brazil’s Economy Ministry lamented Ford’s decision to end production in the country and said that it reinforced the need for reforms to improve the business environment and that the government works hard to reduce the production costs. But, it also said that the decision is at odds with the economic recovery of Brazilian industry after the economic crisis caused by the coronavirus pandemic.

READ ALSO: To get back on track, Latin America needs to find a never-before-achieved balance between structural reforms and monetary stimulus

Analysis – J.P. Morgan analysts said that Ford Motor Co’s decision to close these three plants in Brazil will cut its losses and allow it to focus on boosting profitability in its underperforming international segment. The brokerage raised its price target for Ford’s stock by 10% to $11.

J.P. Morgan analyst Ryan Brinkman said in a note the move came at a time when investors had been complaining of the absence of a path to profitability for the South American businesses.

“We expect the move to quickly reduce losses in its South American operations, for which we now model a breakeven result in 2020 compared with a loss of $300 million prior.”

Credit Suisse analysts also said the plant closures supported Ford’s road to improved margins and that a reduced footprint made sense.

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