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Ford eliminates manufacturing in Brazil to cut costs

Phoebe Wall Howard, Detroit Free Press on

Published in Automotive News

Ford Motor Co. will stop manufacturing in Brazil in 2021 as part of a restructuring plan meant to cut costs and increase efficiency, the company announced Monday afternoon.

The company is closing two plants immediately and a third later in the year, affecting about 5,000 workers, spokesman T.R. Reid told reporters during a conference call. This is part of the long-term $11 billion restructuring plan that began with former CEO Jim Hackett.

Ford has lost hundreds of millions of dollars in the region. Vehicles sold in Brazil will continue to come from Argentina, Uruguay and other markets, the company said in a news release.

"With more than a century in South America and Brazil, we know these are very difficult, but necessary, actions to create a healthy and sustainable business," said Ford CEO Jim Farley in a statement. "We are moving to a lean, asset-light business model by ceasing production in Brazil and serving customers with some of the best and most exciting vehicles in our global portfolio. We will also accelerate bringing our customers the benefits of connectivity, electrification and autonomous technologies to efficiently address the need for cleaner and safer vehicles well into the future."

Ford will maintain its full customer support operations with sales, service, aftermarket parts and warranty support in Brazil and South America. Ford will also keep its product development center in Bahia, its proving ground in Tatui, Sao Paulo, and its regional headquarters in Sao Paulo.

Ford will cease production at Camacari, Taubate and Troller plants this year, as the COVID-19 pandemic "amplifies persistent industry idle capacity and slow sales that have resulted in years of significant losses," the company said.

The Dearborn automaker said it would "immediately begin working closely with its unions and other stakeholders to develop an equitable and balanced plan to mitigate the impacts of ending production."

This latest action is part of a long-term overhaul begun by Hackett, and sped up by Farley, who took the helm on Oct. 1.

Lyle Watters, president of Ford South America and the International Markets Group, said, "Our dedicated South America team made significant progress in turning around our operations, including phasing-out unprofitable products and exiting the heavy truck business. In addition to reducing costs across the business, we launched the Ranger Storm, Territory and Escape. ... The sustained unfavorable economic environment and the additional burden of the pandemic made it clear that much more was necessary to create a sustainable and profitable future."

 

Watters said the company is committed to the region.

Farley has said consistently he wants strong adjusted free cash flow as well as an 8% earnings before interest and taxes — known as adjusted EBIT.

Said Reid: "The market simply doesn't and isn't going to support our current cost structure in the region. that's behind the action today."

Production will stop immediately at Camacari and Taubate in Brazil with some parts production continuing for a few months to support inventories for aftermarket sales, Ford said. The Troller plant in Horizonte, Brazil, will continue to operate until the fourth quarter. The company will end sales of EcoSport, Ka and T4 once inventories are sold, Ford said. Plants in Argentina and Uruguay and other South America markets are unaffected.

Ford is further along with Europe and has made progress in China, Reid said. There was a battery quality issue in Europe that affected profits though things are looking positive in those places now.

While improvements have been made in Brazil, it's "simply not enough," Reid said.

As a result of this latest news, Ford "expects to record pre-tax special item charges of about $4.1 billion, including about $2.5 billion in 2020 and about $1.6 billion in 2021. The charges will include about $1.6 billion of non-cash charges related to writing off certain tax receivables and for accelerated depreciation and amortization," the release. "The remaining charges of about $2.5 billion will be paid in cash, primarily in 2021, and are attributable to separation, termination, settlement and other payments."

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