Ford ends production in Brazil after over a century there – closing 3 factories to chase 8% EBIT margin

Ford has announced that it will cease production operations in Brazil this year. The Blue Oval says that the move is part of the company’s strategy to achieve 8% global operating margins, but the development comes as a surprise as Ford has been making cars in Brazil for over a century.

Production will cease immediately at Camaçari and Taubaté in South America’s biggest country, with some parts production continuing for a few months to support inventories for aftermarket sales. The Troller plant in Horizonte will continue to operate until Q4 2021.

As a result, the company will end sales of EcoSport, Ka and Troller T4 (pic above) once current stock is depleted. Factories in Argentina and Uruguay and the sales companies in other South America markets are not affected. Ford Brazil will maintain its product development centre in Bahia, its proving ground in Tatuí, São Paulo, and its regional headquarters in São Paulo.

“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. 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,” said Jim Farley, Ford president and CEO.

“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, and introduced innovative services for our customers,” said Lyle Watters, president of Ford South America and the International Markets Group.

“While these efforts improved results over the past four quarters, the sustained unfavourable economic environment and the additional burden of the pandemic made it clear that much more was necessary to create a sustainable and profitable future,” he explained.

Ford says that it is actively evaluating its businesses around the world, including in South America, making choices and allocating capital in ways that advance its plan to achieve an 8% company adjusted EBIT margin and generate consistently strong adjusted free cash flow.

The Detroit carmaker has stated that it wants to “compete like a challenger” while simplifying and modernising all aspects of the company, and grow by capitalising on existing strengths, disrupting the conventional automotive business, and partnering with others to gain expertise and efficiency.

“We will work earnestly with unions, employees and other stakeholders to develop measures to help deal with the difficult impact of this announcement. I want to emphasise that we are committed to the region for the long-term and will continue to offer customers full sales, service and warranty support. This is especially true as we bring to market a robust lineup of exciting connected and electrified SUVs, pickups and commercial vehicles from within and outside of the region,” Watters added.

For this, Ford expects to record pre-tax special item charges of about $4.1 billion (RM16.65 billion), which will include about $1.6 billion (RM6.5 billion) of non-cash charges related to writing-off certain tax receivables and for accelerated depreciation and amortisation. The rest will be paid in cash, and are for separation, termination, settlement and other payments. The carmaker will look for buyers for its factories.

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