Ford ending manufacturing in Brazil, but will continue South America operations

Jordyn Grzelewski
The Detroit News

Ford Motor Co. on Monday said it will cease manufacturing operations in Brazil amid an ongoing restructuring of its global operations and challenging economic conditions in South America.

Vehicle production at the automaker's plants in Camaçari and Taubaté will cease immediately, with parts production continuing for a few months. Ford's Troller plant in Horizonte will continue operating until the fourth quarter. In all, the closures will affect some 5,000 employees.

Still, the Blue Oval said its departure from Brazil does not mean an exit from the South American market. The automaker will continue to sell vehicles in the region, sourced from manufacturing facilities in Argentina, Uruguay and other parts of the world. And the company will maintain numerous non-manufacturing facilities in Brazil.

The shuttering of Brazil production, which will cost the automaker some $4.1 billion in charges, marks another step forward in the global restructuring the company has been undergoing since 2018. It's also consistent with CEO Jim Farley's newly-detailed plan to fix and grow the Blue Oval's automotive business. 

"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," Farley said 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."

About $2.5 billion of the charges will be recorded in the fourth quarter of 2020, and about $1.6 billion in 2021. About $2.5 billion of the total will be paid in cash.

The move comes a little more than three months into Farley's tenure as CEO. Upon stepping into the role, he laid out a plan for profitable growth that called for improving quality, reducing costs and accelerating the restructuring of underperforming businesses. Under that plan, the Blue Oval is focusing on its most successful businesses and franchises, and leaning into a future it and other automakers are betting will be defined by technologically-advanced, electric-powered vehicles.

Ford is in the midst of launching a significant portfolio refresh, with the Mustang Mach-E, redesigned F-150 and Bronco Sport now for sale, the Bronco coming this year, and electric versions of the F-150 and Transit due next year. 

"Going forward, we will focus our product portfolio on our global strengths in mid-size pickups and commercial vehicles, with Ranger and Transit, and serve our customers in the region with key global products such as the Mustang, Bronco, Territory and more," Lyle Watters, president of Ford South America, wrote in a note to employees Monday. 

The Brazil decision is tied to Ford's goals of boosting global profit margins to 8% and generating "consistently strong adjusted free cash flow."

The company has worked in recent years to shore up its South American business by phasing out products that weren't generating a profit, introducing new ones, slashing costs and getting out of the heavy-truck segment there. But company officials said the steps simply weren't enough, in part because of the coronavirus pandemic's toll. 

Through the first three quarters of 2020, the automaker lost $386 million in South America — an improvement from 2019, when the same period brought $527 million in losses.

Such steep losses undermine the automaker's push toward electric and autonomous vehicles, a costly transition that promises little payoff in the near term. The company in the last few years has sought to reduce costs by restructuring underperforming businesses. In all, the global restructuring is slated to cost the automaker $11 billion. 

"The kinds of changes we're announcing today in South America are intended to help us accomplish there what's already happening in Europe and China, where we're giving customers great vehicles, great service, great value at the same time that we're improving the operating performance and profitability of those businesses," said corporate spokesman T.R. Reid.

The automaker, as well as its competitors, have been hampered by persistent, unfavorable economic conditions in the region.

"Brazil has been difficult, and South America has been difficult, and the COVID situation made it that much more so," said Stephanie Brinley, principal analyst at IHS Markit. "And Ford, like other automakers, is investing a lot into moving their EVs and other mobility services forward."

IHS's most recent data, from 2019, indicates that 4.5% of Ford's light-vehicle production was based in Brazil.

"There's pressure to get to that 8% return sooner than later," said Brinley. "And Brazil wasn't giving them that kind of return, and hadn't been for awhile."

In Brazil last year, industrywide vehicle sales plummeted 26% and production contracted by nearly one-third from 2019, Ford officials said. Sales were down to half their 2013 levels. And industrywide, capacity utilization in the country hovered at just 40%. 

"The recent devaluation of currencies in the region has increased industrial costs beyond recoverable levels, and the global pandemic has further amplified issues, leading to even higher idle capacity and lower vehicle demand in South America, particularly in Brazil," Watters wrote.

"This decision," he added, "was taken only after we diligently pursued partnerships and selected asset sales. There were no viable options." 

Ford's crosstown rivals, General Motors Co. and Fiat Chrysler Automobiles NV, still operate in the region — though GM in recent years has retreated from other international markets, including Europe, as it has pursued an aggressive EV agenda.

Ford said Monday that it will continue to sell vehicles from its global portfolio in South America, including the new Ranger pickup built in Argentina, the Transit van, the Bronco, and Mustang Mach 1. The automaker also hinted at new product offerings for the region, saying that it plans to "accelerate the introduction of several new connected and electrified models" including a  new plug-in vehicle.

The automaker will maintain its product development center in Bahia, its proving ground in Tatuí, São Paulo, and its regional headquarters in São Paulo. It will end sales of EcoSport, Ka and T4 once existing inventories are sold.

The announcement follows Ford's decision at the end of December to scrap an automotive joint venture with Indian automaker Mahindra & Mahindra, under which the two companies would have jointly developed vehicles for India and other emerging global markets.

Going forward, the Blue Oval insists it's committed to South America and, as in its other markets, will emphasize connected and electric vehicles, and the SUVs, pickups and commercial vehicles where it makes its money.

"We intend to be a leader in the electrification revolution. That includes in South America," said Reid. "Our expectation is that what we're doing will help us create a sustainably profitable business in that part of the world."

Twitter: @JGrzelewski