Ford to end manufacturing in Brazil, forecast charges of $ 4.1 billion

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Engine assembly line for Ford KA 1.0 3 cylinders at Ford Engines plant in Camaçari, Brazil.
Paulo Fridman | Corbis News | Getty Images
Ford Motor ceases production of vehicles in Brazil as part of a restructuring of its South American operations. The actions, including the closure of three factories, are expected to result in pre-tax charges of $ 4.1 billion, Ford said Monday.
The automaker said it would record around $ 2.5 billion in cash charges, mostly in 2021, for separation, layoff, settlement and other payments. In addition, it will record approximately $ 1.6 billion in non-cash write-offs for tax receivables and accelerated depreciation. About $ 2.5 billion in fees are expected to be recorded in 2020, according to the company.

Shares of the automaker were up more than 3% in trading on Monday afternoon. The stock has fallen about 1% over the past year, bringing its market value to $ 36.2 billion.

Ford has operated in Brazil for over a century, however, the region and operations have been volatile in recent years. The Detroit automaker lost $ 386 million in South America in the first three quarters of 2020. It lost $ 704 million in the region in 2019.

In a statement, Ford CEO Jim Farley called the restructuring “very difficult, but necessary steps to create a healthy and sustainable business.”

Ford is actively evaluating and restructuring its global operations, including those in South America, as it attempts to execute an $ 11 billion turnaround plan that began under Farley’s predecessor Jim Hackett in 2018. Ford hopes to increase its profitability by reaching an adjusted rate of 8%. EBIT margin and generate a consistently strong Adjusted Free Cash Flow.

Production will cease immediately at its Camacari and Taubate plants in Brazil, but production of some parts will continue for a few months to support aftermarket sales inventories, Ford said. Another plant in Horizonte, Brazil, will continue to operate until the fourth quarter. About 5,000 employees are expected to be affected.

Ford said he would immediately start working closely with his unions and other stakeholders to “develop a fair and balanced plan to mitigate the impacts of the production shutdown.”

Ford is not leaving the market. It plans to continue vehicle sales in Brazil sourcing from factories in Argentina, Uruguay and other markets, the company said. It will also maintain its headquarters in South America, its product development center and test beds in Brazil.

“We are moving towards a lean and light business model by ending production in Brazil and offering our customers some of the best and most attractive vehicles in our global portfolio,” said Farley.

As part of the restructuring, Ford said it plans to increase its supply of connected and electrified vehicles in South America.

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