The Ford KA 1.0 3-cylinder engine assembly line at the Ford Engine Plant in Camaçari, Brazil.
Paul Friedman | Corbis News | Getty Images
Ford Motor is reorganizing its South American operations, thereby halting car production in Brazil. Ford said on Monday that these actions, including the closure of three factories, are expected to result in pre-tax expenses of $4.1
The automaker said it will record approximately $2.5 billion in cash expenses, mainly for employee separation, dismissal, placement and other payments in 2021. In addition, it will provide approximately $1.6 billion in non-cash write-offs for tax receivables and accelerated depreciation and amortization expenses. According to the company, it is expected to record approximately $2.5 billion in expenses by 2020.
The automaker’s stock rose more than 3% in trading on Monday afternoon. In the past year, the stock has fallen by about 1%, with a market value of $36.2 billion.
Ford has been operating in Brazil for more than a century, but the region and operations have been unstable in recent years. In the first three quarters of 2020, the Detroit automaker lost $386 million in South America. In 2019, the region lost $704 million in South America.
Ford chief executive Jim Farley (Jim Farley) said in a statement that the restructuring “is very difficult to build a healthy and sustainable business, but it is also necessary.”
Ford is actively evaluating and reorganizing its global operations, including the South American market, as it attempts to execute a $11 billion turnover plan launched in 2018 based on Farley’s predecessor, Jim Hackett. Ford Motor hopes to increase profitability by achieving an 8% adjustment. Earnings before interest and taxes, and generate consistently strong adjusted free cash flow.
Ford said that production at Camacari and Taubate plants in Brazil will stop immediately, but production of some parts will continue for several months to support sales and inventory in the aftermarket. Another factory in Horizonte, Brazil will continue to operate until the fourth quarter. It is expected to affect approximately 5,000 employees.
Ford stated that it will immediately begin working closely with unions and other stakeholders to “work out a fair and balanced plan to mitigate the impact of the shutdown.”
Ford did not exit the market. The company said it plans to continue vehicle sales in Brazil by purchasing vehicles from factories in Argentina, Uruguay and other markets. It will also retain its South American headquarters, product development center and a proving ground in Brazil.
Farley said: “By stopping production in Brazil and providing customers with the best and most exciting vehicles in our global portfolio, we are transitioning to a lean, asset-light business model.”
As part of the reorganization, Ford stated that it expects to increase networking and electric vehicle products in South America.