Copyright David Ramos, Getty Images

Ford Plans to Shutter Brazil Plant

Feb. 20, 2019
Production at São Bernardo do Campo factory to cease this year.

Ford Motor Co. (IW 500/3) is shutting a factory in Brazil in an attempt to turn around its money-losing South American business, dealing a blow to Jair Bolsonaro less than two months into his presidency.

The automaker expects to record $460 million in charges related to exiting the heavy-truck business in all of South America, according to a statement. It’s halting production this year at its São Bernardo do Campo assembly plant, which employs almost 2,800 workers building Cargo, F-4000 and F-350 trucks, plus the Fiesta small car.

“We know this action will have a major impact on our employees in São Bernardo and we will be working closely with all our stakeholders on the next steps,” Lyle Watters, Ford of South America’s president, said in the statement. A spokesman said there will be a significant impact on employment and that the company is working with union officials to determine the number of job cuts.

While Bolsonaro, 63, took office in January pledging swift and sweeping measures to fix the economy, he’s getting little help from U.S. automakers reeling from years of losses. Ford said it sought partnerships or a sale of its heavy-truck operation before deciding to shut it down. General Motors Co. likewise is exploring options for its South American business and has called the business climate in Brazil a challenge.

Chief Executive Jim Hackett is leading an $11 billion restructuring of Ford and has emphasized the strength of its commercial truck business elsewhere in the world. Total earnings before interest and taxes plunged last year, with the company losing $678 million in South America.

While the election of Bolsonaro in October sent consumer confidence to a multi-year high, the economy has yet to show strong signs of a rebound. While unemployment stopped falling in the fourth quarter, retail sales dropped 2.2% in December from the prior month, and January car production plunged 10% from the year before, leading analysts to begin cutting growth forecasts for the year.

Regulatory Costs

Ford said it opted to shut down its South American commercial truck business in part because rising regulatory expenses leave the company without a path to profitability. The company says it’s reduced salaried and administrative costs in the region by more than 20% in the past few months.

Ford shares extended gains on the news, finishing up 3.4%, the biggest jump since Jan. 9. The stock has jumped 15% this year after plunging 39% in 2018.

Ford opened the São Bernardo plant in 1967 and has sold cars in South America for more than a century. It operates primarily in Brazil, Argentina and Venezuela and its Ranger pickup is one of its top sellers in the region. The automaker has eight manufacturing plants and employs more than 13,600 workers in South America, according to its latest sustainability report.

While GM’s Chevrolet is the market leader in South America, CEO Mary Barra said last month that challenges operating in Brazil and Argentina were driving “unacceptable losses that need to be addressed.” During an investor conference, she said GM had started working with dealers, suppliers, unions and government officials to either take actions that will generate acceptable returns. Otherwise, she said the company will consider “other options.”

By Keith Naughton

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Licensed content from Bloomberg, copyright 2016.

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