Ford will stop manufacturing in Brazil and expects charges of $ 4.1 billion

Assembly line for the engines for the Ford KA 1.0 3-cylinder in the Ford Engines plant in Camaçari, Brazil.

Paulo Fridman | Corbis News | Getty Images

Ford Motor ends vehicle production in Brazil as part of a restructuring of its South American operations. The measures, including the closure of three plants, are expected to result in input tax charges of $ 4.1 billion, Ford said Monday.

The automaker said it will primarily charge around $ 2.5 billion in cash fees in 2021 for employee separation, termination, billing and other payments. In addition, it will record $ 1.6 billion in non-cash write-offs for tax receivables and accelerated depreciation. According to the company, it is expected to post about $ 2.5 billion in fees in 2020.

The automaker’s shares rose more than 3% on Monday afternoon. The stock is down about 1% over the past year, increasing its market value to $ 36.2 billion.

Ford has operated in Brazil for more than a century. However, the region and operations have been unstable in recent years. The Detroit automaker lost $ 386 million in South America in the first three quarters of 2020. In 2019, he lost $ 704 million in the region.

Jim Farley, CEO of Ford, described the restructuring in a statement as “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, and seeks to implement a $ 11 billion turnaround plan that began in 2018 under Farley’s predecessor, Jim Hackett. Ford hopes to increase profitability by achieving an adjusted 8% EBIT margin and generating consistently strong adjusted free cash flow.

Production at the Camacari and Taubate plants in Brazil will cease immediately. However, some parts will continue to be manufactured for a few months to support aftermarket inventory, Ford said. Another plant in Horizonte, Brazil, will continue operating through the fourth quarter. It is expected that around 5,000 employees will be affected.

Ford said it would immediately work closely with its unions and other stakeholders to “develop a fair and balanced plan to mitigate the effects of the cessation of production”.

Ford is not leaving the market. It is planned to continue vehicle sales in Brazil by sourcing vehicles from plants in Argentina, Uruguay and other markets. The company will also maintain its headquarters in South America, its product development center and testing site in Brazil.

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

As part of the restructuring, Ford expects to expand the range of connected and electrified vehicles in South America.

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