Brazil operations are set to come to a close for Ford motor company. On Monday, the company stated that it is about to close three plants in Brazil and stop producing automobiles altogether in the country. Ford has been operating in Brazil since 1919.
The company said that it would stop producing at the factories since COVID-19 amplifies the idle capacity and slow sales. These have led to significant losses.
Brazil’s Economy in Downward Spiral
About 4,800 workers would be affected. The company also stated that it would keep its South America headquarters and product development center in Brazil.
“Having spent over a century in South America and Brazil, we know these are very difficult, but necessary actions to create a healthy and sustainable business,” said Jim Farley, Ford President, and CEO. “We are changing to a lean, asset-light business structure by stopping production in Brazil and serving customers with some of the best and most exciting vehicles in our portfolio globally.”
This is a blow to Brazil’s economy, which has been on the downward spiral since 2014. It has sunk even further amidst the pandemic. The unemployment rate in Brazil is close to 15%, a figure that economists consider largely underestimated.
Ford further stated that the Brazilian clients’ needs would be met with cars sourced from Argentina, Uruguay, and other regions.
Pandemic Hampers Production Plants
The company had been underutilizing its Brazilian operations manufacturing capacity as a result of the coronavirus pandemic. Vehicle production will cease immediately at the plants in Camacari and Taubate. However, some parts production would continue for a few months to support aftermarket sales and maintenance. The plant in Horizonte will maintain operations until the fourth quarter.
Officials said there was a global restructuring going on to the tune of about $11 billion. Ford shares closed up more than 3%.
Industry vehicle sales dropped by 26% in Brazil last year. The figures are not expected to return to 2019 levels until 2023. There is an emphasis on less profitable fleet sales.
Ford officials said these closures are part of the company’s strategy to achieve 8% global operating margins. The company has begun discussions with unions and other groups about the impending layoffs.
The Economic Ministry in Brazil was unhappy with Ford’s decision to end Brazil operations. According to the Economic ministry, it highlighted a need for reforms to improve the business climate. In Camacari, the labor union called an emergency meeting of workers to take a stance on losing jobs.
“This is a hard blow. One that took us by surprise. We didn’t imagine Ford could close its factories in Brazil.” said Julio Bonfim, the workers union leader.
This marks Ford’s reversal in a developing market after it closed a joint auto venture with India’s Mahindra Ltd.
Joint venture with Mahindra Ltd Called off.
Ford, in October 2019, had agreed with Mahindra. In the agreement, Mahindra was to acquire Ford’s business in India and hold 49% in the joint venture. Both companies were to produce new cars and Sports Utility Vehicles together, including electric vehicles.
However, following consecutive losses in recent times, it seemed such an arrangement would no longer be feasible. Hence the need to mutually and amicably exit the deal. There have been fundamental changes in global economic and business conditions, partly caused by the pandemic.