Ford Exits Heavy Truck Business in South America

AutoInformed.com on Ford South America.

Another Ford retreat.

Ford Motor Company yesterday announced it will exit the commercial heavy truck business in South America. As a result, the company will cease production at the São Bernardo do Campo plant in Brazil during 2019, ending sales of the Cargo lineup, F-4000 and F-350 — along with the Fiesta small car — once inventories are sold. Thus, Ford is slowly exiting the car business in another major market.

Death of a Thousand Cuts?

This latest action by the Dearborn-based auto maker to reverse its long record of financial precariousness, poor returns and loss of investor confidence is part of a thus far ineffective overall plan. Ford common stock at less than $9 a share is languishing. It peaked in July of 1998 at $31/share and has been drifting downward ever since. Current company forecasts show that it will not reach its previously announced 8% EBIT margin or high teens ROIC targets by 2020. Consider that Ford has a market capitalization of 35.5 billion while Ferrari has a $61.5 billion market cap.

The decision to exit the heavy commercial trucks business “came after months of pursuing viable alternatives, including possible partnerships and a sale of the operation. The business would have required significant capital investments to meet market needs and increasing regulatory costs with no viable path to profitability.” Ford claimed.

The last major move, Ford to Restructure European Business Once Again, showed that Ford continues to struggle globally by posting losses in moribund European economies, and – surprisingly – the growth markets of Asia Pacific and Africa.

“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,” said Lyle Watters, president, Ford of South America. “Working closely with our dealers and suppliers, Ford will continue to provide support for our customers with warranty, parts and service.”

This Ford job-killing move follows other cost cutting initiatives in the South American region including:

  • Reducing salaried and administrative costs region-wide by more than 20% over the past few months
  • Adding SUVs and pickups that are growing in popularity with consumers while ceasing Focus production in Argentina
  • Leveraging global partnerships, such as the recently announced alliance with VW to develop mid-size pickup trucks

Last month Volkswagen AG and Ford Motor Company announced the first formal agreements in a broad alliance that has far reaching implications in Europe, South America and Africa. Volkswagen AG CEO Dr. Herbert Diess and Ford CEO Jim Hackett during a joint conference call said the companies will first deliver medium pickup trucks for global customers starting in 2022. They intend to follow with commercial vans in Europe. Equity markets were neutral immediately after the announcement. (Volkswagen and Ford Announce Alliance Without Cross Equity)

Ford now expects to record pre-tax special item South American charges of about $460 million. The charges will include approximately $100 million of non-cash charges for accelerated depreciation and amortization. The remaining charges of about $360 million will be paid in cash and are primarily attributable to separation and termination payments for employees, dealers, and suppliers.

Most of these pre-tax special item charges and cash outflows of 4460 million will be recorded in 2019 and are part of the $11 billion in EBIT charges with cash-related effects of $7 billion the company expects to take in the redesign of its global business.

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About Kenneth Zino

Ken Zino is an auto industry veteran with global experience in print, broadcast and electronic media. He has auto testing, marketing, public relations and communications expertise garnered while working in Asia, Europe and the U.S.
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