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Ford will stop manufacturing in Brazil and sees expenses of $ four.1 billion from South American restructuring

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 record around $ 2.5 billion in cash fees in 2021 for employee separation, termination, billing, and other payments. In addition, non-cash tax write-offs and accelerated write-downs of approximately $ 1.6 billion will be recorded. According to the company, about $ 2.5 billion in fees are expected to be booked 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 is seeking to implement a $ 11 billion turnaround plan that began in 2018 under Farley's predecessor, Jim Hackett. Ford hopes to increase profitability by adjusting the EBIT margin by 8% and generate consistently strong adjusted free cash flow.

Production at the Camacari and Taubate plants in Brazil will cease immediately. However, some parts will be manufactured for a few more months to support aftermarket inventory, Ford said. Another facility 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 just and balanced plan to mitigate the effects of the cessation of production".

Ford is not leaving the market. The company plans 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 ground in Brazil.

"We are moving to a lean business model by ceasing production in Brazil and serving customers with some of the best, 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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