Ford's ruling in Brazil highlights automakers & # 039; misfortunes of overcapacity

© Reuters. The oldest Ford manufacturing unit in Brazil is seen after the announcement of the closure of the corporate, Sao Bernardo do Campo

Marcelo Rochabrun

SAO PAULO (Reuters) – Ford Motor (NYSE 🙂 Brazil's oldest plant in Brazil, scheduled for shutdown later this 12 months, was an enormous automaker , occupying 12,000 sq. ft (111.5 hectares), bigger than a lot of the producer's US services.

However by way of accessible capability, the primary indicator of the profitability of factories, the previous Sao Bernardo do Campo manufacturing unit, which nonetheless employs three,000 folks, has change into a dwarf. Closed extra usually than they have been open, the manufacturing unit's manufacturing strains solely got here alive three days per week.

Ford introduced Tuesday the closure of the plant and the closure of its business heavy truck enterprise in South America as a part of a world restructuring.

Total, Ford's Sao Bernardo plant produced 33,000 vehicles and heavy vans in 2018, or simply 11 automobiles per worker.

Based on a basic rule of the business, a automotive plant has bother producing income until it makes use of not less than 80% of its capability. By 2018, Ford was utilizing 12% of its automotive manufacturing capability on the Sao Bernardo plant. In Brazil as an entire, Ford used 58% of its whole manufacturing capability final 12 months, closely counting on a plant situated within the state of Bahia, within the north-east of the nation , the place she enjoys vital tax incentives.

Productiveness issues in Brazil are maybe essentially the most severe at Ford, however they undermine the business as an entire, at the same time as the most important economic system in Latin America is recovering from its most extreme recession with double-digit progress in automotive gross sales.

Normal Motors Co. (NYSE :), now the chief within the Brazilian gross sales market, produced vehicles equal to 78% of capability in 2018, up from 56% two years earlier, in line with Reuters calculations primarily based on capability figures disclosed by GM and on manufacturing figures. of the native Anfavea business.

Nonetheless, GM executives warned employees earlier this 12 months that the corporate was experiencing "a vital second" within the nation amid heavy losses.

One other main home producer, Fiat Chrysler Cars NV, produced vehicles equal to 47% of its whole capability, in comparison with 36% in 2016, in line with the same calculation.

Ford's heavy truck enterprise, which might be deserted in South America, operated at 19 p.c capability, in line with Ford's personal figures. The corporate stated that it may discover "no viable path to profitability" for the unit.

"We all know that Brazil has extra capability," stated Leticia Costa, a Brazilian advisor and skilled within the automotive business. "This can be a world downside for the automotive business, however very true for rising markets."

The times of the growth in Brazil

Brazilians multiply accessible revenues, in addition to heavy import obstacles, inspired automakers – led by Volkswagen (DE 🙂 AG – to settle there and produce vehicles on the spot from the late 50's. This has remodeled the economic suburb of Sao Paulo, Sao Bernardo, into the epicenter of what was as soon as a one-day of the world's 5 largest automakers.

Volkswagen, whose Beetle was the market chief within the early financial growth of the sector, didn’t reply to a request for touch upon its capability.

However the excessive prices of native manufacturing and the dependence on what has turned out to be an unstable home market have additionally sown the seeds of the sector's collapse and its dispersal into new factories situated in distant states. The extreme financial recession that started round 2013 hit native producers. Whereas the business is recovering, it’s nonetheless removed from the highest.

However some factories can now construct vehicles extra effectively. The second Ford plant in Bahia produces six occasions extra vehicles than the Sao Bernardo plant, with 53% extra employees, in line with the corporate's web site.

"Mounted prices on this scale are exorbitant," stated David Wong, administration advisor and Brazilian skilled of the automotive business.

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