Ford’s Brazil departure highlights automakers’ woes with excess capacity

Ford logo in their auto plant

Ford Motor oldest factory in Brazil, set for closure later this year, was a giant among auto plants. It sprawled 12 million square feet (111.5 hectares), bigger than many of the company’s U.S. facilities.

But in terms of spare capacity, the most important sign of factory profitability, the historic Sao Bernardo do Campo plant, which continues to employ 3,000 workers, had become small. Closed more times than it was open, the plant’s production lines sprang to life just three days every week.

Ford declared on Tuesday it will shut down the factory and exit its heavy commercial truck business in South America as part of a worldwide restructuring.

Overall, Ford’s Sao Bernardo plant produced 33,000 cars and heavy trucks in 2018, or only 11 vehicles per worker.

An industry rule of thumb states an auto factory having is hard time to turn a profit unless it utilizes at least 80 percent of its capacity. In 2018, Ford utilized 12 percent of its car production capacity at the Sao Bernardo plant. In Brazil as a whole, Ford utilized 58 percent of its total production capacity in 2018, leaning heavily on a plant in the northeastern state of Bahia, where it gets major tax incentives.

Productivity tensions in Brazil are maybe most extreme at Ford but plague the industry as a whole, even as Latin America’s largest economy comes together from its deepest recession ever with double-digit rise in car sales.

General Motors, now Brazil’s sales market leader, produced cars equal to 78 percent of its capacity in last year, rising from 56 percent two years previously, according to Reuters calculations based on capacity figures GM revealed and production figures from local industry association Anfavea.

Still, GM executives cautioned employees previously this year that the company was facing “a critical moment” in the country amid significant losses.

Another top domestic producer, Fiat Chrysler Automobiles NV, produced cars to only 47 percent of its entire capacity, rising from 36 percent in 2016, according to a same calculation.

Ford’s heavy truck business, which is going to be discontinued in South America, operated at 19 percent capacity, as per Ford’s own estimates. The company stated it could discover “no viable path to profitability” for the unit.

“We know Brazil has excess capacity,” stated Leticia Costa, a Brazilian consultant and auto industry expert. “This is a worldwide problem for the auto industry but it’s particularly correct for emerging markets.”

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