How Ford lost 12 Billion Dollars in Brazil

[mackinaw]

From Automotive News.  Doesn't require a subscription to read.  Why Ford gave up on Brazil.

 

https://www.autonews.com/automakers-suppliers/how-ford-hemorrhaged-12-billion-brazil

[slemke]

Wow.  Probably should have pulled the plug on it 5 years ago.  I doubt higher margin suvs would have solved the problem...just made it less painful.  30% discounts and heavy fleet sales just to keep the factories open.  Brazil may have been another straw breaking Fields back.  Most of the decline would have come under his watch.

[bzcat]

This is all you need to know without having to read the entire article. 

 

"The truth is, Ford failed to modernize its product lineup at the same speed as its rivals," said Ricardo Bacellar, automotive head at KPMG's consulting arm in Brazil.

 

Other companies also lost money during COVID but everyone pivoted fast enough to have new products in the stores. Ford is the only one still selling the same outdated EcoSport from 7 years ago. 

 

2020 was a bad year that pushed Ford over the edge in Brazil but Ford had a decade of decline in Brazil before that and it coincided with the entrance of Toyota and Hyundai to the market. You can say the economics of the Brazil market changed but this is the same pattern Ford faced in all other markets where Toyota and Hyundai showed up. You can go down the list... Australia, Taiwan, Malaysia, Thailand, India, Middle East and North Africa, Southern and East Africa, Eastern Europe, Brazil... For whatever reason, Ford's international operations are not setup to compete with the two Asian juggernauts. With just one of them, Ford can hang on but when both enter, Ford either packs up and scales way back. 

Edited May 21, 2021 by bzcat

[ausrutherford]

Has not helped that the Brazilian market has been hurting from years. 

[slemke]

6 hours ago, bzcat said:

This is all you need to know without having to read the entire article. 

 

"The truth is, Ford failed to modernize its product lineup at the same speed as its rivals," said Ricardo Bacellar, automotive head at KPMG's consulting arm in Brazil.

 

Other companies also lost money during COVID but everyone pivoted fast enough to have new products in the stores. Ford is the only one still selling the same outdated EcoSport from 7 years ago. 

 

2020 was a bad year that pushed Ford over the edge in Brazil but Ford had a decade of decline in Brazil before that and it coincided with the entrance of Toyota and Hyundai to the market. You can say the economics of the Brazil market changed but this is the same pattern Ford faced in all other markets where Toyota and Hyundai showed up. You can go down the list... Australia, Taiwan, Malaysia, Thailand, India, Middle East and North Africa, Southern and East Africa, Eastern Europe, Brazil... For whatever reason, Ford's international operations are not setup to compete with the two Asian juggernauts. With just one of them, Ford can hang on but when both enter, Ford either packs up and scales way back. 

Toyota’s aren’t exactly cutting edge either.  But they are low cost to produce.  For all of Ford’s focus on cost cutting, they have little to show for it.  End result is failure in cost competitive locales.  Even in the US, Ford pulled out of the car sector where margins were the tightest.

[Harley Lover]

16 hours ago, bzcat said:

This is all you need to know without having to read the entire article. 

 

"The truth is, Ford failed to modernize its product lineup at the same speed as its rivals," said Ricardo Bacellar, automotive head at KPMG's consulting arm in Brazil.

 

Other companies also lost money during COVID but everyone pivoted fast enough to have new products in the stores. Ford is the only one still selling the same outdated EcoSport from 7 years ago. 

 

Actually, I did read the entire article, and that isn't all one needs to know. There's this:

 

Quote

Volkswagen Brazil has lost $3.7 billion since 2011, according to the corporate filings in Sao Paulo state. GM Brazil has received $2.2 billion in cash injections since 2016, and Toyota Brazil last year required forgiveness on $1 billion of inter-company debt, the documents showed.

 

So despite the supposed brilliance of the competition in contrast to Ford's losses, we learn that the competition were all losing money as well, just not as much. And those losses predated covid, despite the assertion above. 

 

Brazil is an economic basket case. Covid is certainly making things worse. Ford was right to bail out, after certainly mucking up its prospects with its lethargic pace of product development and introduction..

Edited May 22, 2021 by Harley Lover

[Harley Lover]

57 minutes ago, Harley Lover said:

double post, deleted

 

Edited May 22, 2021 by Harley Lover

[mackinaw]

4 hours ago, Harley Lover said:

So despite the supposed brilliance of the competition in contrast to Ford's losses, we learn that the competition were all losing money as well, just not as much. And those losses predated covid, despite the assertion above. 

 

Brazil is an economic basket case. Covid is certainly making things worse. Ford was right to bail out, after certainly mucking up its prospects with its lethargic pace of product development and introduction..

 

I saw that too.  Everybody is doing poorly in Brazil.  I'm glad Ford had enough smarts to finally bail.  

[rperez817]

14 hours ago, slemke said:

For all of Ford’s focus on cost cutting, they have little to show for it.  End result is failure in cost competitive locales.  Even in the US, Ford pulled out of the car sector where margins were the tightest.

 

That's because Ford's organizational inefficiencies in product development, manufacturing, and marketing were so deeply rooted that individual cost cuts here and there couldn't solve the problem.  Subsidies that Ford gets from governments, whether in Brazil, USA, or anywhere else it does business, can't solve the problem either.

 

As bzcat mentioned, Ford's inability to compete in the Brazil domestic market were much more a result of Ford's own problems than economics or politics in Brazil.

 

[Harley Lover]

1 hour ago, rperez817 said:

 

 Subsidies that Ford gets from governments, whether in Brazil, USA, or anywhere else it does business, can't solve the problem either.

 

As stated in the linked article, subsidies that VW, Toyota, and GM (intercompany) got didn't prevent them from losing money in Brazil as well. Brazil is an economic basket case.

[passis]

I'm not using the authority argument and claiming I know what goes on here because, in fact, Brazil is beyond my comprehension... 

 

However, as they say, when a plane crashes there isn't usually just one single element responsible for the accident. 

 

I understand Brazilian economy is very cyclic with booms and bursts repeating roughly every 30 years. From around 1995 to 2010 under Cardoso and Silva manufacturers made a lot of money, attracting many newcomers. Now, from 2010 to 2025, with Rousseff and Bolsonaro, we are spending some time in hell and carmakers are losing money.

 

Overall, for companies like Fiat, GM and VW the net result with their Brazilian operation is positive and South American profits helped them sail the credit crunch sea. That's why they insist being here. Ford can't keep positive on average.

 

They make very bad decisions and, being the first auto company in Brazil, they ended up in fourth (essentially last) place when the economy opened up for the newcomers. With Asian competition they struggled to keep their market share, at the literal cost of losing money. They invented the most important segment here with the Ecosport and did not update it properly since its launch 19 years ago (to put it simply, they killed their golden eggs chicken by keeping a cramped model for almost two decades). And one can unearth other examples throughout the decades... Heads should have rolled, if you ask me.

 

If you consider Ford bagged the second highest fiscal incentives this last decade, it makes you wonder how they got such enormous losses. In fact, other car makers would not be operating in the red, had they received as much tax payer money as Ford.

 

I hope they can make it work with their new strategy. They needed this shakeup so badly but it's very melancholic. Especially if you have FCA's performance in mind.

 

Having said that, I don't think the Ranger investment in Argentina adds up when you know many dealerships are closing and they only sell an under-performing Territory and an overpriced Bronco Sport (U$48k) in the most relevant regional market, currently the 7th largest, despite economic downturn. To me, they are making more mistakes. But good luck, Ford, I wish you well.

Edited May 22, 2021 by passis

[rperez817]

20 hours ago, Harley Lover said:

Brazil is an economic basket case.

 

Brazil has its share of economic issues, most notably "middle income trap", though its GDP is expected to grow by 3.6% this year.

 

However, the issue described in the Automotive News article (Ford deciding to exit the Brazil market after racking up huge losses) is primarily due to Ford Motor Company being a basket case, not something caused by the Brazilian economy or political structure. As bzcat and passis mentioned, Ford was the first automaker to enter Brazil 100 years ago. Yet they couldn't sustain their first mover advantage. Mismanagement at Ford, starting with the failed Fordlandia company town in the 1930s and continuing to extremely poor operations management more recently, is what caused Ford Brazil to end up in a hole that it couldn't dig itself out of.

Edited May 23, 2021 by rperez817

[Harley Lover]

19 hours ago, Harley Lover said:

 

As stated in the linked article, subsidies that VW, Toyota, and GM (intercompany) got didn't prevent them from losing money in Brazil as well. Brazil is an economic basket case.

 

[Joe771476]

There's an excellent youtube video about Fordlandia. I'm sure you can find it on your own. But let me ask a question like I asked about China.  Is anybody making money in Brazil/South America? VW? Daimler? Toyota? If so, how do they do it and Ford can't?

[passis]

2 hours ago, Joe771476 said:

There's an excellent youtube video about Fordlandia. I'm sure you can find it on your own. But let me ask a question like I asked about China.  Is anybody making money in Brazil/South America? VW? Daimler? Toyota? If so, how do they do it and Ford can't?

 

To be honest, in the last couple of years I don't think many of them are making a profit. Maybe FCA and Hyundai are profitable these days: FCA has the advantage of operating in big scale, selling high margin pickups and Jeeps (hello, Ford!) and going from ~15% to ~30% market share; Hyundai has very lean operations, using its full capacity and going from ~5% to ~10%, a position once held by the blue oval. But unlike Ford, others (Fiat, VW, GM and Toyota) have recently announced investments.

 

It is true that general investments made before 2010, in a period of excessive optimism, created more production capacity than the market can absorb and this puts extra strain on automakers. So I can see that probably there is not enough space for all companies, but the ones that survive this period will benefit in the future as Brazil is currently just behind US, China, Europe, Japan and India, with potential for growth and profits.

 

Ford Brazil, unfortunately, was so badly run that its operations were the least capable of surviving the high tide and had no choice but to quit, despite having more fiscal incentives than almost all of its competitors. Had it been better managed, they could be as profitable as others or, at least, have bearable losses in certain years.

[Harley Lover]

No need to guess how the competition has fared, the article in the original post spells it out:

Volkswagen Brazil has lost $3.7 billion since 2011, according to the corporate filings in Sao Paulo state. GM Brazil has received $2.2 billion in cash injections since 2016, and Toyota Brazil last year required forgiveness on $1 billion of inter-company debt, the documents showed.

None of the competition cited made money in Brazil.