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Ford's (F) Credit Arm Retreats From South America, Charged $375M

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Per Reuters, Ford’s (F - Free Report) financial services arm — Ford Credit — will cease operations in Brazil and Argentina by the end of 2021. Per a filing with the Securities and Exchange Commission, this move will cost the company $375 million.

Reportedly, Ford expects majority of this special charge, which includes $365 million related to foreign-currency translation losses, to be recognized in 2021. The remaining $10 million will be paid by the company in cash for employee separations.

Ford Restructuring Operations in South America

Ford commenced operations in Brazil more than a century ago, but has been retreating in red in the region since many years, after losing $11.6 billion in the past decade.
 
Thus, in January, the Detroit automaker decided to end vehicle production in Brazil under a restructuring of its South American operations as it attempts to execute an $11-billion turnaround plan that started in 2018. This action, including the closure of three manufacturing plants — Camacari, Taubate and Troller plants — in Brazil, resulted in  a $4.1-billion in pretax charges.

This decision was imperative for Ford as the company is actively evaluating its businesses globally, including in South America, making choices and allocating capital in ways that aid the automaker to achieve 8% global operating margins. Ford is revamping its business model by turning around the conventional automotive business, while simplifying and innovating all aspects of the company. At the same time, it is capitalizing on its existing strength by exiting loss-making businesses and partnering with other companies to enhance efficiency and expertise.

This is followed by the latest decision to wind up operations of Ford Credit in Brazil and Argentina. Also, the $375-million loss is in addition to the $4.1-billion that Ford would incur to halt production in Brazil.

Amid the semiconductor shortage grappling the auto sector, Ford’s finance unit has been a blessing in disguise for the automaker. In the first quarter of 2021, the segment posted a $962-million profit, driven by robust vehicle prices.

The latest decision to terminate operations of Ford Credit in Brazil and Argentina showcases the support provided by the finance arm to achieve the automaker’s massive revamp of South American operations in an effort to turn things around financially.
 
Moreover, it will help boost Ford’s new business model in South America, including enhancing competitiveness, and best serving customers and dealers. It will also result in the transition of Ford dealer wholesale financing to preferred bank providers in Brazil and Argentina.

Meanwhile, Ford is focused on serving customers in Brazil with the all-new Ranger pickup, Transit van, Ford Bronco and Mustang Mach 1 and several of its most premium models. The company also plans to expedite the launch of several connected, electrified and autonomous models in Brazil, in order to address the rising need of green transportation solutions.

Ford — peers of which include General Motors (GM - Free Report) , Tesla (TSLA - Free Report) and Volkswagen (VWAGY - Free Report) — currently carries a Zacks Rank of 3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, shares of Ford have appreciated 151% in the past year compared with its industry’s rally of 129.9%.

Zacks Investment ResearchImage Source: Zacks Investment Research

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