A century ago Henry Ford came to Brazil and established the town of Fordlandia, hoping to become an Amazonian rubber baron, but retreated deep in the red.
Now the automaker he founded is once again licking its Brazilian wounds, having abandoned production in the challenging market after burning through roughly 61 billion reais ($11.6 billion) in the past decade.
Ford Motor Co announced the closure of its manufacturing plants in January, dealing a heavy blow to its more than 5,000 workers in the country and almost 300 dealerships.
Previously unreported corporate filings show the scale of the financial woes that led to the decision. Ford had burned through $7.8 billion, the bulk in accumulated losses but also some cash injections, according to the documents filed in Sao Paulo state, where the automaker is registered in Brazil.
Add to that the $4.1 billion that Ford will shell out to extricate itself from its commitments, and the price tag for the Brazilian operation rises to almost $12 billion.
Almost all the losses and cash injections were in the past eight years, when the company has lost about $2,000 for every car it sold, Reuters calculations based on the filings and sales data indicate.
Ford, which does not separate out Brazil from South America in its financial results, declined to comment on the losses, cash injections and calculations.
The expensive retreat of the U.S. heavyweight underlines the risks for global automakers in Brazil, a country seen not long ago as one of the most promising growth markets in the world, but where tax, labor and logistics costs are high.
The COVID-19 pandemic has strained finances while Ford’s problems also reflect, in part, a strategic misstep that saw it lag rivals in transforming its lineup of unprofitable compact cars into higher-margin SUVs, according to half a dozen sources familiar with the company’s Brazilian operation.
Ford had in fact drafted a plan to shift into SUVs, larger cars with higher profit margins, but was too slow to implement it, they said.
“There were no other viable options,” Lyle Watters, Ford’s head for South America, told Reuters in a statement about the decision to exit the country.
Watters, who will start a new Ford role in China in July, cited an “unfavorable economic environment, lower vehicle demand (and) higher industry idle capacity” for the Brazil retreat.
He declined to comment on the SUV project, saying he would not “speculate on new product plans.”
A Ford spokesman in Brazil said the company was implementing “a lean and asset-light business model in the region, with a truly customer-centric mindset”.
BRAZIL VS MEXICO
Brazil is largely a lossmaker for global car companies, despite the government providing federal subsidies totaling $8 billion over the past decade and a 35% import tariff to shield local production.
Domestic costs are high. Even though local factories can make 5 million cars a year, more than double the number sold in the country, exports are minimal because prices are uncompetitive. And it costs automakers money to keep factories open while operating at low capacity.
Mexico, by contrast, exports more than 80% of the cars it makes, helped by free-trade agreements with the United States and Canada, making it an attractive alternative for the same carmakers that already operate in Brazil.
A 2019 study by consultant PwC found that selling a Mexican-made car in Brazil was 12% cheaper for an automaker than selling a locally-made vehicle, including production, tax and logistics costs.
The study was commissioned by Brazilian auto industry group Anfavea, which is lobbying the government to reduce taxes and labor costs.
The high Brazilian costs mean even carmakers who pivoted earlier than Ford to higher-margin SUVs, like the Brazilian units of players like Volkswagen AG, General Motors Co and Toyota Motors Corp, are struggling to stay in the black.
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.
Volkswagen and GM and Toyota all declined to comment on the filings figures.
The Brazilian economy ministry did not respond to a request for comment about the Ford exit and problems faced by the auto sector.
PROSPECTS PLUMMET
Ford failed to develop a viable production business in Brazil despite a practice of pursuing tax subsidies, which totaled more than that of its rivals over the past decade.
Since 2011, Ford has reaped about $2.6 billion in tax subsidies, or a third of all federal automotive incentives distributed in that period, according to Reuters calculations based on official tax forfeiture figures.
Ford declined to comment on its tax benefits.
In 2013, however, the business outlook began to change, as commodities prices crashed and dragged the local currency with it, sending Brazil into a deep recession made worse by corruption scandals. At the time, it was the world’s fourth largest auto market. It now ranks seventh.
Weak domestic demand and the uncompetitive exports pushed Ford to quintuple its bulk fleet sales between 2011 and 2019, and deepen the discounts to 30% or more, a person familiar with the pricing said.
Ford headquarters in Dearborn, Michigan, shored up its Brazilian subsidiary with $1.3 billion in cash injections, in nine transfers between March 2018 and January 2021, according to the Sao Paulo corporate filings.
By late 2019, Ford was considering the key strategic shift to manufacture SUVs in Brazil and had three models planned, according to three of the source
Yet many of its competitors had already been revamping their lineup to produce such vehicles for about two years.
“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.
In the end, the SUV plans never came to fruition.
By April 2020, the economic pain wrought by the pandemic forced Ford to reevaluate its plans for Brazil, the automaker has said.
Still, Ford made commitments to the government as late as November last year to invest more in Brazil and told its dealers in December that it expected improved sales in 2021, according to a government announcement and the dealers’ association.
Yet just weeks later, it halted production.
It closed its three plants, the largest one in Camaçari, in the northeastern state of Bahia. It retains only a small operation selling imports, a niche market for high-end cars that the import tariffs make prohibitively expensive for many people.
On Thursday, Ford launched its new Bronco Sport SUV in Brazil. Made in Mexico, it is exported to the U.S. where it starts at $26,820. In Brazil, where per capita income is much lower, Ford said the Mexican-made car will retail for $48,000.
While Ford sold 18,000 cars in Brazil in April 2019, it sold 1,500 cars in the same month this year.
($1 = 5.2821 reais)
(Reporting by Marcelo Rochabrun; Editing by Christian Plumb, Joe White and Pravin Char)
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
