Ford's South American supply chain shift follows long-term Brazil downturn

Ford Motor Co. will end manufacturing at its three plants in Brazil as part of a restructuring of its regional supply chain due to "persistent idle capacity and slow sales that have resulted in years of significant losses." The company will instead sell vehicles from its other production locations, including in Argentina and Uruguay, but will terminate sales of three models. The move partly illustrates the expense of such a restructuring, with $2.5 billion of cash expenses for staff and contract terminations. 

The coronavirus pandemic has had an outsized impact on the automotive industry in terms of lost demand and the complications inherent in long, complex, just-in-time supply chains. The most recent challenge has come from supplies of semiconductors, as outlined in Panjiva's research of Jan. 8.

The industry has shown little sign of pulling out of its pandemic-related demand downturn. Panjiva's analysis of official data shows licensed sales were still down 7.6% year over year in December 2020, led by a 29.2% slump in import vehicle sales. While production improved by 21.1% year over year, that was wholly reliant on a 33.1% jump in exports, likely led by shipments linked to Volkswagen AG, Panjiva's data shows.

The downturn in Ford's Brazilian operations can also be seen in the activity in its supply chain. Panjiva's data shows imports linked to the company declined every month but one between June 2018 and November 2020, including a 69.4% year-over-year drop in November 2020. Shipments from all regions declined, though those from Europe bore the brunt of the downturn with an 84.2% drop in November 2020. Shipments from Mexico and the U.S., which together accounted for 42.5% of the total, declined by 61.9%.

The majority of Brazilian imports linked to Ford Motor, meanwhile, are gathered by the company internally from its global supply chain with 82.2% of imports in the 12 months to Nov. 30, 2020. Other major suppliers that may instead orient shipments to other Ford subsidiaries included DENSO Corp. and CITIC Automobile Co. Ltd.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.