Here’s Why Ford Motors Might Exit Certain Markets In South America

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As Ford Motor Company (NYSE: F) looks to improve profitability, reports suggest that the company might exit some markets in its loss making South American business. Earlier this year General Motors restructured its business in Europe by cutting off its Opel/Vauxhall division and also exited the Indian market. Automakers are facing several challenges as they navigate a slowing U.S. industry for sedans and regulatory norms around clean energy vehicles. In this environment a presence in challenging economies works as a drag on the company’s profitability and resources. General Motors is beginning to see results of its restructuring and its prospects in 2018 are positive, after exiting a loss making business in Europe.

Ford’s South American business has been facing losses for more than three years and given the economic situation in the region, the company does not expect the division to become profitable in the near future. Ford Motors reported a $158 million loss from the region in Q3 2017 and while this is lower by $137 million compared to the same quarter in the previous year, signs of profitability are not visible. Focusing on regions which are draining the company’s resources can impact Ford Motors negatively in the long term. We do not expect Ford’s South American business to grow revenues over our forecast period.

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In India (a region which General Motors has exited), Ford entered into a strategic partnership with the Mahindra group in the areas of mobility, electrification, and product development. This alliance will help the company to expand its distribution network in the region and lower distribution costs. A similar strategy for some South American regions can work in Ford’s favor. The company needs to work on restructuring its business in the region to either build a competitive edge or exit markets where it cannot succeed. We believe a focus on profitable growth will be key for Ford in the future as the automotive industry undergoes a transition.

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