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Ford Motor is reusing to take its turnaround for granted under new CEO Jim Farley. The latest move: a ceasing of vehicle production in India.
The company announced Thursday that while it was ceasing vehicle production in India it’s not getting out of the country entirely. Ford (ticker: F) will focus on engineering, technology and business operation function in the country. Ford makes the Figo, Aspire, Freestyle, EcoSport and Endeavour in India.
Restructuring operations always result in charges against income. Investors, very likely, don’t care so much about the charges as much as they do about progress new management is making toward improving profit margins for the long haul.
Still, Ford shares were down about 1.3%, while the S&P 500 and Dow Jones Industrial Average were both little changed.
The move shouldn’t come as a surprise. “We’re continuing to assess our business in India, and we’ll have more to say on this later this year,” said Chief Financial Officer John Lawler on the company’s late July second-quarter earnings conference call.
What’s more, Ford has said it has lost about $2 billion in India over the past 10 years.
“The restructuring is expected to create a sustainably profitable business in India,” reads the company’s press release on Thursday.
Ford also has been working to improve profit margins around the globe under former CEO Jim Hackett as well as Farley. Ford wants to get operating profit margins at its major reporting segments in North America and Europe up to double digits and about 6%, respectively. In the first half of 2021, Ford’s North American operating profit margin was about 8%. Europe posted a small loss. All of Ford’s operations have been affected by the global semiconductor shortage constraining auto production.
The Indian move will result in restructuring charges of about $2 billion with $600 million recorded in 2021. About $300 million of that amount will be a non-cash asset write-down with the balance cash paid out over a number of years. About 4,000 employees will be affected.
Ford is expected to generate about $2.2 billion in free cash flow in 2021 and $4.8 billion in free cash flow in 2022.
Ford stock has risen about 48% year to date. Shares have gained as the company works to turn around operations, improve profit margins, and as demand for cars has accelerated coming out of the pandemic-induced recession.
Write to Al Root at [email protected]
