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Ford sees lessons in Brazil
CAMACARI/ BRAZIL: At first glance, Camacari looks like any other place in rural Brazil. Housing is precarious, roads are poor, and poverty is widespread.
But this small city in the heart of the tropics is also home to one of the world’s most advanced and efficient auto plants — one that has become the poster child of Ford Motor’s remarkable turnaround in South America. Seven years ago, Ford in Brazil looked a lot like it does today in the United States. It was losing so much money and market share that executives at headquarters in Michigan were seriously considering pulling out of South America altogether.
Today, Brazil is Ford’s biggest success story, helping to offset hefty losses in North America. Ford Brazil has doubled its market share to 12%, racked up 15 straight quarterly profits, and is now scrambling to keep up with red-hot demand for its cars and trucks.
How Ford averted a meltdown in South America’s largest market offers some important lessons for the automaker as it struggles to move forward with a make-or-break plan to return to profitability and regain market share in the United States.
"There are several elements of the turnaround in Brazil that really work as an inspiration for things that are being done in the States,” said Marcos de Oliveira, chief executive of Ford’s Brazilian and Mercosur units.
Indeed, many of the steps Ford took in Brazil are being mimicked in the United States today. First, it overhauled manufacturing by closing inefficient plants and bought out 3,600 workers, or 46% of its labour force. In the United States, the cuts are even deeper.
Ford plans to close 10 plants by 2012 and has cut 33,600 jobs since 2005.As Ford cut costs in Brazil, it also spent heavily to design cars that were in sync with local tastes. The plan, dubbed Project Amazon, was to stop selling adapted versions of its European models and offer homegrown products for Brazil. The result was the EcoSport, a pint-sized sport utility vehicle with off-road capabilities at a fraction of the price of an SUV in the US — a must in a country where the minimum wage is just over $200 a month.
The bet paid off. Since its launch in 2003, Ford has sold more than 446,000 EcoSports - a whopping amount in a market where just one out of eight people own a car. The EcoSport also forged a whole new segment for subcompact off-road vehicles and is now shipped to several other Latin American countries.
“The vehicle has been just a home run for us,” said Dom DiMarco, Ford’s president for South America.
Perhaps the most audacious aspect of Ford’s recovery plan in Brazil was its decision to build a new, low-cost factory in the north-eastern state of Bahia, an impoverished region with limited infrastructure and no history of auto manufacturing.
The $1.9 billion plant was different than anything Ford had done before. Instead of bringing in parts from elsewhere, Ford asked 26 suppliers to set up shop inside the complex. Having suppliers on-site allows it to keep inventories at a minimum. “Given where we were with the business, it was time to be daring,” said DiMarco.
But this small city in the heart of the tropics is also home to one of the world’s most advanced and efficient auto plants — one that has become the poster child of Ford Motor’s remarkable turnaround in South America. Seven years ago, Ford in Brazil looked a lot like it does today in the United States. It was losing so much money and market share that executives at headquarters in Michigan were seriously considering pulling out of South America altogether.
Today, Brazil is Ford’s biggest success story, helping to offset hefty losses in North America. Ford Brazil has doubled its market share to 12%, racked up 15 straight quarterly profits, and is now scrambling to keep up with red-hot demand for its cars and trucks.
How Ford averted a meltdown in South America’s largest market offers some important lessons for the automaker as it struggles to move forward with a make-or-break plan to return to profitability and regain market share in the United States.
"There are several elements of the turnaround in Brazil that really work as an inspiration for things that are being done in the States,” said Marcos de Oliveira, chief executive of Ford’s Brazilian and Mercosur units.
Indeed, many of the steps Ford took in Brazil are being mimicked in the United States today. First, it overhauled manufacturing by closing inefficient plants and bought out 3,600 workers, or 46% of its labour force. In the United States, the cuts are even deeper.
Ford plans to close 10 plants by 2012 and has cut 33,600 jobs since 2005.As Ford cut costs in Brazil, it also spent heavily to design cars that were in sync with local tastes. The plan, dubbed Project Amazon, was to stop selling adapted versions of its European models and offer homegrown products for Brazil. The result was the EcoSport, a pint-sized sport utility vehicle with off-road capabilities at a fraction of the price of an SUV in the US — a must in a country where the minimum wage is just over $200 a month.
The bet paid off. Since its launch in 2003, Ford has sold more than 446,000 EcoSports - a whopping amount in a market where just one out of eight people own a car. The EcoSport also forged a whole new segment for subcompact off-road vehicles and is now shipped to several other Latin American countries.
“The vehicle has been just a home run for us,” said Dom DiMarco, Ford’s president for South America.
Perhaps the most audacious aspect of Ford’s recovery plan in Brazil was its decision to build a new, low-cost factory in the north-eastern state of Bahia, an impoverished region with limited infrastructure and no history of auto manufacturing.
The $1.9 billion plant was different than anything Ford had done before. Instead of bringing in parts from elsewhere, Ford asked 26 suppliers to set up shop inside the complex. Having suppliers on-site allows it to keep inventories at a minimum. “Given where we were with the business, it was time to be daring,” said DiMarco.
The Camacari plant is leaner and more flexible than any other Ford facility, with the capacity to produce five different vehicle platforms simultaneously on the same line. It runs three shifts, six days a week, 24 hours a day, churning out a vehicle every 80 seconds, or about 912 a day.
Ford also benefited from an economic upswing in Brazil that helped revive the entire auto industry. Wages are climbing steadily and interest rates are at an all-time low, leaving consumers with money to burn and allowing dealers to offer long-term financing plans never before seen in Brazil.
Auto sales in the country are on track to grow by more than 20% this year to a record high, beating all forecasts. Ford, whose sales are up 19% so far this year in South America, expects double-digit growth again in 2008.
To meet that demand, Ford will invest over $1 billion in Brazil through 2011. Part of that will be spent on building new engineering capacity to keep bringing attractive products to market, mostly spruced up versions of existing models.
Ford also plans to unveil an all-new subcompact car in January that will be manufactured at its Sao Bernardo plant on the outskirts of Sao Paulo.
Some of Ford’s rivals, however, are rolling out new models at a faster pace. That has some analysts wondering if Ford is playing it too safe in Brazil now that the turnaround is over.
“All other manufacturers are looking at what kinds of additional models they can bring into the market,” said Guido Vildozo, an auto sector analyst at Global Insight, a US-based consulting firm. “That’s the biggest challenge for Ford.”
Ford also benefited from an economic upswing in Brazil that helped revive the entire auto industry. Wages are climbing steadily and interest rates are at an all-time low, leaving consumers with money to burn and allowing dealers to offer long-term financing plans never before seen in Brazil.
Auto sales in the country are on track to grow by more than 20% this year to a record high, beating all forecasts. Ford, whose sales are up 19% so far this year in South America, expects double-digit growth again in 2008.
To meet that demand, Ford will invest over $1 billion in Brazil through 2011. Part of that will be spent on building new engineering capacity to keep bringing attractive products to market, mostly spruced up versions of existing models.
Ford also plans to unveil an all-new subcompact car in January that will be manufactured at its Sao Bernardo plant on the outskirts of Sao Paulo.
Some of Ford’s rivals, however, are rolling out new models at a faster pace. That has some analysts wondering if Ford is playing it too safe in Brazil now that the turnaround is over.
“All other manufacturers are looking at what kinds of additional models they can bring into the market,” said Guido Vildozo, an auto sector analyst at Global Insight, a US-based consulting firm. “That’s the biggest challenge for Ford.”
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