SAO PAULO — A century in the past Henry Ford got here to Brazil and established the city of Fordlandia, hoping to turn into an Amazonian rubber baron, however retreated deep within the purple.

Now the automaker he based is as soon as once more shedding money in Brazil, having deserted manufacturing within the difficult market after burning by means of roughly 61 billion reais ($11.6 billion) prior to now decade.

Ford introduced the closure of its manufacturing vegetation in January, dealing a heavy blow to its greater than 5,000 employees within the nation and nearly 300 dealerships.

Beforehand unreported company filings present the size of the monetary woes that led to the choice. Ford had burned by means of $7.8 billion, the majority in accrued losses but additionally some money injections, in line with the paperwork filed in Sao Paulo state, the place 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 worth tag for the Brazilian operation rises to nearly $12 billion.

Virtually all of the losses and money injections had been prior to now eight years, when the corporate has misplaced about $2,000 for each automotive it bought, Reuters calculations based mostly on the filings and gross sales information point out.

Ford, which doesn’t separate out Brazil from South America in its monetary outcomes, declined to touch upon the losses, money injections and calculations.

The costly retreat of the U.S. heavyweight underlines the dangers for world automakers in Brazil, a rustic seen not way back as one of the crucial promising development markets on the earth, however the place tax, labor and logistics prices are excessive.

The COVID-19 pandemic has strained funds whereas Ford’s issues additionally replicate, partially, a strategic misstep that noticed it lag rivals in remodeling its lineup of unprofitable compact vehicles into higher-margin crossovers and SUVs, in line with half a dozen sources conversant in the corporate’s Brazilian operation.

Ford had actually drafted a plan to shift into crossovers and SUVs, however was too gradual to implement it, they stated.

“There have been no different viable choices,” Lyle Watters, Ford’s head for South America, advised Reuters in an announcement concerning the choice to exit the nation.

Watters, who will begin a brand new Ford position in China in July, cited an “unfavorable financial setting, decrease automobile demand (and) increased trade idle capability” for the Brazil retreat.

He declined to touch upon the SUV mission, saying he wouldn’t “speculate on new product plans.”

A Ford spokesman in Brazil stated the corporate was implementing “a lean and asset-light enterprise mannequin within the area, with a really customer-centric mindset”.

Brazil vs. Mexico

Brazil is essentially a shedding proposition for world automakers, regardless of the federal government offering federal subsidies totaling $8 billion over the previous decade and a 35 p.c import tariff to protect native manufacturing.

Home prices are excessive. Regardless that native factories could make 5 million autos a yr, greater than double the quantity bought within the nation, exports are minimal as a result of costs are uncompetitive. And it prices automakers cash to maintain factories open whereas working at low capability.

Mexico, in contrast, exports greater than 80 p.c of the vehicles it makes, helped by free-trade agreements with the U.S. and Canada, making it a sexy different for a similar automakers that already function in Brazil.

A 2019 examine by marketing consultant PwC discovered that promoting a Mexican-made automotive in Brazil was 12 p.c cheaper for an automaker than promoting a locally-made automobile, together with manufacturing, tax and logistics prices.

The examine was commissioned by Brazilian auto trade group Anfavea, which is lobbying the federal government to scale back taxes and labor prices.

The excessive Brazilian prices imply even automakers who pivoted sooner than Ford to higher-margin crossovers and SUVs, just like the Brazilian items of gamers like Volkswagen Group, Common Motors and Toyota, are struggling to remain within the black.

Volkswagen Brazil has misplaced $3.7 billion since 2011, in line with the company filings in Sao Paulo state. GM Brazil has acquired $2.2 billion in money injections since 2016, and Toyota Brazil final yr required forgiveness on $1 billion of inter-company debt, the paperwork confirmed.

Volkswagen, GM and Toyota all declined to touch upon the filings figures.

The Brazilian financial system ministry didn’t reply to a request for remark concerning the Ford exit and issues confronted by the auto sector.

Prospects deteriorate

Ford did not develop a viable manufacturing enterprise in Brazil regardless of a apply of pursuing tax subsidies, which totaled greater than that of its rivals over the previous decade.

Since 2011, Ford has reaped about $2.6 billion in tax subsidies, or a 3rd of all federal automotive incentives distributed in that interval, in line with Reuters calculations based mostly on official tax forfeiture figures.

Ford declined to touch upon its tax advantages.

In 2013, nevertheless, the enterprise outlook started to alter, as commodities costs crashed and dragged the native foreign money with it, sending Brazil right into a deep recession made worse by corruption scandals. On the time, it was the world’s fourth largest auto market. It now ranks seventh.

Weak home demand and the uncompetitive exports pushed Ford to quintuple its bulk fleet gross sales between 2011 and 2019, and deepen the reductions to 30 p.c or extra, an individual conversant in the pricing stated.

Ford shored up its Brazilian subsidiary with $1.3 billion in money injections, in 9 transfers between March 2018 and January 2021, in line with the Sao Paulo company filings.

By late 2019, Ford was contemplating the important thing strategic shift to fabricate SUVs in Brazil and had three fashions deliberate, in line with three of the sources conversant in the operation.

But lots of its rivals had already been revamping their lineup to provide such autos for about two years.

“The reality is, Ford did not modernize its product lineup on the similar pace as its rivals,” stated Ricardo Bacellar, automotive head at KPMG’s consulting arm in Brazil.

Ultimately, the SUV plans by no means got here to fruition.

By April 2020, the financial ache wrought by the pandemic compelled Ford to reevaluate its plans for Brazil, the automaker has stated.

Nonetheless, Ford made commitments to the federal government as late as November final yr to speculate extra in Brazil and advised its sellers in December that it anticipated improved gross sales in 2021, in line with a authorities announcement and the sellers’ affiliation.

But simply weeks later, it halted manufacturing.

It closed its three vegetation, the most important one in Camaçari, within the northeastern state of Bahia. It retains solely a small operation promoting imports, a distinct segment marketplace for high-end vehicles that the import tariffs make prohibitively costly for many individuals.

Ford’s all-electric Mustang Mach-E, for instance, which starts at $48,100 in the U.S., will promote for $94,000 in Brazil, the place per capita earnings is way decrease.

Whereas Ford bought 18,000 vehicles in Brazil in April 2019, it bought 1,500 vehicles in the identical month this yr.