Life without a plan B after Ford’s exit from Brazil

RIO DE JANEIRO, BRAZIL – For 23 years working at the Ford plant in Taubaté, in the countryside of São Paulo, Leandro Monteiro was completely caught by surprise when an avalanche of WhatsApp messages began to come in on January 11th. All of them commented on the news that the assembler, which has been in Brazil since 1919, was closing down its activities in the country.

At first, the employee thought it was a lie: “Of course there were rumors that some plants could close, because the company was not having the desirable financial return, there were many cuts in recent years, but there was never talk of closing the company in Brazil,” explains Monteiro.

Widower and father of three children, Monteiro, who started in the factory as an office boy at the age of 14 and is currently a machine operator, says he felt betrayed. “The feeling is of being treated like garbage, me and my family gave our blood for Ford and its attitude is that of a factory. Overnight, they closed the door on us,” he says.

Monteiro’s father, José, worked for two decades in the plant before he retired. His brother, Felipe, was also with the company for 17 years. “I started 2021 calmly since we signed an agreement last year that provided job stability until December 31st this year. And we had been patient with the company’s restructuring policies,” he explains.

The oldest car manufacturer in the country, the automaker will concentrate the production of vehicles in Uruguay and, mainly, in Argentina, and justified its decision citing the crisis generated by the covid-19 pandemic, the devaluation of the real, and the global restructuring of the company.

Like Monteiro, about 5,000 other Ford workers will lose their jobs, not to mention the cascading effect on suppliers in a highly specialized chain. According to estimates by the Intersyndicate Department of Statistics and Socioeconomic Studies (DIEESE), the layoffs announced by Ford mean a potential loss of more than 118,864 direct and indirect jobs.

A large contingent in a country with almost 14.3 million people on the unemployment line. Considering all the so-called underutilized, which includes the unemployed and underemployed, there is lack of work for more than 32.4 million Brazilians.

In addition to the Taubaté plant, Ford’s activity is now suspended at the Camaçari plant, in Bahia. Only the production of some parts will continue for a few months to sustain aftermarket stocks. Troller’s plant in Horizonte, Ceará, will continue to operate until the fourth quarter. In Brazil, the assembler will only keep the administrative headquarters of Ford for South America, in the capital city of São Paulo, the Tatuí Test Center, in São Paulo, and the Product Development Center in Bahia.

In early April, Ford’s workers approved a severance pay plan proposed by the automaker. The agreement was signed after 25 negotiation meetings between the company and Sindmetau (Taubaté and Region Metalworkers Union). In addition to the severance pay, the plan establishes an indemnity of two additional salaries per year worked for hourly employees. For monthly workers, the amount is one additional salary per year worked.

Among other points, the plan also foresees the opening of a qualification program, with the goal of helping workers in their reinsertion in the market. Ford Taubaté has about 800 direct workers. “Everyone asks me what my plan B is. But the truth is that in the middle of this pandemic and with three children to raise, I still don’t have one,” laments Monteiro.

Automotive industry in decline

In addition to Ford’s particular reasons for leaving the country, the Brazilian automobile industry has been going through years of decline. The automotive sector reached 159,648 workers directly linked to the automotive industry in October 2013. In December last year, 120,538 direct workers were recorded, which corresponds to a 24.5% drop over the period, according to data compiled by DIEESE.

“The automobile industry in Brazil is not very competitive. It is very expensive. While we don’t make changes that make it more competitive, this process will continue, others will leave after Ford,” explains economist Samuel Pessoa, researcher at FGV. In the economist’s evaluation, a tax reform that reduces transaction and compliance costs is urgently needed.

“The longer a production chain is, the more it is affected by this enormous tax complexity, and that is what happens with the automobile industry. Another important point, according to Pessoa, is a redesign of the industry itself. “In Brazil there is a lack of scale because we have a great diversity, there are many models and brands produced here. We produce from the project to the final product. There are few auto parts imports, for example. It is only when you specialize in some products or stages of the production process that you achieve more scale.

The automakers are also going through a global restructuring oriented due to regional changes in demand, the reorientation in the consumption pattern and also changes in the technological paradigm. “In a context of productive reorganization, with greater focus on technological investments, the Brazilian economy becomes unattractive to automakers. Therefore, the Brazilian industrial crisis is deep and goes far beyond macroeconomic policy,” according to Unicamp professor Marco Rocha.

Rafael Cagnin, from the Institute for Industrial Development Studies (IEDI), agrees that part of Ford’s decision is a global change. The industry is going through profound changes, aiming green technology, autonomous cars. It is to be expected that companies will have to rethink strategies, reorganize production chains and prioritize countries that are in better conditions to receive these changes,” he says. “The automotive sector is in the eye of the hurricane,” he adds.

For Cagnin, Brazil has already gone through more than six years of adversity in the economy, without clear signs of the objectives for the industry, paying very little attention to the innovation agenda. “There is no doubt that countries and markets with a more innovative and dynamic environment come out ahead. If Brazil does nothing, does not accomplish anything at this moment that requires changes, we will fall behind,” he says.

Tax incentives

The layoffs in the automotive segment are prior to the pandemic, such as the case of Ford’s own plant in São Bernardo do Campo, which occurred in March 2019. However, DIEESE warns that beyond the global strategies of automakers, it is necessary to understand that Brazil had, until 2017, a program to foster the automotive segment, called Inovar-Auto, whose objectives were to encourage automakers to invest in research, engineering and development, as well as strengthen suppliers, through a local content policy, in which up to 80% of the vehicles manufactured by companies qualified in the program should perform a series of stages of production activity in Brazil.

Tax incentives were also adopted for many years for the automobile industry, with credits to finance investments in the sector. Ford is among the four automakers most contemplated by resources of the National Bank for Economic and Social Development (BNDES) in recent period. Between 2002 and 2018, Ford had access to R$5.5 billion in credit.

Between 2016 and 2019, the automotive sector as a whole was contemplated with federal tax incentives of more than R$15 billion, in addition to the payroll tax relief policy. “The automotive industry spent much of the time incentivized and today has a structural problem,” explains economist Alexandre Chia, from Insper.

Glauco Arbix, coordinator of the Innovation Observatory of the University of São Paulo (USP), says that when doing studies on the issue of incentives, he already warned that there was a risk that Ford, for example, would take advantage of these tax benefits in Camaçari, but that when they ended, it would leave Bahia. “The big problem, when it left Rio Grande do Sul, was to take advantage of these subsidies and when they ended it would leave,” he says.

The automotive sector crisis is only a part of the general decline of the Brazilian industry, which has been losing position in relation to other countries. According to the United Nations Industrial Development Organization (United), in 2018, Brazil ranked 9th in the world manufacturing industry value added (VAT), and in 2019, it fell to 16th position. The closure of companies in Brazil has already been occurring, such as Sony and the Mercedes-Benz plant in Iracemápolis, in São Paulo.

According to Arbix, the deindustrialization process that developed nations such as France and England experienced in 30 years, Brazil experienced in half a decade. In terms of public policy for the sector there is practically nothing and the government of Jair Bolsonaro still has “a strong ideological anti-industry bias”, “which says that Brazil doesn’t need to innovate, doesn’t need technology”.

Source: El Pais