Automaker giant Ford Motor Company announced its decision to stop producing passenger vehicles offered through a joint venture called Ford Sollers with Russian automaker Sollers PJSC while commercial vans will still continue to be produced. Three of the venture’s four factories will be closed in June and Soller’s will own 51% of the joint venture with a fresh focus on commercial vehicles in Russia. This restructuring of the deal between the companies is part of a larger move to boost profitability in Europe.
Ford confirmed that the restructuring will come at a one-time pre-tax expense between $450 - $500 million out of which roughly $250-$300 million will be non-cash accounting charges, and the remainder roughly $200 million will be cash charges. Ford further confirmed that its global restructuring effort will generate a total of about $11 billion in charges over the next few years, with about $7 billion of those charges being cash charges.
But this isn’t the first time that Ford and Sollers have restructured their deal. In 2014, about 1,000 jobs were cut after the company suffered heavy losses in the region. But after its rival General Motors (GM) announced that it would exit the Russian market, Ford took control of the joint venture to amend ways. However, nearly decade-old Russian joint venture hasn't been worth the effort, as Ford never came close to generating the returns it had expected on the invested capital.
The current strategic view of Ford’s Russian business was long overdue as the company has been looking at investing in new products and businesses that had the potential to generate better margins over time. As customers have been more inclined towards low priced vehicle types, Ford has been struggling for some time now. So, it’s good news for investors that Ford will be focusing more on commercial vehicles from now.