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Ford exits Russian car market as pressure mounts on profitability

After much deliberation, the Russian joint-venture partner of Ford Motor Company (F) has decided to close its passenger car division in that country.  Earlier, Ford had hinted at discontinuing the production of passenger vehicles in Russia, citing the growing pressure on profitability due to falling demand.

The closure of two assembly units and an engine factory – mostly by June this year – will lead to Ford Sollers assuming control of the venture, focusing solely on commercial vehicles. Meanwhile, the process is expected to render a large number of employees jobless and result in Ford incurring charges of $450-$500 million.

The process is expected to render a large number of employees jobless and result in Ford incurring charges of $450-$500 million

Last year, the Detroit, Michigan-based automaker embarked on a massive reorganization involving large-scale workforce reduction and plant closures in the Americas and Europe. As part of the program, launched with the aim of returning to profitability in the loss-making markets, a number of plants were shut down and the management team was reshuffled.

Last week, the company appointed Amazon (AMZN) veteran Tim Stone as its chief financial officer to replace Bob Shanks who will be retiring later this year. Experts believe the appointment of an executive with technology background is in line with company’s strategy to pursue partnerships for taking forward its autonomous and electric vehicle programs, while also revamping the portfolio with stress on bigger vehicles.

Earlier this year, the company unveiled a ‘transformation strategy’ for the Ford brand in Europe, with the purpose of revamping the portfolio and increasing volume in the high-growth segments. Of late, the market has been witnessing a rapid shift to SUVs and pickup trucks from conventional passenger cars.

Russia’s passenger car market is hit by a slowdown due to the faltering economic recovery. With their spending power under pressure, customers prefer passenger cars with lower price tags to the expensive popular brands.

Ford’s stock traded notably lower during the early hours of Wednesday. The shares ended 2018 on a dismal note, hitting a ten-year low. However, they regained momentum this year and have risen about 10% so far.

 

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