By on March 28, 2019

Image: Ford of Europe

Ford’s troubled Russian joint venture isn’t doing nearly as hot as the Blue Oval automaker would like, so it’s severely paring back its presence in the country.

The memorandum of understanding signed Wednesday kicks off a broad restructuring of the automaker’s business in Russia, with two vehicle assembly plants and an engine plant now slated to close. Ford passenger car assembly will soon be a thing of the past in the Motherland as Ford’s partner, Sollers PJSC, takes a majority stake in the venture.

As we told you earlier this week, poor sales performance during and following Russia’s recent economic downturn placed strain on Ford, with the financial pressure compounded by losses in Europe, South America, and China.

Domestic brands like Lada tightened their grip on Russian car buyers, while imports like Kia soared up the sales charts. Ford’s sales growth has not matched that of the industry as a whole (growth was 12.8 percent in 2018; Ford’s, less than half that). It seems many Russians find the EcoSport crossover overpriced.

With the new agreement, Sollers will take a 51 percent majority stake in the joint venture. Ford Transit van production — the company’s sole sales success — will continue in the country, but car and SUV production at the Naberezhnye Chelny and St. Petersburg assembly plants will cease by the end of  June 2019. An engine plant in Elabuga will also close its doors.

“The Russian passenger vehicle market has been under significant pressure in recent years, with recovery slower than expected and a shift to lower priced passenger vehicle segments,” the company said. “This has resulted in the underutilization of the Ford Sollers manufacturing plants and inadequate returns on invested capital.”

Ford warned, “Significant employee separations are required” to turn around the business. The automaker anticipates pre-tax special item charges of $450 million to $500 million as a result of the restructuring, part of its $11 billion global streamlining effort.

“This represents an important step towards Ford’s target to deliver improved profitability and a more competitive business for our stakeholders,” said Ford of Europe President Steven Armstrong in a statement. “The new Ford Sollers structure supports Ford’s global redesign strategy to expand our leadership in commercial vehicles and to grow the business in Europe in those market segments that offer better returns on invested capital.”

[Image: Ford of Europe]

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