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Ford Halts Pretoria Plant Production due to Labor Unrest

Ford Motor Co. (F) announced a temporary halt in production at its Silverton assembly plant outside Pretoria in South Africa, although the other South African plant in Port Elizabeth is operating normally. A strike by the suppliers of car components forced the automaker to undertake this strategy as a last resort.

The plant, which mainly assembles the Ford Ranger pick-up truck, will experience reduced production by 350 units per day due to the temporary work cessation.

The strike has been led by 220,000 metal workers. Last week, these workers turned violent and after reports of several attacks, threats and damage at factories around Johannesburg, the police arrested 26 people. Wage negotiations between the National Union of Metalworkers of South Africa (Numsa) and the Steel and Engineering Industries Federation of Southern Africa (Seifsa) failed to resolve the issue.

Seifsa offered a 10% hike in payment for the first year, increasing 9.5% in the second year and 9% in the third year. However, Numsa demanded a 12% to 15% raise. Moreover the union was not interested in multi-year agreements.

The platinum sector of South Africa had previously faced a five-month workers’ strike, hampering economic growth and export earnings of the country. The latest strike by the suppliers has affected investor sentiments in Africa even more adversely. After a poor first-quarter performance owing to the platinum strike, it is possible that the economy might even face a recession.

As a result, last month, the ratings agency Standard & Poor's downgraded South Africa's credit rating while Fitch put it on negative watch due to weak growth opportunities caused by several strikes.

Apart from Ford, Japanese automaker Toyota Motor Corporation (TM) will also cease production in South Africa due to supply chain problems. Toyota will be closing two production lines at its Durban plant, which manufactures Corolla, Hilux and Fortuner models. The standstill in production is a result of the ongoing strikes in the metals industry leading to decline in supply of car components. Last week, General Motors Co. (GM) also announced a temporary discontinuation of work at its Port Elizabeth assembly plant in South Africa.

Further, Bayerische Motoren Werke Aktiengesellschaft (BMW.V) faced similar challenges and was compelled to halt production at its plant located outside Pretoria, effective Jul 1. Presently, BMW is operating in two shifts instead of the regular three. Nissan Motor Co. Ltd. (NSANY) is operating normally.

However, the situation will be monitored closely by the automakers. Other companies affected by this strike include Bell Equipment Ltd., Evraz Highveld Steel & Vanadium Ltd., units of Murray & Roberts Holdings Ltd. and Aveng Ltd., together with Eskom Holdings SOC Ltd.’s Medupi and Kusile power plants.

Ford currently carries a Zacks Rank #3 (Hold).

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