Ford and Romanian state agree on delay of investments and penalties for lower production

Car maker Ford, which runs a factory in Romania, will have to pay penalties for having manufactured fewer cars that agreed in the factory privatization contract, and will further delay investments while giving up on state aid for professional development of its staff, according to a recently agreed addition to the Automobile Craiova privatization contract.

Ford, which took over Automobile Craiova from the Romanian state in 2007, was due to invest some EUR 675 million in technology and environment and to manufacture 250,000 units by March 19 this year, according to the privatization contract. A recent addition to the contract flattens the state aid for these investments at EUR 75 million, after negotiations between May 2010 and December 2011, and should be enforced by Government Emergency Ordinance. “Ford Motor Company found a significant change in the elements which were taken into account at privatization: market conditions, worldwide and national level, which involve a restructuring of the initial business plan. For these reason, given the global economic and financial crisis, Ford has asked for a reanalyze of some clauses in the privatization contract,” writes the project. Ford negotiated with the Romanian state to simplify the restructuring process, extend the timeline for its post-privatization duties until the end of 2012 and a simpler procedure for investment guarantees. The addition to the contract features new state aid based on the new business plan, as well as penalties for not having manufactured the required number of cars. The new data included in the addition to the contract were sent for feedback to the European Commission. Ford, which had to manufacture 250,000 cars in Romania, will pay up to 25 percent of the acquisition price in penalties for not having reached the production threshold. End-January, Ford announced it was planning to make 60,000 B-Max cars in Romania this year and some 100,000 cars next year. Between April 2010 and October 2011, Ford manufactured 17,000 Transit Connect cars in Romania. Production for this model was further moved to Valencia, as the car maker decided to reorganize production in all its European factories. In the end, the number of cars produced in Romania will be significantly lower than agreed in the 2007 privatization contract. Car sales went down to 110,000 units in Romania last year, from 324,000 in 2008. Ford took over the bulk of shares in Automobile Craiova in 2007, in a deal worth some EUR 730 million, of which EUR 57 million was paid for the shares and the rest should have been directed to investments. editor@romania-insider.com