Ford Motor Company (F) Pays Big to Close a Factory

It’s not news that Ford Motor Company (NYSE:F) has been losing a ton of money in Europe. The Blue Oval’s operations in the region lost $1.75 billion in 2012, as a steep recession hammered car sales across the industry.

It’s also not news that Ford Motor Company (NYSE:F) is determined to restore its European operation to profitability. Last fall, CEO Alan Mulally announced a comprehensive overhaul plan that included three factory closings and a slew of new models for the region.

But what is news is that Ford’s turnaround plan is going to be an expensive one.

A $750 million parting gift
Ford Motor Company (NYSE:F) disclosed in a regulatory filing on Tuesday that its plan to close a factory in Genk, Belgium, would cost it at least $750 million. That’s the estimated total cost of lavish separation benefits – an average of $187,500 per worker – that Ford has agreed to pay to the roughly 4,000 hourly workers who are slated to lose their jobs when the factory closes at the end of 2014.

Workers at the Genk factory and its suppliers had essentially held up production at the plant since Ford Motor Company (NYSE:F)’s closure plans were announced last October. The agreement to pay separation benefits was a key to getting production restarted. Another agreement to pay separation benefits to the 300 salaried workers who will be affected by the factory’s closing is likely to be announced soon.

The factory finally returned to normal production this past Monday.

Ford will report the separation expenses as a series of special items, amortized over the remainder of the time Genk is open. The company said that the amount reported each quarter would be “dependent upon such factors as the timing of employee departures.”

It’s an expensive proposition that could get more expensive as Ford Motor Company (NYSE:F) proceeds with its turnaround plan – especially if more factory closures turn out to be necessary. But it’s further proof of something that has been clear for a while: Closing a car factory in Western Europe isn’t easy.