Cleveland, Ohio – If sending work to Mexico is politically unpopular, what’s the reaction going to be to sending production to China?
Ford’s about to find out.
About two weeks before his inauguration in January, then president-elect Donald Trump praised Ford executives for cancelling plans to build a $1.6 billion plant in Mexico to make the Focus small car. At the time, Ford executives said they still planned to make the car in Mexico but at an existing plant.
On Tuesday, officials juggled manufacturing plans again, saying now that the bulk of Focus cars sold in the U.S. in 2019 will come from China with a smaller number coming from Europe.
Ford Executive Vice President and President of Global Operations Joe Hinrichs says, “We have looked at how we can be more successful in the small car segment and deliver even more choices for customers in a way that makes business sense.”
He adds that moving production to China saves Ford $1 billion in investments – $500 million more than earlier plans to cancel the new Mexican plant and expand an existing facility in Hermosillo, Mexico.
Ford and its rivals struggle to profitably make small cars in the United States. Low starting prices and thin profit margins makes producing $20,000 vehicles a break-even proposition, even for companies that don’t pay union wages and benefits.
The plan announced in early 2016 called for Ford to build a new plant in San Luis Potosi, Mexico, for the Focus and retool the Michigan Assembly Plant near Detroit for a new Ranger pickup and Bronco SUV. But in the year following that announcement, small car sales cratered, and Ford executives saw the likelihood that they’d own a large new plant in Mexico dedicated to a car with minimal volume potential.
The January plan would have combined Focus and Fusion production in a single plant in Hermosillo, Mexico, something possible because Fusion mid-sized sales have fallen almost as rapidly as compact car sales. Shoehorning both cars into Hermosillo would have worked, but it would also have meant running that plant at or beyond capacity, and most likely would have required large investments in new equipment.
Scrapping the Hermosillo expansion for Focus production in China won’t have a direct impact on U.S. production as the company already planned to move production out of Michigan.
Symbolically, however, sending work to China isn’t the message politicians want to send.
Following Trump’s election, the president’s supporters used a wave of manufacturing investments in the U.S. as evidence that America-first policies were creating a better environment for businesses. Trump on many occasions has referenced Ford’s plans to cancel work in Mexico and move jobs to the U.S. (something the company never claimed it was doing) as evidence of a turning tide in American manufacturing.
Ford’s increasingly international sourcing strategy is at odds with Trump’s build-in-America rhetoric. This year, Ford plans to begin selling the made-in-India EcoSport SUV in the U.S., and sourcing the Focus from China and Europe further internationalizes the company’s product plans.
Also, had the Focus remained in Mexico, the U.S. supply chain of parts producers, mold and die makers, and tooling companies would have benefitted from production support work. Those support jobs will now likely go to suppliers in Japan, China, and other Asian countries.
“Finding a more cost-effective way to deliver the next Focus program in North America is a better plan, allowing us to redeploy the money we save into areas of growth for the company – especially sport utilities, commercial vehicles, performance vehicles, as well as mobility, autonomous vehicles, and electrified vehicles,” Hinrichs says
Despite the international push for smaller vehicle production, Ford is investing heavily in the United States. Plans still call for the company to retool the Michigan Assembly Plant for the Bronco and Ranger, and Hinrichs says Ford will invest $900 million at its Kentucky Truck Plant in Louisville to make the next-generation Ford Expedition and Lincoln Navigator SUVs.
Ford employs 7,600 people at Kentucky Truck, and investments last year in F-Series Super Duty production and this year in SUV production will protect those jobs for nearly a decade. Ford also makes the Escape small SUV at a smaller plant in Louisville.
“Large SUVs are attracting a new generation around the world – and we’re finding new ways to deliver the capability, versatility, and technology that customers around the world really want with our all-new Ford Expedition and Lincoln Navigator,” Hinrichs says.