Ford, under the direction of new chief executive Jim Hackett, is redistributing its global investments by sending production of the Focus to China.
The Ford Focus is currently built in Michigan, China, and Europe. As announced last year, Ford hoped to minimize labor costs by sending the production to Mexico. Those plans were scrapped in January after President Trump warned automakers that expansion in Mexico at the expense of U.S. jobs could result in penalization. The solution: move the Focus overseas.
Shipping Chinese-manufactured vehicles halfway around the world to reach the American market is not cheap. Neither are the subsequent modifications required to make them meet U.S. safety standards. But Joe Hinrichs, Ford’s head of global operations, claims that the move to China will save the company $1 billion. Expanding its existing plants in China allows Ford to cut the $500 million cost of building the Mexican plant while avoiding the expense of paying higher wages to unionized American workers. Their hope is to use the extra funds to expand American production of higher-selling vehicles while the less popular cars are built overseas.
The Focus is already in a slump due to the drop in U.S. gas prices since 2015. The resulting rise in the popularity of trucks and S.U.V.s has sent car sales plummeting, and the Focus suffered more than most, its sales in the first half of 2017 falling a painful 20% from its sales in the first half of 2016. Ford’s decision to relocate the Focus to a less costly place of production is part of a larger trend in American auto manufacturing, as more and more companies choose to produce their less lucrative vehicles in countries that provide less expensive labor, saving their best-selling vehicles for American plants.
According to Ford, at least a portion of the funds saved by sending the Focus to China will be put straight into expanding a Ford plant in Kentucky. So far the plans include adding the newest versions of the Lincoln Navigator and the Ford Expedition to the factory’s production capacity. The addition of these two popular, full-size S.U.V.s is expected to save approximately 1,000 jobs at the Kentucky plant. Ford hopes that this benefit will more than compensate for the negative impact on Michigan, which currently supplies parts for Focus production.
How the Trump administration feels about Ford’s latest move is unclear. According to Commerce Secretary Wilbur Ross, “The Ford decision shows how flexible multinational companies are in terms of geography.” The administration’s hope is that U.S.-based multinational companies will increasingly begin to relocate their production plants to the States. President Trump has promised that the renegotiation of the North American Free Trade Agreement later this year will address the question of possible taxes, tariffs, or other penalties to be imposed on imports from Mexico. Whether he intends to discourage imports from China in a similar way remains to be seen.
Michigan and Mexico may have lost in this billion-dollar game of reorganization, but Kentucky and China stand to gain by it. Whether it will be a gain or a loss in the long run for Ford and for American auto manufacturers remains to be seen.