Ford bets on low oil prices, moves Focus production to China
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Ford Motor said on Tuesday it will move some production of its Focus small car to China and import the vehicles to the United States in a long-term bet on low oil prices and stable U.S.-China trade relations despite recent tensions.
The move suggests China could play a much larger role in future vehicle production for North America, perhaps eclipsing Mexico as a low-cost manufacturing source.
Ford painted the production shift from Mexico to China, slated for mid-2019, as a purely financial move that will save the company $500 million in reduced tooling costs.
But Ford also expects to ship about 80,000 vehicles to China this year, including the redesigned Lincoln Navigator luxury sport utility vehicle, which goes into production this fall at Ford’s Kentucky truck plant.
Ford’s decision to import its first vehicles from China to the United States is also the first major manufacturing investment decision made by new Chief Executive Jim Hackett, who succeeded Mark Fields in May. Discussion about the small-car production shift from Mexico to China began “a couple months ago” under Fields, said Joe Hinrichs, president of global operations.
The decision also signals a shift in strategy at Ford, which is responding to dwindling U.S. consumer demand for small cars in favor of more expensive and more profitable trucks and SUVs. Cars accounted for more than 50 percent of U.S. auto sales as recently as 2012, but have fallen to just 37 percent of sales this year.
Ford on Tuesday said it would invest $900 million at the Kentucky truck plant to build the redesigned Navigator and Ford Expedition. It has contingency plans to build more of the big SUVs at an Ohio plant if demand grows.
In January, after U.S. President Donald Trump repeatedly criticized Ford for shipping small-car manufacturing to Mexico, Ford said it would kill plans to build a $1.8 billion Focus plant in San Luis Potosi and instead produce the new Focus at an existing plant in Hermosillo.
“The Ford decision shows how flexible multinational companies are in terms of geography,” U.S. Commerce Secretary Wilbur Ross said in a statement.
Trump did not address the issue on Tuesday.
White House Press Secretary Sean Spicer said Trump “wants to create a tax system (so) that companies want to come back and bring back jobs in manufacturing here in the United States.”
“The Ford decision shows how flexible multinational companies are in terms of geography,”
Although it is cheaper to build and ship cars to the United States from Mexico than China, “this was not a variable cost decision,” Hinrichs said in a briefing on Tuesday. “It allows us to free up a lot of capital” because Ford now has to retool only one plant – the existing Focus factory in Chongqing – rather than two to supply North America.
The current Focus will be phased out of production in Wayne, Michigan, in mid-2018, according to Hinrichs. The Wayne plant will begin building a new Ranger midsize truck in late 2018 and a Bronco midsize SUV in 2020.
Ford executives told Trump last year that moving production to Michigan of bigger vehicles that were more profitable would secure the Wayne plant’s future – a decision later praised by Trump.
No U.S. jobs will be affected by shifting Focus production to China, Ford said, adding that it employs more U.S. hourly workers and builds more vehicles in the United States than any other automaker.
The United Auto Workers labor union declined to comment.
Hinrichs said “the capital saving outweighs the risk” of having to pay a potential border tax, or import tax, on the Chinese-built Focus.
Ford U.S. Focus sales have fallen 22 percent this year, as low gas prices have helped spur more buyers into larger vehicles. Ford’s full-size F-series pickup truck remains the best-selling U.S. vehicle by a wide margin.
Unlike many consumer products, few Chinese-made vehicles are sold in the United States.
General Motors has been exporting Buick and Cadillac vehicles from China to the United States since last year, as has Volvo Cars, a unit of Chinese automaker Geely Automobile Holdings.
Questions & Answers
Q.What is the primary financial reason cited by Ford for moving some Focus production from Mexico to China?
What is the primary financial reason cited by Ford for moving some Focus production from Mexico to China?
Ford states this production shift is a financial move intended to save the company $500 million. This saving is attributed to reduced tooling costs, as they will retool one existing factory in China instead of two.
Q.Which vehicles will Ford's Kentucky truck plant produce following a recent investment?
Which vehicles will Ford's Kentucky truck plant produce following a recent investment?
Ford will invest $900 million at the Kentucky truck plant to build the redesigned Lincoln Navigator and Ford Expedition. Contingency plans are in place to build more of these large SUVs at an Ohio plant if demand increases.
Q.Why does Ford believe the capital saving from this move outweighs the risk of potential import taxes?
Why does Ford believe the capital saving from this move outweighs the risk of potential import taxes?
Joe Hinrichs stated that the capital saving achieved by retooling only one plant in China outweighs the risk of potential border or import taxes. This allows Ford to free up significant capital.
Q.What is the new Chief Executive's first major manufacturing investment decision mentioned in the article?
What is the new Chief Executive's first major manufacturing investment decision mentioned in the article?
The decision to import its first vehicles from China to the United States is the first major manufacturing investment decision made by new Chief Executive Jim Hackett. He succeeded Mark Fields in May.
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