Posted on 09/20/2016 1:56:30 PM PDT by Kaslin
Ford Motor Company made headlines on Wednesday, September 9, when, during an investor conference, CEO Mark Fields told attendees that it will invest $1.6 billion building a manufacturing plant in San Luis Potosi, Mexico, and will move all of its small car production there during the next two to three years.
The announcement was hardly news as Ford has been talking about the shift for more than a year. But in the throes of an election that has both candidates decrying companies that send jobs to low-wage countries, the decision was an invitation for attention. The next day, during a speech in Flint, MI, Donald Trump declared that it was: “horrible.” He’s previously called the proposed move “an absolute disgrace” and promised to punish Ford with a 35 percent tariff on cars made in Mexico that are then sold in America—which he believes will prevent them from moving production out of the U.S.
No one wants American jobs to go away—and Ford plans to build more profitable vehicles in the plants that currently produce the Focus and C-Max small cars. It claims it is not going anywhere and that the U.S. is its home. Reports do indicate that no jobs at the Wayne, MI, plant will be lost, as it will likely be converted to building the new mid-size Ranger pick-up truck and, possibly, a new Bronco compact sport-utility.
But there’s more to the story that isn’t generally being addressed.
Earlier this year, Fields told CNBC: “We’re always going to invest where it makes sense for business.”
Obviously, it no longer makes “sense” to invest in small car production in America. Most of the news surrounding the move to Mexico addressed the benefit of low-cost labor. According to the Detroit Free Press: “The industry has known for decades that domestic manufacturers struggle to make a profit on small cars.” In Slate’s MoneyBox blog, Jordan Weissmann says: “You can protest that Ford should find a way to consistently churn out profits while manufacturing small cars at home, but that’s easier said than done.”
The number of auto jobs in Mexico is up 40 percent from 2008, while they are only up in the U.S. by 15 percent over the same period. Reuters reports: “American automakers pay Mexican workers $8 to 10 an hour, including benefits.” By comparison, Ford’s labor costs average $57 per hour at home.
Even with the huge labor cost differential, American car companies’ trucks and SUVs are profitable to manufacture in the U.S. and they are the vehicles Americans want to buy—which should raise the question: Why do car companies make small cars when they can’t make them profitably? The answer is the story not being addressed in the current coverage of Ford. And this is where Trump could, possibly, change the outcome.
In a free-market world, companies that want to stay in business should stop activities that lose money and focus on those that make money. Yet, the big three automakers, continue to produce small cars that for years have made little, if any, money.
Business Insider explains: “If Ford is going to keep them around, it needs to address the profit problem. Americans don’t want to buy small vehicles at the moment (actually, they almost never want to buy small cars), so Ford’s only rationale for continuing to build them is to satisfy the more stringent fuel-economy standards in the future.” Those fuel standards are called CAFE—which stands for Corporate Average Fuel Economy. In short, it means that car companies can only sell the bigger vehicles that Americans want, if it also produces cars that achieve very high fuel efficiency (including electric vehicles, in which Ford is investing heavily) that results in an “average” of the mandated miles per gallon—which is now 54.5 by 2025.
Merrill Matthews, Ph.D., a resident scholar with the Institute for Policy Innovation, blames the Ford move on, along with other draconian government policies, the CAFE standards: “The CAFE standards, which began in 1975, require auto manufacturers to meet government-imposed fuel economy standards across a fleet of cars. In order to meet those standards, which have been dramatically increased under President Obama, carmakers have to make light, inexpensive cars with high fuel economy to offset their trucks and SUVs with lower fuel economy. And electric cars really help their fuel economy balance. So the companies make minimally or even unprofitable small cars and electric vehicles so they can sell their popular and profitable large products—and hope for a profit in the end. By moving their small cars to Mexico, which has skilled but cheaper labor, Ford hopes to break even or make a little profit off of them.”
While the CAFE standards have increased dramatically under the Obama administration, and have also increased costs for consumers, most people don’t realize that they are not set in stone. Brad Plumer, senior editor for VOX.com outlines the options: “A new president can revise them, up or down. These CAFE (corporate average fuel economy) rules are scheduled to come up for a midterm review in 2017. At that point, automakers may lobby to allow the standards to rise more slowly—particularly if sales of fuel-efficient vehicles have been sluggish due to low oil prices. Green groups, meanwhile, could push to make the standards stricter, or to have them keep increasing past 2025, to push vehicle emissions down even further.”
A President Trump could, perhaps, by promising to allow car companies to make whatever kind of cars they want to make, entice Ford to keep its money in America—though, admittedly, there are other factors (such as trade deals) that make manufacturing small cars attractive in Mexico. CAFE is just one of the many policies that make doing business difficult in America. Revising the CAFE standards, which could reduce the cost of future cars and would remove government intrusion from vehicle selection, is something Trump can do that would make doing business in America “make sense” again for U.S. car companies. For all business, let’s make America a place where it makes sense to invest.
**Obviously, it no longer makes “sense” to invest in small car production in America. Most of the news surrounding the move to Mexico addressed the benefit of low-cost labor. According to the Detroit Free Press: “The industry has known for decades that domestic manufacturers struggle to make a profit on small cars.” **
There is Kia assembly plant in Georgia. I guess that is their luxury lane cruiser division.
How come no one mentions GM’s $5 billion investment in Mexico in the last couple years?
I am not completely buying this.
Most of the assembly work on cars these days is done by robots, whether in Detroit, Mexico of Korea.
And foreign manufacturers are making cars here. Granted in non-union plants, but still, at greater cost than they could in other countries.
Why bring this up? As if he gives a sh*t.
He’s probably having a private chuckle.
F O R D = Fix or Repair Daily.
***Mexican Cars Alert***
If I open a door and see that its made in Burritoville I won’t buy. Ever.
I will never buy another Ford product,and I will call them and tell them just why. What tone deaf idiots.
The amerocentric article misses the point
Mexico has become the hemisphere center for export auto production
Ford is actually late to the game
The Ford’s inquestion will have a large export market far beyond the US
Not any that I've ever owned, which is everything for 25 years.
America is to lazy to be competitive!
I don't have the numbers, but I suspect the retirement benefits are also more expensive. That cost would be lower for the transplants because most haven't been here that long, and have fewer retirees to account for.
Does anyone have the numbers to support this or show otherwise?
I don’t know if this is still the case, but I recall a few years ago someone (probably here) pointing out that just about everyone on a union auto factory floor is considered an “auto worker” meaning even the guys running tow motors and sweeping the floor get unusually high salaries compared to other industries.
Great article - thanks.
Sportute Girls only want to buy sportutes. No small car for me.
CAFE standards are well past the point reason. They make about as much sense as Ethanol. We’re downing in Oil.
Check the tailpipe for pollution. Keep the standards reasonable. Weight savings measures are ruining the automotive business.
That’s because after their bailout they are investing YOUR MONEY, not theirs.
Ford has built cars in Mexico for over 70 yrs, along with GM
Most VWs sold here come from the plant in Puebla
And now most Toyota Tacoma pickups are made in Tiajuana
As a side note to this thread, please consider the following from related threads.
Patriots beware !
You would never know from these Obama-bashing articles that the USA has a Congress that has the constitutional authority to stop a presidents action’s.
The problem is that both the legislative and executive branches are corrupt, Obama allowing himself to be used as Congress’s “useful idiot,” Obama just one of many such “idiots” in the federal system.
More specifically, Congress is not only letting Obama get away with stealing and exercising legislative branch power imo, but also letting him exercise 10th Amendment-protected state powers that the corrupt feds have stolen from the states.
Corrupt lawmakers are likely letting last-term Obama get away with doing all the unpopular, unconstitutional things that Congress probably wants to do. But by letting Obama do Congress’s dirty work for it, lawmakers are able to keep their voting records clean. And by keeping their voting records clean, lawmakers are able to fool low-information voters into reelecting them. (Patriots need to iron the wrinkles out of the 22nd Amendment. When both legislative and executive branches are corrupt, watch out for unconstitutional actions by last-term presidents.)
Remember in November !
Patriots need to support Trump / Pence by also electing a new, state sovereignty-respecting Congress that will not only work within its constitutional Article I, Section 8-limited powers to support Trump’s vision for making America great again for everybody, but will also put a stop to unconstitutonal federal taxes and likewise unconstitutional inteference in state affairs.
Note that such a Congress will also probably be willing to fire state sovereignty-ignoring activist justices.
Fender Musical Instrument Company makes lots of stuff in Mexico and China.
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