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.
Dislexic.
Driver returns on foot
The only Fords I’m interested in still are the F series trucks and the Mustangs.
http://lamecherry.blogspot.com/2016/09/the-art-of-depression.html
The first sign of the Obama Economic Implosion has appeared, and just as the Bush market on housing imploded, which was the catalyst for the derivatives market, the market for the rich was the art bubble (and) has burst.
This does not mean a bust will appear this month. The illusion of the Obama economy of rapine must be kept propped up, so Hillary Clinton is not completely wiped out in the November elections, but the real economic sign is there.
The reality is the Obama regime has been dumping money to stocks to inflate them in the last gasp, but the conglomerates are not sharing, but in knowing what is coming, are now hording all of that cash ...... or like Ford, sending all of their manufacturing to Mexico, so when Hillary Clinton's nuclear war starts, Ford will not have it's plants vaporized, as Mexico is a safe zone.
Yes that is what Mexico and South America are. Corporate safe zones where Ford does not give a damn about their puppets starting nuclear war in this world and American cities bombed, because they have plants in "neutral" nations and will continue to make billions in war, and they have their get-aways in Paraguay while Americans and Europeans rot in nuclear decay.
Just thought it would be good to keep in mind, that the money flow has stopped at the top and now it is only a matter of time before the economic crush occurs.
Logic now points to next year at latest, which will then have a terror event of large stakes to drive America into the Great Eurasian War so all of this Obama looting for the elite will be hidden in "war debt" where the cartel loots China and Russian gold reserves to balance things out again.
I made the same promise 40 years ago. No loss to me.
Bingo!
You just hit on the crux of the problem.
Ford is moving small vehicle production to Mexico.
This is because they lose money on every small car they make in the US.
Trucks, Mustangs and SUVs are still profitable.
The assembly plant that used to make the small cars
is being switched over to SUV production.
You can read about the move in this article from Fortune.
Very simply, the effect on US auto jobs is a wash.
There is no net loss of employment in the US due to this move.
Ford is simply taking the segment of its manufacturing
with the lowest margin (in this case negative) and putting
it where the production costs are also the lowest.
And none of this would be an issue at all if Congress was not
micro-managing the auto industry through CAFE standards,
which they have no Constitutional authority to do in the first place.
And yes - the Administration shares in the blame for this move.
If they were not hell bent on this stupid "Green Agenda"
there would be a gain in employment here in the US.
I meant to ping you on Post #45.
Yeah, mine were pretty good too - including a family of cars going back into the 1960’s.
What is the cost to ship cars...in contrast to making them where they are sold?
“The reality is the Obama regime has been dumping money to stocks to inflate them in the last gasp, but the conglomerates are not sharing, but in knowing what is coming, are now hording all of that cash ...... or like Ford, sending all of their manufacturing to Mexico, so when Hillary Clinton’s nuclear war starts, Ford will not have it’s plants vaporized, as Mexico is a safe zone. “
Y E P
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What is way over your head is day by day fare here.
Had you read Shibumi’s post 45 you should have gained a handle on this.
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>> “... or like Ford, sending all of their manufacturing to Mexico, so when Hillary Clinton’s nuclear war starts, Ford will not have it’s plants vaporized, as Mexico is a safe zone.”
And you say “yep?”
That’s drivel!
Ford is not “sending all of their manufacturing to Mexico!”
They are sending the manufacturing of their least desired cars, the ones the gestapo demands that they market, to Mexico, to free-up space in their US plants to make the profitable cars and trucks that America says “with their wallets” that they want: F trucks and SUVs.
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Wow! That must have been “exciting.” So glad that you were
able to survive that, and hope the repairs weren’t too
expensive.
We have a large F-150 Truck as well. We actually bought it
from the Ford dealer. $17,500 in cash, and we were out the
door.
My husband knows that my favorite color is any shade of
blue, and the truck is a beautiful dark blue with lots of
sparkles in it. It’s a great muscle truck, still doing well
in spite of the three - four nasty winters since we got it.
Sigh... In mothballs, we have a 1974 Trans Am, a 1973
Pinto, and some motorcycles, my GS1100, his Katana, and his
Dunstall Norton. We’re hoping to save up enough to build
another garage across the driveway from the attached-to-the-
house garage, so we can stop paying our former landlord
(before we bought this place) every month to keep care of
all our vehicles.
Thank you. My wifes truck (replaced her '09 Mustang GT when we moved to the mountains) was destroyed. I was alone at the time, last day of Jan. I was in PT/rehab until last month. Still working on the insurance settlement. We got a little newer f-150, it did save me.
FReegards
The Commies over at OC Weekly celebrate Fender’s origins:
http://www.ocweekly.com/news/relics-of-fullerton-the-buildings-of-leo-fender-6445089
Nice link. Thanks. I have a Lake Placid Blue 1957 Strat. Great guitar!
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