Ford Motor Co. said 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 US-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, Reuters reports.
Ford said the production shift from Mexico to China, slated for mid-2019, is a purely financial move that will save the company US$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.
The company’s decision to import its first vehicles from China to the US 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 US consumer demand for small cars in favor of more expensive and more profitable trucks and SUVs.
Cars accounted for more than 50 percent of US auto sales as recently as 2012, but have fallen to just 37 percent of sales this year.
Ford on Tuesday said it would invest US$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 US President Donald Trump repeatedly criticized Ford for shipping small-car manufacturing to Mexico, Ford said it would kill plans to build a US$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,” US Commerce Secretary Wilbur Ross said in a statement.
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”.
Although it is cheaper to build and ship cars to the US 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 US jobs will be affected by shifting Focus production to China, Ford said, adding that it employs more US hourly workers and builds more vehicles in the US than any other automaker.
Hinrichs said “the capital saving outweighs the risk” of having to pay a potential border tax, or import tax, on the Chinese-built Focus.
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