Ford Motor Company has announced that it will cease producing its small sedan, the Ford Focus, in the United States and instead shift production to China. This is an indication that the company is confident that low oil prices will remain in the long run and that normal trade relations between the United States and China will continue. The move is also a suggestion that China may come to eclipse Mexico as the choice low-cost destination for production of cars meant for the North American market.
According to Ford, the move to shift manufacturing to China from Mexico was purely financial and would end up saving the car manufacturer approximately $500 million in tooling costs.
This year Ford will export to China about 80,000 cars and this includes the Lincoln Navigator SUV which has been recently redesigned and whose production begins this fall at the Kentucky plant. Ford has already indicated that the Kentucky truck manufacturing plant will get an investment of $900 million. The carmaker has also put in place contingency plans to ensure there is capacity to manufacture sports utility vehicles at a plant located in the state of Ohio if demand increases.
The decision to produce cars in China and then import them into the U.S. marks Jim Hackett’s first major manufacturing decision since he took over as the chief executive officer after the departure of Mark Fields last month. According to Ford’s global operations president, Joe Hinrichs, discussions concerning the shift in small-car production to China from Mexico started several months ago when Fields was still the CEO.
Changing consumer tastes
The move is also coming at a time when consumer preferences are changing in the United States with dwindling demand being experienced with regards to small vehicles in favor of sports utility vehicles and trucks which cost more and enjoy better margins. In 2012, small cars constituted over half of the combined auto sales in the United States but this year they were 37% of combined auto sales.
Earlier in the year, Ford faced the wrath of President Donald Trump after the car manufacturer disclosed that it would stop plans to put a Ford Focus plant in the United States and instead build it in Mexico. On Tuesday Trump had not commented or tweeted on the matter. A statement from Wilbur Ross, the U.S. Secretary of Commerce, did not seem critical either.
“The Ford decision shows how flexible multinational companies are in terms of geography,” said Ross in a statement.