Ford opts for a slow boat from China
The first major initiative announced by Ford Motor Company’s new President, Jim Hackett, was that the automaker is canceling controversial plans to build the Focus small car in Mexico thereby saving $1 billion by ending North American production entirely and importing the model mostly from China after next year.
This decision flies in the face of the statement last September that Ford was to build all its small cars in a new plant to be opened in Mexico which would employ 2,800 workers. This, of course, was under the regime of former President Mark Fields. So what has made Ford change its mind? It is true that small cars offer lesser margins to the manufacturer than their larger models and that labour rates in China are lower than in Mexico. But perhaps the most telling reason is the attack on Ford by the then presidential candidate, now President, Donald Trump when the original decision was taken. Trump, you may remember, vowed to levy a 35% import tariff on any cars built in Mexico that Ford tried to sell in the US. I, for one, thought that this was a thing of the past like the threat of ‘The Wall,’ but perhaps, as exemplified by the symbol of the Republican party, the elephant doesn’t forget.
Ford will save about $500 million in costs by shifting production to China, adding to the $500 million already saved from canceling the construction of the new Mexican plant. Joe Hinrichs, the company’s President of Global Operations has been at pains to point out that American carbuyers care more about quality and value than about the sourcing location of the product, going so far as to cite the China-produced iPhone as an example of this insouciance. In automotive terms, that has yet to be proven.
Ford may well be saving money by planning to manufacture in China, but what about the increased cost of logistics? Supply chain gurus constantly tell me that it’s landed cost that matters most, not the cost at the point of production. Importing cars from China to the US is infinitely more costly than from Mexico and lead times are much longer. Chinese labour costs can’t be that much lower than those in Mexico, which are already lower than in the US. Maybe marginal profitability is worth it if it keeps the government off your back.
Simon Duval Smith
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