BUSINESS TRUMPS TRUMP

Ford’s canceled plant in Mexico isn’t a vote for protectionism but a testament to global trade

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Ford’s decision to scrap a new car plant in Mexico and expand operations in the US may seem like a triumph for the “Made in America” policies president-elect Trump has been pushing.

And Ford CEO Mark Fields seemed to back Trump up, citing the “more positive U.S. manufacturing business environment under President-elect Trump and some of the pro-growth policies he said he’s going to pursue.” But Fields also said that the main driver for the move is to adapt to a changing market.

Indeed, Ford’s strategy works because it views manufacturing from a global, not a national, perspective. Ford will still move production of its fuel-efficient Focus car from the US to Mexico, it just won’t need to build a new plant to do it. American drivers have been ditching small cars for crossover utility vehicles and trucks, and that’s one reason why Ford decided in September to move production of smaller cars to Mexico, where labor is cheaper. But even that measure was looking insufficient by the end of last year. Sales for the Focus, which Ford planned to build at the now-cancelled $1.6 billion facility in San Luis Potosí, were down 17% from 2015.

 

“The bottom line is we’re not seeing the volume and the demand that we expected for that plant,” Fields told CNBC. Because Ford already has multiple factories in Mexico, it’s able to move Focus production to one of them, in Hermosillo, another Mexican city where the company already produces Fusion, and skip the $1.6 billion investment. “They’re not changing their strategy,” said James Rubenstein, a professor at Miami University in Ohio who has studied the car industry. “They can do it on one plant instead of in two.”

The US portion of Ford’s plans also responds to business calculations. The car maker will now spend $700 million, in a Michigan assembly plant to build high-tech autonomous and electric vehicles, a market Ford is betting will grow in the future.

What Trump’s rhetoric did provide was a less embarrassing exit for Ford in San Luis Potosí. The plant was already under construction, and suppliers were making plans to move (link in Spanish) there.“They’re using the political situation to cover for a business decision they felt they needed to make,” said Rubenstein.

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