Posted: August 17th, 2017
By: Kaylen Loflin*| Guest WriterAs production costs continue to rise and car sales continue to fall, Ford, the nation’s second largest automaker, plans to move production of the Focus from its Michigan Assembly Plant to China. Demand for small cars continues to drop as consumers are less fuel conscious due to low gas prices and now opt for larger, less fuel efficient SUVs. While car sales accounted for more than 50% of the United States auto sale market in 2012, as of this year cars only account for 37%. Specifically for Ford, the American-made Focus sales have fallen 22% this year, but its full-size F-series pickup truck remains the best-selling U.S. vehicle. Ford is not the first automaker to move production to China, but Ford’s decision highlights the shift in global auto production as building cars in China for the U.S. market becomes more common.
Last year, Ford announced its decision to cut labor costs by building a new plant in Mexico to manufacture the compact car. In January, however, Ford announced it would save money by using an existing plant in Mexico. That plan was abandoned in June as Ford decided to shift production to China rather than Mexico because it already manufactures the Focus for local buyers. Ford’s president of global operations, Joe Hinrichs, said the move to China will save the company $1 billion, including $500 million for canceling plans to build the Focus in Mexico.
This decision comes at a time when Ford is under pressure to cut costs, to reinvest in both electric cars and self-driving cars. Ford’s veteran union workers earn a wage of $29 per hour in the United States, but both Mexico and China pay factory workers around $1,250 a month. While moving the Focus to Mexico would have given Ford the benefit of the North American Free Trade Agreement, the shipping costs back to the United States from China are outweighed by the cheap labor and easy distribution in China, which Ford sees as a key market.Most carmakers lose money on small cars, like the Focus, while almost all of their profit is made on pickup trucks and SUVs. By moving production of the Focus to China, Ford will replace its production at the Michigan Assembly Plant with the more profitable Ranger midsize pickup and Bronco SUV. In addition to losing no jobs at the Michigan plant, Ford also announced its plan to invest $900 million in its Kentucky Truck Plant creating 1,000 hourly jobs.
While Ford’s plan to shift production to China will not cost any of its Michigan Assembly Plant employees their jobs, the decision could shift work away from American auto parts factories, which are heavily concentrated in Ohio, Indiana, and southern Michigan. About 46% of the parts of the American-made Focus are produced in the United States and Canada, and another 26% of the parts are produced in Mexico. Ford has not commented on where the parts are currently manufactured for its China-made Focus or how its plan to move the manufacturing of the American-made Focus will shift auto part production. Much of the production of auto parts has shifted to China, however, due to both cheap labor costs and China’s steep tariffs, which makes it difficult for multinational manufacturers to compete in the Chinese market unless they produce in China.
Kaylen Loflin is second year law student at Wake Forest University School of Law. She holds a Bachelor of Science in Business Administration, with concentrations in Business Economics and Management, and a minor in Political Science from the University of South Carolina. Upon graduation, she intends to practice corporate law.