Just a few days ago, the Ford Motor Company announced that it would be building the 2019 next-gen North American Ford Focus model out of Hangzhou, China, starting in the 3rd quarter of 2019. Although the current model is produced in Michigan, no hourly US jobs will be cut, as the plant and it’s worker will start producing Ranger truck and Bronco SUV’s. This new plan for the Focus production is predicted to save Ford more than $1B USD in investment costs, compared to the original plan of producing the cars in the Ford plant near Hermosillo, Mexico.
Joe Hinrichs – Ford’s head of global operations – said that this change would allow Ford to spend more money expanding American plants that make high-profit trucks, S.U.V.s and other vehicles. Though most of the main stream media outlets claim that this move was due to stiff opposition for sending American jobs to Mexico by the Trump Administration, Mr. Hinrichs said during a press release:
We have looked at how we can be more successful in the small-car segment and deliver even more choices for consumers in a way that makes business sense. Finding a more cost-effective way to deliver the next Focus program in North America is a better plan, allowing us to redeploy the money we save into areas of growth for the company – especially sport utilities, commercial vehicles, performance vehicles as well as mobility, autonomous vehicles and electrified vehicles.
At the same time it announced its plans to move production to China, Ford said it had planned to invest $900 million in a Kentucky factory to add production of revamped versions of its full-size Ford Expedition and Lincoln Navigator S.U.V.s, preserving about 1,000 jobs at the Kentucky plant. Along with most industry observers, Ford recently concluded the sales trend favoring SUVs over cars isn’t a fad, but a significant (and possibly enduring) market shift in the North American auto sales markets. This was after seeing declining car sales every year since 2012 (almost 20% from 2016 so far) and relatively constant SUV sales.
This is a different story in China however, where 2017 the car sales are just 4.8% behind where they were at this point last year, and explosive growth in popularity has shown very strong sales numbers in the years prior. As shown in the chart below, US demand for the Focus fell steady through out 2016, ending the year with just 168,790 sales – where China again saw increased demand and ended the year with 225,920 Focus’ sold and more than 1.27 million vehicles nation wide, according to shareholder.ford.com’s 2016 China Sales Results.
As far as share holders are concerned, this step was the first of many planned by Jim Hackett (Ford’s news chief executive) to improve capital returns on it’s manufacturing investments – and the move makes sense. Not only is the Focus’ plant closer to it’s by far largest consumer base, but the highly advanced autonomous assembly plant is sure to pump out the cars at a significantly lower cost than it’s Mexican equivalent.
Video courtesy of The New York Times
First of Many?
As President Trump moves to keep his campaign promises of bringing manufacturing jobs back to America from Mexico by renegotiating NAFTA, many speculate that the move by Ford could signal more like it, especially in the auto-industry’s remaining big 3 (Fiat-Chrysler, GM) for models which have seen a declining demand in the US, but growing demand over seas. US Commerce Secretary Wilbur Ross didn’t seem to agree however, when he said:
The Ford decision shows how flexible multinational companies are in terms of geography. I believe that as President Trump’s policies and reforms take hold, more companies will begin to locate their facilities in the U.S.
Although we are interested to learn more about these reforms, they will have to be pretty strong to compete with the significantly lower auto production costs of highly automated facilities, such as Changan Ford’s facility in Hangzhou. Remember that if these vehicles are manufactured in the US where there is a lower consumer demand and high operational expenditure cost (due mostly to employee salaries), these publicly traded companies may become significantly less profitable and loose shareholder sentiment. In other words, it would be corporate suicide for any company and career suicide (by way of fiduciary duty) for it’s executive team.
As far as jobs are concerned, we wrote in an article regarding Mexico’s manufacturing plants that high-tech automation support roles are likely to be the only positions returning to the United States, and only for a short list of products – on which, the Ford Focus is not likely to be included. According to a 2016 article published by the World Economic Forum, the 4th industrial revolution (also known as the “robot revolution”) will make more than 7.1 million jobs obsolete by 2020, while others estimate 15 million more by 2024. However, this timeline could be advanced quite a bit if the US motor companies decide to manufacture their products in the US. Though not all of these jobs will be lost in manufacturing fields, it is likely that this will be the primary area of focus due to repetitive motion and fatigue related injuries, as well as ever climbing worker wages. Whereas the average beginner General Line Technical will cost a company around $50k USD (including employee fringe) per year, the majority of the robots seen on the above video will pay for themselves in 18-24 months depending on the product manufactured, are instantly re-programmable and are not likely to go on strike, take breaks or sue their employer for worker rights violations.