February 11, 2016
A report from The Wall Street Journal claims that Ford will begin construction of a new assembly plant in Mexico beginning later this year. In addition, Ford will renovate another of its plants in the country as well as add a half-million units to the production schedule by 2018.
In 2015, Ford plants in Mexico accounted for 433,000 units, which was 14 percent of the company's total North American production. By adding another half-million vehicles to the production schedule by 2018, Ford will more than double that production rate within the next three years.
The move to Mexico will primarily affect Ford’s small car manufacturing output. Among the models expected to be affected is the Ford Focus, which is currently produced in Michigan. In addition, the Ford factories south of the border will manufacture a battery-powered hybrid poised to battle the Prius for supremacy in the electric vehicle market. The automaker will reportedly maintain its SUV and truck manufacturing operations stateside due to the outsized profit margins of those two vehicle types.
In order to accommodate the increased vehicle production, Ford will build an assembly plant in San Luis Potosí and expand upon an existing factory in Cuautitlán. Ford insiders say the costs of constructing and remodeling the two plants in Mexico may exceed $1 billion. This figure is in addition to a $2.5 billion investment made by Ford last spring in building an engine and transmission plant in Mexico.
News that Ford would transfer some of its production workload didn’t come as a total surprise to auto industry observers. For one, a variety of automakers are building, or are scheduled to build, new facilities in Mexico. For another, Ford intimated that moving some of its operations outside the U.S. was an option shortly after management reached a deal with the United Autoworkers Union that raised worker salaries across the board.
The Journal claims that increased wages played a significant role in Ford and other automakers outsourcing some of its operations to Mexico. As a result of reaching the labor agreement with the UAW, Ford apparently saw a need to cut costs and an opportunity to do so in Mexico. As opposed to their American counterparts, factory workers in Mexico are non-union and earn about a fifth of their salaries, making such workers an inexpensive alternative for Ford.
In response to the proposed downsizing of Ford plants in America, UAW President Dennis Williams expressed his skepticism that the deal he helped to strike played a role. Citing Ford’s impressive profits, Williams rejects the argument that Ford couldn’t afford to maintain its operations in the States and wondered how this decision might affect Ford’s unionized labor force going forward.
Asked to confirm the veracity of the WSJ report, a Ford spokesperson simply said that “[w]e do not comment on speculation.” With that said, a report from a reputable newspaper like The Wall Street Journal should be taken with more than just a grain of salt. Either way, the Elk Grove Ford blog will be sure to keep you apprised of any further developments in this story as they occur.