Ford bets on low oil prices, moves Concentrate production to China
DETROIT/WASHINGTON (Reuters) – Ford Motor Co ( F.N ) said on Tuesday it will stir some production of its Concentrate puny car to China and import the vehicles to the United States in a long-term bet on low oil prices and stable U.S.-China trade relations despite latest tensions.
The budge suggests China could play a much larger role in future vehicle production for North America, perhaps eclipsing Mexico as a low-cost manufacturing source.
Ford painted the production shift from Mexico to China, slated for mid-2019, as a purely financial budge that will save the company $500 million in diminished tooling costs.
But Ford also expects to ship about 80,000 vehicles to China this year, including the redesigned Lincoln Navigator luxury sport utility vehicle, which goes into production this fall at Ford`s Kentucky truck plant.
Ford`s decision to import its very first vehicles from China to the United States is also the very first major manufacturing investment decision made by fresh Chief Executive Jim Hackett, who succeeded Mark Fields in May. Discussion about the small-car production shift from Mexico to China began «a duo months ago» under Fields, said Joe Hinrichs, president of global operations.
The decision also signals a shift in strategy at Ford, which is responding to dwindling U.S. consumer request for petite cars in favor of more expensive and more profitable trucks and SUVs. Cars accounted for more than fifty percent of U.S. auto sales as recently as 2012, but have fallen to just thirty seven percent of sales this year.
Ford on Tuesday said it would invest $900 million at the Kentucky truck plant to build the redesigned Navigator and Ford Expedition. It has contingency plans to build more of the big SUVs at an Ohio plant if request grows.
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In January, after U.S. President Donald Trump repeatedly criticized Ford for shipping small-car manufacturing to Mexico, Ford said it would kill plans to build a $1.8 billion Concentrate plant in San Luis Potosi and instead produce the fresh Concentrate at an existing plant in Hermosillo.
«The Ford decision shows how supple multinational companies are in terms of geography,» U.S. Commerce Secretary Wilbur Ross said in a statement.
Trump did not address the issue on Tuesday.
White House Press Secretary Sean Spicer said Trump «wants to create a tax system (so) that companies want to come back and bring back jobs in manufacturing here in the United States.»
Albeit it is cheaper to build and ship cars to the United States from Mexico than China, «this was not a variable cost decision,» Hinrichs said in a briefing on Tuesday. «It permits us to free up a lot of capital» because Ford now has to retool only one plant – the existing Concentrate factory in Chongqing – rather than two to supply North America.
The current Concentrate will be phased out of production in Wayne, Michigan, in mid-2018, according to Hinrichs. The Wayne plant will begin building a fresh Ranger midsize truck in late two thousand eighteen and a Bronco midsize SUV in 2020.
Ford executives told Trump last year that moving production to Michigan of fatter vehicles that were more profitable would secure the Wayne plant`s future – a decision later praised by Trump.
No U.S. jobs will be affected by shifting Concentrate production to China, Ford said, adding that it employs more U.S. hourly workers and builds more vehicles in the United States than any other automaker.
The United Auto Workers labor union declined to comment.
Hinrichs said «the capital saving outweighs the risk» of having to pay a potential border tax, or import tax, on the Chinese-built Concentrate.
Ford U.S. Concentrate sales have fallen twenty two percent this year, as low gas prices have helped spur more buyers into larger vehicles. Ford`s full-size F-series pickup truck remains the best-selling U.S. vehicle by a broad margin.
Unlike many consumer products, few Chinese-made vehicles are sold in the United States.
General Motors Co ( GM.N ) has been exporting Buick and Cadillac vehicles from China to the United States since last year, as has Volvo Cars, a unit of Chinese automaker Geely Automobile Holdings Ltd ( 0175.HK ).
Ford shares closed down 1.1 percent at $11.12 on the Fresh York Stock Exchange.
Reporting by Paul Lienert in Detroit; extra reporting by Steve Holland; editing by Nick Zieminski and Jonathan Oatis
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