Ford Motor Co. announced earlier this week that it will build a new plant in San Luis Potosi, Mexico, to produce small cars. The new plant will cost an estimated $1.6 billion to build, and construction will begin this summer. It is expected to create 2,800 additional direct jobs by 2020.
Specific vehicles to be produced at the new facility have not yet been named, however Ford has been shifting production of its small cars—which have a lower profit margin—to Mexico, where wages for production workers are significantly lower. Last June, for instance, Ford announced it was ending production of its Focus and C-Max at the Wayne Assembly plant in Michigan, and planned to shift production out of the U.S., so there is speculation those vehicles may soon be built in Mexico.
“Mexico has more competitive labor costs, supplier costs, good logistics and good support from the government,” Joe Hinrichs, Ford’s president of the Americas, told Bloomberg. “But importantly also, as part of our global manufacturing footprint, Mexico is a good shipping location to many countries around the world with their trade agreements.”
The announcement drew a quick response from United Auto Workers President Dennis Williams, who said Ford investing in Mexico is “a disappointment and very troubling,” in a statement.
“For every investment in Mexico, it means jobs that could have and should have been available right here in the USA,” Williams said. “This is another example of what’s wrong with NAFTA and why the TPP would be a disaster for the citizens of the United States. Companies continue to run to low-wage countries and import back into the United States. This is a broken system that needs to be fixed.”
Ford, of course, isn’t the only auto maker investing in Mexico. BMW AG, Volkswagen AG, Toyota, Honda, Kia Motors, Daimler AG and the Detroit Three have all ramped up production in Mexico in recent years. Last year, auto factories in Mexico produced about 3.4 million vehicles, or about one-fifth of North American production, according to LMC Automotive. That figure is expected to jump to 53 percent by 2019.
While on the campaign trail, Republican presidential candidate Donald Trump has repeatedly criticized Ford’s investments in Mexico. Shortly after declaring his candidacy in June, Trump vowed he would impose a 35 percent import tariff on any cars built in Mexico that Ford tries to sell in the U.S. Given that background, it wasn’t surprising that after Ford’s most recent announcement, Trump said in a statement, “These ridiculous, job-crushing transactions will not happen when I am president.”
What’s puzzling is that Reuters reports data actually indicates Ford builds fewer vehicles and employs fewer workers in Mexico than General Motors and Fiat Chrysler Automobiles’ Chrysler unit. In the U.S., Ford has 55,300 hourly paid plant workers, GM has 54,000 and FCA has 36,600, the companies said. GM has about 12,000 hourly paid workers in Mexico, while FCA has 9,547 and Ford has 6,191, the companies said on Tuesday, Reuters reports. Furthermore, in 2015, 80 percent of Ford’s North American production came from its U.S. plants while 63 percent of GM’s North American production came from its U.S. plants and 64 percent of FCA’s North American production came from its U.S. plants, according to IHS Automotive, Reuters notes.
So it’s unclear exactly why Ford itself elicits such a response from the UAW and Trump. Still, it isn’t difficult to see why Ford, and a growing list of other automakers, continues investing in new production capacity in Mexico. Lower labor costs–about $8.25 per hour in wages compared to about $60 per hour in wages and benefits for U.S. workers—and a favorable currency exchange certainly enable companies to have a better chance of turning a profit on low-margin small cars. What’s more, Mexico’s numerous international free trade agreements allow for profitable exports from Mexico to many countries.
It will be interesting to see if automakers continue shifting production to Mexico, especially for smaller vehicles. I am especially curious to see what response future announcements by auto makers receive after the U.S. election this fall.