F Ford Motor Company

By John D. Stoll 

Donald Trump on Tuesday stepped up criticism of the auto industry's use of Mexican factories as a way to lower manufacturing costs, ripping into General Motors Co.'s decision to import a modest number of Chevy hatchbacks from Mexico to U.S. dealerships. Hours later, Ford Motor Co. said it was altering its own small-car production plans for Mexico after facing the president-elect's barbs for more than a year.

Here is a rundown of how the two biggest auto makers fit into wider concern about the future of the American car as supply chains become more global and a look at how big a task it would be to reverse the Made-in-Mexico car trend:

How is Ford changing its plans, and why is GM involved?

Ford still will shift its Focus production to Mexico as American demand for compacts and sedans fades, but it will use existing plants there instead of building a new $1.6 billion factory that has been in the works for more than a year. The company said this move will free up $700 million to create 700 jobs at a plant in Michigan that needs to be retooled for electrified versions of SUVs and other vehicles. This comes shortly after Ford decided not to move production of a small Lincoln SUV from Kentucky to Mexico.

GM and smaller rival Fiat Chrysler Automobiles NV also have ambitious plans for Mexico production, but neither have gotten the same level of attention from Mr. Trump that Ford has received. That changed Tuesday when Mr. Trump said GM should be paying taxes for the Chevrolet Cruze hatchbacks that are made in Mexico and sold in the U.S. GM has built a more conventional version of the Cruze in Ohio for several years, but it is currently cutting jobs at that factory because of weak demand for that version.

Will Ford's decision to appear willing to work with Mr. Trump affect GM, others?

The immediate focus will be on whether GM chooses to retool that Ohio plant to make hatchbacks, which are more popular than bread-and-butter compact cars and a potential winner for Chevy's lineup. The bigger question is whether the wave of auto makers migrating to Mexico can be stopped and the trend to put an increasing amount of foreign parts in American cars can be stemmed.

What about the supply of parts? Even if cars are assembled in Ohio or Michigan or another state, components come from all over.

The fact is, American cars are becoming less American. The model-year 2017 Cruze, for instance, relies on the U.S. or Canada for only 44% of its parts content, compared with 60% in 2012, according to the National Highway Traffic Safety Administration, which compiles data annually on where the individual parts content of vehicles originate. NHTSA only provides data for combined Canada and U.S. production.

According to preliminary data provided by NHTSA, 51% of the content on 2017 model-year light vehicles built by Ford, GM and Fiat Chrysler Automobiles NV came from the U.S. or Canada, down from 53% in the prior-year model. The United Auto Workers, in fact, has defended Mr. Trump's trade views because union officials say free-trade deals like Nafta have encouraged offshoring of steering wheels, seats, axles, engines and thousands of other parts for decades.

Could Mr. Trump's recent moves fortify the American car industry?

Auto makers are expected to boost reliance on foreign sources of parts because global parts supply chains are increasingly woven together. And, while Ford's decision will reduce the amount of physical factories global auto makers have in Mexico, it won't change the fact that Mr. Trump's administration is entering a four-year stretch where Mexican vehicle assembly will skyrocket if nothing else changes because car companies appreciate the low wages in Mexico and rely on the nation's arsenal of free-trade deals with countries all over the world to keep Mexico as an attractive export base.

In 2016, there were 17 assembly plants in Mexico, and by 2020 there will be at least 20 even after the Ford move. Nissan Motor Co. and Daimler AG are constructing a plant together in Mexico, and others -- including Volkswagen's Audi AG Honda Motor Co. and Kia Motors Corp. -- have or are in the process of adding plants there.

Auto makers produced 3.4 million vehicles in Mexico in 2016 and that figure is expected to grow 50% to 5.1 million by the end of the decade, taking Mexico's percentage of North American vehicle light vehicles from 19.4% today to 27.9% in 2020, WardsAuto.com estimates. The U.S. percentage is expected to fall from 67.2% to 61.9%, with production slipping 6% to 11.2 million. About 45% of Mexico's growth will be driven by added capacity by Detroit's Big Three auto makers, according to WardsAuto.com.

Write to John D. Stoll at john.stoll@wsj.com

(END) Dow Jones Newswires

January 03, 2017 14:13 ET (19:13 GMT)

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