By Christina Rogers and Mike Colias
Ford Motor Co. said it plans to start importing its compact
Focus from China, reflecting a wider industry trend that gives car
makers more flexibility but threatens the growth of automotive jobs
in the U.S.
The move, announced Tuesday, is the latest change in Ford's
approach to production for its once-hot Focus, a small car the
company started building in Michigan earlier in the decade. Ford
said in 2016 it would move the Focus to Mexico.
The shift to Chinese factories, slated for mid-2019, has broad
implications for the U.S. auto industry. Although Ford won't be the
first Detroit company to import cars into the U.S. from China, it
will be by far the highest volume of vehicles to come from Chinese
factories to American dealerships. In 2016, Ford sold 170,000
Focuses in the U.S.
The auto maker said relocating the Focus won't result in any job
losses at the Michigan plant. Ford plans to convert the factory to
production of two new models -- the Bronco sport-utility vehicle
and Ranger pickup -- starting in 2019, which will sustain the
current workforce.
Companies producing in Mexico have been under pressure as the
Trump administration renegotiates the North American Free Trade
Agreement, a decades-old pact that has led several auto makers to
bulk up Mexican head count and production activities. Ford and
rivals have already signaled changes in response to President
Donald Trump's repeated attacks on companies importing cars from
Mexico to the U.S.
Mr. Trump had no immediate public reaction Tuesday, and U.S.
officials reacted coolly to the auto maker's move.
"The Ford decision shows how flexible multinational companies
are in terms of geography," Commerce Secretary Wilbur Ross said in
a statement. "I believe that as President Trump's policies and
reforms take hold, more companies will begin to locate their
facilities in the U.S. as several German and Japanese auto makers
already have."
White House spokesman Sean Spicer linked the move to the
American tax system, saying passing a tax overhaul would lead firms
to move manufacturing back to the U.S.
Building the next-generation Focus in China rather than in an
existing plant in Hermosillo, Mexico, will save Ford $500 million
annually, helping the No. 2 U.S. auto maker trim costs amid slowing
U.S. volumes and rising expenses related to technology investments,
both of which are pressuring profits.
Joe Hinrichs, Ford's global operations chief, said in an
interview that Mr. Trump's push to rewrite Nafta wasn't influential
in Ford's decision.
Rather, with small-car sales slumping in the U.S., Mr. Hinrichs
said it made more sense to add production in China, where it is
already retooling its Focus plant for the next model, rather than
spend additional money to convert an existing factory in
Mexico.
"This is really about saving capital, cash to reinvest in the
business elsewhere," Mr. Hinrichs said.
Many auto makers are retrenching from the struggling market for
small cars, which are generally money losers. Sales of small cars
and family sedans have taken a hit in recent years as low gasoline
prices fuel a shift in consumer demand toward roomier SUVs and
pickup trucks.
Mr. Trump criticized Ford's decision to move production to
Mexico during the presidential campaign even though the move would
have preserved thousands of United Auto Workers jobs.
Critics say shifting any production to Mexico is problematic.
Ford counters such moves are necessary to preserve the bottom
line.
Ford softened the blow in January by saying it would cancel the
new plant planned in Mexico and allocate $700 million in savings to
create jobs at a separate plant in Michigan slated to make electric
cars.
The turn to China may heighten the White House's concerns
because vehicles coming from Asia are typically far less dependent
on U.S. parts than those coming from Mexico.
General Motors Co. last year became the first major auto maker
to rely on China for significant volumes of vehicles to be sold in
the U.S. Buick dealerships have sold more than 30,000 Envision
SUVs, built in northeast China, since it went on sale in 2016.
Sourcing vehicles from China allows global auto makers to make
better use of capacity in the world's largest car market amid a
slowdown in sales growth there. But a combination of factors,
including hefty tariffs and lower logistics costs, means U.S.
workers have essentially no role in the construction of those
vehicles.
Unlike cars built in Mexico, which often carry several
components made by U.S. parts suppliers due to the lack of trade
barriers, the Buick Envision relies on Chinese sources for 88% of
its components, according to the National Highway Traffic Safety
Administration. Only 1% is provided by U.S. or Canadian companies,
the NHTSA says.
Mr. Hinrichs said the decision to relocate the Focus should have
limited impact on North American supplier jobs because the company
has a slew of new models coming that will be built in the region,
including several new SUVs.
The current Focus built in Michigan, which is scheduled to end
production in 2018, gets about 46% of its parts from Canadian or
U.S. suppliers, Mr. Hinrichs said.
GM is also signaling a reconsideration of its reliance on
Mexican facilities. In its case, though, GM has said it wants to
use more American-made parts in pickup trucks and large SUVs being
introduced in coming years.
Last week, for instance, the auto maker said it would open a new
supplier park in Texas, expecting the creation of 600 U.S. jobs for
work that would have otherwise been handled by Mexican workers.
In addition to shifting economics and global demand, auto makers
are grappling with political uncertainty in the U.S. as Republican
lawmakers promote a border-adjusted tax that would put imports at a
disadvantage.
The Trump administration is currently preparing to renegotiate
Nafta in ways that could change the rules of the game for auto
makers. For example, some administration officials have backed
tightening the "rules of origin" that spell out how much of a car
has to come from North American in order for the vehicle to be
shipped from Mexico to the U.S. duty free.
Tightening the rules of origin for a car with significant
overseas components could destroy the advantage Mexico has over
other countries, including China. Mexican-assembled cars that don't
meet the rules of origin in Nafta would be slapped with a 2.5%
tariff upon entering the U.S., the same duty that would apply to
cars made in China.
William Mauldin contributed to this article.
Write to Christina Rogers at christina.rogers@wsj.com and Mike
Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires
June 20, 2017 15:40 ET (19:40 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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