In a Donald Trump Presidency, What Does the Future of Ford Look Like?
During the long and drawn out presidential campaign, Donald Trump took quite a few shots at the Ford Motor Company about production of some vehicles in Mexico. He proposed charging Ford with a 35% import tax on vehicles not built in the United States. Should that become the law of the land when President-elect Trump takes office in January, what could that potentially look like for Ford?
This is only a potential outlook, as I do not know inside details of what is happening within the headquarters of Ford. Also, the bill for this tax to become law would start in Congress and there’s no telling if the wording, or the tax rate, would match what President-elect Donald Trump was asking for. Also, the president can’t punitively target one company that way. The tax would have to be auto industry-wide.
That being said, there would be some ramifications for Ford. According to our friends at Good Car Bad Car are experts at sales numbers, and it doesn’t look good for Ford’s current lineup of cars. The Fusion is down 21.1% from October of 2015, and is trending down 10.2% for the year-to-date. The Focus is down 43% from October of 2015 and is trending down 17.1% for the year.
That alone isn’t good for the car market for Ford. When you factor in labor costs and the additional costs required to build a car, it looks bleak for the car. That’s why they’re shifting production of cars — or have already shifted production — to Mexico (except for the Mustang). It’s the only way, according to the company, that Ford can make and sell them profitably. It’s also safe to say that they aren’t making a 35% profit margin on each car they sell.
Based on the latest union contract Ford apparently said that after they shift production of the C-Max and Focus to Mexico from Michigan, that plant will receive the next-generation Ford Ranger and Ford Bronco. That contract does contain some legal binding, and I expect the company to continue with at least part of that plan.
If it becomes unprofitable to build cars in Mexico and important the cars to the United States to sell, I can see Ford dropping out of the car business altogether. Does that seem extreme? Yes. But think about it. The company has a fiduciary duty to shareholders to make a profit and drive the stock price. To sell cars in this country that are imported from Mexico, they’d have to pass the 35% tax onto the final customer. That would price the cars way out of range that companies like Honda — who build cars in Ohio — would sell comparable cars for.
It’s also expensive to build new plants in the United States to build cars that aren’t going to be profitable here. Given the choice — even if there was no union contract — Ford would logically choose to build a higher profit vehicle in Michigan than a car that would lose them money.
It’s not all doom and gloom, though. Presumably part of Donald Trump’s plan would incentivize companies to shift their production back to the United States. Assuming the incentive was large enough — either through tax breaks, credits, whatever — it could become profitable for Ford to build cars in the United States. Nobody will really know for sure until the president takes office and addresses these issues.
How will it all shake out?
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