Ford Packs Up and Moves Car Production to Mexico
We knew for awhile that Ford was planning on moving some of its car production to Mexico. The Michigan Assembly plant, that makes Focus and C-Maxes, is being cleared out. Presumably, that means there will be room for a new Ranger and Bronco. Now, we’ve learned that all of Ford’s car production is heading south, while the trucks and SUVs are going to be built in the United States.
For a company like Ford, making cars and trucks is expensive. Luckily for Ford, trucks come with incredible profit margins. Think about it; if they can offer to sell you a truck that’s $8,000 off the MSRP, they’ve got to be making some money. They wouldn’t sell a vehicle at a loss (unless times were truly desperate, which they aren’t).
Cars, on the other hand, don’t have nearly the same amount of profit built in. A car like the Ford Fiesta doesn’t net Ford much money when it’s sold. That’s why you don’t see them at huge discounts; they’re already priced nearly as low as they can go.
With the latest round of contract negotiations with the UAW, a need for a wage increase arose. The proposed contract ends the company’s Tier 2 pay structure.
To make a very long story short, moving car production to Mexico is a trade-off; a compromise. Cars will be made in Mexico, where they’re less expensive to build, and the trucks and SUVs, which carry higher margins, will remain in the United States.
Ford isn’t the only Detroit automaker making these concessions; Fiat Chrysler Automobiles is following in the same path. What’s interesting about that decision is that the new Chrysler 200 plant, which just came online in the past couple of years, will need to be retooled for truck and SUV production. But, I digress.
Union costs are expensive to the Big 3, especially the associated legacy costs. The Japanese and Korean automakers, for the most part, don’t have these legacy costs to worry about. As a result, they can build cars profitably in the United States.
It should be noted that General Motors’ agreement with the United Auto Workers doesn’t seem to include this swapping of production. In a few short years, they’ll be the only U.S.-based automaker actually building cars in the United States.
Before y’all get all jacked out of shape, it’s hard to blame Ford here for making this concession. The only other solution would be to raise the price of the automobile to account for the increased costs. Considering how many of you say, “make a car the average person can afford,” it’s unlikely you’d want to see a price increase on the cars. Especially since the smaller cars are often purchased by people just starting out, and might not have a whole lot of money to spend on reliable transportation.
While we haven’t heard directly, it’s unlikely the that Mustang will move from its Flat Rock, Michigan home.
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via [Automotive News]