America’s second-largest carmaker is centralizing much of its small-car production in China, indicating a broader shift in the automotive industry.
The expanded manufacturing in China will centre on compact cars, specifically Ford’s new Focus. Currently Focus production is split between China, the US state of Michigan, and Europe. The company had originally planned to shift production of the car to a new plant in Mexico. This led to a row with President Trump last year, and the plan was scrapped. There is growing reticence among US automakers to invest in additional production in Mexico, and Ford already has available capacity in China.
Joe Hinrichs, Executive Vice President and President of Global Operations for Ford, said that by making the Focus in China instead of Mexico, the company will save $1 billion. “We have looked at how we can be more successful in the small-car segment and deliver even more choices for consumers in a way that makes business sense,” he said. Hinrichs added that Ford will use the savings to expand plants in the US that make large, higher-profit trucks and sport utility vehicles (SUVs). This will include investing $900 million in a plant in Kentucky to make newer versions of its Ford Expedition and Lincoln Navigator.
These strategic decisions are among the first from Jim Hackett, who was appointed Chief Executive of Ford in May 2017, aimed at improving capital returns on the company’s manufacturing investments.
Ford has not commented on how much it will save by moving small-car production to China. Company spokeswoman Kelli Felker said that adding production to its existing Chinese plants will require a “relatively small investment.” The New York Times notes, “While wages may be lower there, companies still must absorb costs for shipping and modifying vehicles to meet American safety regulations.” Other automakers, including General Motors and Volvo, already make cars in China for sale in the US.
The developments at Ford may indicate a broader shift within the global automotive industry. One analyst said that many automakers are planning to manufacture SUV models in the US, while concentrating production of less profitable cars in lower-cost countries. Cheap gas prices have boosted sales of less fuel-efficient vehicles such as SUVs and trucks in America. “It’s all about making cars in the right facility with the right capacity,” said Michelle Krebs, an analyst with Autotrader.com.
