Ford fed the meme of capitulation to the incoming president, throwing in the towel by notifying Trump in advance of its public announcement this week that the new plant in Mexico has been canceled. The president-elect\u2014who, whenever an opponent signals weakness, has an uncanny ability to move in for the kill faster than a cheetah chasing a gazelle\u2014has now turned his fire on General Motors. Regarding GM\u2019s ongoing production of Chevy Cruze subcompacts in Mexico, Trump told the No. 1 U.S. auto giant: \u201cesto es inaceptable.\u201d<\/p>\n
Okay, we\u2019re having a bit of fun here. Trump didn\u2019t say it in Spanish (and we can\u2019t say for certain he thinks the car was named after Ted Cruz), but the president-elect ominously aimed his 35-percent tariff bat at GM\u2019s noggin, calling his next shot like Babe Ruth in the 1932 World Series. [Editor\u2019s Note: as this was being written, Trump also warned Toyota against building a new plant in Mexico to make Corolla models for the U.S. market.]<\/p>\n
We hate to spoil the comic-book simplicity of winners and losers now scrolling on Twitter, but the complexities of manufacturing decisions in a global marketplace can\u2019t be explained in 140 characters or less. Trade policies are a factor in these decisions, but so are labor costs, global competition, supply chains, profitability and how many consumers are buying your product.<\/p>\n
A closer look at Ford\u2019s decision to cancel the new plant in Mexico reveals that it was not a clear-cut victory for U.S. manufacturing. And if you really take the time to digest the implications of Trump\u2019s emerging trade policy\u2014rather than gulp it down in sound bites\u2014a grumbling sound in your stomach may alert your brain to a potential chain reaction of unintended consequences.<\/p>\n
Deploying a bit of public relations sleight-of-hand, Ford shrewdly combined its announcement shelving the new plant in Mexico with news that it\u2019s adding 700 jobs to its production facility in Flat Rock, MI. Casual news readers will be forgiven if a glance at the headlines left them with the impression that Ford is moving jobs from Mexico back to the U.S., but that\u2019s not the case. The expansion in Michigan has nothing to do with the Ford Focus subcompact: it\u2019s to accommodate the production of a new electric version of Ford\u2019s Mustang muscle car.<\/p>\n
But if you got past the first 140 characters in Ford\u2019s release and proceeded to follow-up news reports, like the story published Wednesday in The New York Times<\/em>, you\u2019ll discover that Ford\u2019s decision to cancel the new assembly plant in Mexico may actually result in the automaker shifting jobs currently in Michigan to\u2014wait for it\u2014Mexico.<\/p>\nThe Focus subcompact currently is built in Michigan, but both Ford and GM have experienced difficulty in squeezing profits out of mini-cars while covering the higher labor costs associated with U.S. auto manufacturing (the average assembly-line worker\u2019s wage in the U.S. is $29\/hour; Mexican auto workers earn about $10\/hour). According to the Times<\/em> report, Ford\u2019s decision to cancel the new assembly plant in Mexico most likely means its Focus production line will be moved from Michigan to an existing Ford plant in Mexico.<\/p>\nFord said market conditions that have depressed small-car sales were the primary factor in its decision to scrub the new Focus plant in Mexico. Which brings into focus (okay, we couldn\u2019t resist) the bigger picture regarding cross-border manufacturing decisions.<\/p>\n
As anyone who\u2019s haggled with a car dealer over the price of a sub-compact vehicle knows, the profit margins on these mini-cars are microscopic; the dealer doesn\u2019t have much room to maneuver, pricewise. A consumer might be able to get a dealer to shave $1,000 off the sticker price of one of the new electric Mustangs (which probably will list for around $40k), but good luck getting a bagful of nickels off the tab for a Focus or a Cruze. And here\u2019s where the rubber meets the road in terms of unintended consequences: if Ford and GM can\u2019t make money producing subcompacts in the U.S.\u2014and they don\u2019t want to challenge the barriers to foreign production Trump is threatening to erect\u2014they may stop making these mini-cars altogether.<\/p>\n
It\u2019s important to remember that an assembly line is not the starting point for car-making; it\u2019s literally the end of the line. First come the parts, which are produced by a cornucopia of suppliers, many of which are based in the U.S. It\u2019s not a stretch to say that more jobs are at stake in the parts sector than on assembly lines (which increasingly are staffed by robots) when manufacturing location decisions are made, especially if a decision about where to build a car morphs into a decision on whether to build the model at all.<\/p>\n
So what seemed like a clear-cut win is a bit more complicated when you look under the hood. And the implications of renegotiating or abandoning the North American Free Trade Agreement (NAFTA) will multiply these complexities a hundredfold. But since we\u2019ve already exceeded 140 characters here, we\u2019ll address that subject in a future post.<\/p>\n
However, before Trump\u2019s legion of 20 million Twitter followers invades our comments section, we\u2019ll stipulate here that the huge carrot the president-elect also is waving\u2014his promise to reduce the corporate tax rate to 15 percent\u2014no doubt will have a large positive impact on U.S. manufacturing decisions moving forward.<\/p>\n
So we\u2019ll credit the guy in the bully pulpit with a T.K.O. on this round. And we\u2019ve got him ahead on points in the big fight to bring manufacturing jobs back to the U.S.A., a fight we\u2019d all like to see him win.<\/p>\n<\/div>\n
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