Ford Focus production moves to China, company bets on low oil prices

Ford Focus production shift from Mexico to China called purely financial by company

On Tuesday, Ford Motor Co announced it would move some production of its Ford Focus to China and import the vehicles to the US beginning in 2019.

The move is seen as a long-term bet on low oil prices and stable US – China relations despite recent tensions and represents a shift in strategy at Ford.

Ford says it is responding to dwindling US consumer demand for small cars in favour of more expensive and more profitable trucks and SUVs.  In 2012, cars represented over 50 per cent of auto sales in the US, but have fallen to just 37 per cent this year.

According to Reuters, China could play a much larger role in future vehicle production for North America, and could move past Mexico as a low-cost manufacturing source.

The company says the move is purely financial and will save the company $500 million in tooling costs.  Ford says while it is cheaper to build and ship cars to the US from Mexico than China, “this was not a variable cost decision,” Hinrichs said in a briefing on Tuesday according to Reuters.

“It allows us to free up a lot of capital” as Ford will retool only its plant in Chongqing, rather than two to supply North America.

On the flip side, Ford plans to export about 80,000 vehicles to China this year, including the Lincoln Navigator SUV.  The redesigned version of the Navigator will go into production at Ford’s Kentucky truck plant.

The company says it is investing $900 million at the Kentucky truck plant to build the redesigned Navigator and Ford Expedition.  If demand continues to grow, Ford has a contingency plan to build more of the SUVs at an Ohio plant.

The decision to import its first vehicles from China into the US is the first major manufacturing investment decision made by the new head of Ford, Jim Hackett.  Hackett succeeded Mark Fields in May.

Joe Hinrichs, president of Ford global operations said discussion about shifting production of small cars from Mexico to China began “a couple months ago.”

Ford’s decision to move production to China comes after the company was repeatedly criticized by President Donald Trump for its plans to move small-car manufacturing to Mexico.  In January, Ford said it had killed plans to build a $1.8 billion plant in San Luis Potosi to build the Ford Focus and would shift production to an existing plant in Hermosillo.

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On Tuesday, Trump’s Commerce Secretary Wilbur Ross released a statement saying “The Ford decision shows how flexible multinational companies are in terms of geography.”

There was no comment from Trump on Tuesday.

White House Secretary Sean Spicer said the President “wants to create a tax system (so) that companies want to come back and bring back jobs in manufacturing here in the United States.”

Production of the Ford Focus will be phased out at the Wayne, Michigan plant in mid-2018.  The plant will then begin building a new Ranger midsize pickup in late 2018 and Bronco midsize SUV in 2020.

According to the company, no jobs in the US will be affected by the move.

The United Auto Workers labour union declined to comment.

Ford shares closed down 1.1 per cent to $11.12 on the New York Stock Exchange Tuesday.