# So why did Ford ever make the decision to build cars in Mexico ?



## Gatos (Aug 16, 2016)

The big news item this morning is that Ford has decided to cancel a factory in Mexico and expand one in Michigan. So why did they ever plan on coming to Mexico ? And why exactly are they now choosing Michigan. Are cars now going to be made more cheaply in the US ? Has the UAW committed to working for wages similar to those paid in Mexico ? What happens to the cost of the cars ? Is such a move going to affect the profitability of Ford ? How do the Ford shareholders feel about that ? Is Ford going to receive tax incentives to stay in the US ? How does that affect the average US taxpayer ? 

What is the real impact on Mexico ? Can they interest a European (or Chinese) auto maker to take over the Ford site ?


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## AlanMexicali (Jun 1, 2011)

They planned to move the Ford Escort división to Mexico this year and make all Escorts here for the US, Canada and Mexico market. Here in San Luis Potosi. They planned to turn the Michigan plant into making all electric autos in the next few years. If they cancelled the deal I presume they can´t make all electric autos that soon or not at all and make it work so are staying put. They have the land and permits already in place here, I think.

Ford assembly plant to be built in San Luis Potosí


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## Gatos (Aug 16, 2016)

This brief article seems like a fair assessment :
Ford invests $700M in Mich., cancels plan for Mexico plant

Bottom line - demand for (Ford's) small cars is down - so they have reconsidered expansion plans. Not sure how Trump can take claim for THAT victory. And what does that mean for the cost of the small cars Ford would have shipped into the US ? Are they going to be cheaper now ? And how is that going to affect the sales of Ford's competitors in the Mexican market ?

I wonder what is going to be the car of choice in the future now that the Nissan Tsuru will (shortly) no longer be used for taxis in Mexico.


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## DiverSailor123 (Sep 17, 2016)

Are you fellows aware that The LARGEST FORD PLANT IN THE WORLD is in Brazil?


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## Stevesolar (Dec 21, 2012)

Ford is simply doing something for strategic business reasons - but claiming good PR with regards to Trump influence


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## joaquinx (Jul 3, 2010)

Stevesolar said:


> Ford is simply doing something for strategic business reasons - but claiming good PR with regards to Trump influence


That's right! Ford knows on which side it's bread is buttered.


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## DiverSailor123 (Sep 17, 2016)

There is a lot more to this story.. No One , walks away from a business decision that amounted to$1,600,000,000.00 because, even the President Elect of THE USA Tweets "stuff" I would more readily believe this was all smoke and mirrors trying to make Trump look good.. There by looking too investigate the Vote Hack Conspiracy Theory, even closer..


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## Gatos (Aug 16, 2016)

Over the weekend I watched "The Big Short" on Netflix. It was all about the corruption on wall street in the valuation of various financial instruments to protect - as long as they could - the value of the losing positions - during the housing meltdown. Not directly relevant to the dollar/peso or US manufacturing/Mexican manufacturing - but still insightful as to what steps people will go. Highly recommended.


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## joaquinx (Jul 3, 2010)

Gatos said:


> Over the weekend I watched "The Big Short" on Netflix. .


It's brother film is "Margin Call". Same story but inside the big Wall Street banking firms.


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## Orfin (Sep 26, 2016)

Wow. All you guys here make me feel like we are all with Alice in wonderland except on the other side of the looking glass. The side of it most people north of the border never get to see while putting Trump to office instead of down the yellow brick road to find himself one of each.


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## eastwind (Jun 18, 2016)

DiverSailor123 said:


> There is a lot more to this story.. No One , walks away from a business decision that amounted to$1,600,000,000.00 because, even the President Elect of THE USA Tweets "stuff" I would more readily believe this was all smoke and mirrors trying to make Trump look good.. There by looking too investigate the Vote Hack Conspiracy Theory, even closer..


I believe that had they built the plant, they would have invested US$1.6B. Does anyone know how much Ford spent _so far?_ They would have had to spend something for planning, to acquire the land (or options on purchase of the land) and I assume they had to spread some money around in other ways to facilitate dialog with various stakeholders.

Does anyone know how long the planning effort has been in the works? My guess is they started before Trump announced his candidacy. I first read DiverSailor123's post as intending to imply that the whole thing was a phoney effort from the beginning, only done so they could announce that they weren't doing it after all, in order to suck up to Trump. A reread convinced me that he wasn't saying that. Believing that it is _all_ due to Trump would be quite a stretch.

Like Gatos & his linked article, I think they are making a US public relations virtue out of a business necessity.


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## Gatos (Aug 16, 2016)

I'll have to see if I can dig up the article I read - the land for the plant was donated by Mexico (not sure if federal or state) - 200 hectares. There were also the expected penalties for backing out - but once again - not sure who pays who on those. I think the plant was not to go into operation for a couple years yet - and my sense was that the idea of building the plant was born in the Spring 2016. Which - if you think about seems a little fishy - Ford's vision of the future can't change that quickly - can it ?

I should add - those 700 jobs which will be created in Michigan - they are not assembly line type jobs - but more like jobs related to programming the robots who will build the cars. The thought was there was more talent in that area in the US than in Mexico.


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## Gatos (Aug 16, 2016)

This isn't the article I was looking for - but it does touch on some of the issues :

Ford will reimburse state's costs: governor


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## eastwind (Jun 18, 2016)

A quick search showed that news of the plant first broke back in mid January 2016, and it had to have been underway for a time even then. That was before the Iowa caucus. I don't see any evidence whatsoever that the original plan to build the plant had anything to do with Trump.


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## michmex (Jul 15, 2012)

AlanMexicali said:


> They planned to move the Ford Escort división to Mexico this year and make all Escorts here for the US, Canada and Mexico market. Here in San Luis Potosi. They planned to turn the Michigan plant into making all electric autos in the next few years. If they cancelled the deal I presume they can´t make all electric autos that soon or not at all and make it work so are staying put. They have the land and permits already in place here, I think.
> 
> Ford assembly plant to be built in San Luis Potosí



Ford has no "Escort division" and, in fact, has not even produced any vehicles with the Escort name plate since 2002-2003 in either Europe or North America. Declining sales volumes in the USA for the Focus and C-Max prompted the decision by Ford to move production to Mexico for several reasons. Manufacturing costs are lower in Mexico and Mexico has more favorable trade agreements with Europe and South America (Brazil-Chile-Argentina) that would allow Ford to export to those areas. 

Production of these vehicles will still move to Mexico by increasing line volume and shifts at the Ford plant in Hermosillo which will allow it to go from 60-70% capacity to 90+ of capacity or more. Hermosillo has for many years been one of Ford's best plants in terms of quality and efficiency.

Ford wanted to free up the Wayne, Michigan plant for production of the Ranger pickup and a new SUV, "Bronco". There would have been no job losses and given the renewed popularity of mid-sized pickups most likely would have resulted in job increases.

Recent predictions for decreasing world wide sales for 2017 and beyond could have also thrown caution into the equation for investment in new plants. Mexico, however, will remain a very attractive location for auto production. Pretty much all of the major manufacturers either already have assembly operations in Mexico or will have shortly.


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## michmex (Jul 15, 2012)

Gatos said:


> I'll have to see if I can dig up the article I read - the land for the plant was donated by Mexico (not sure if federal or state) - 200 hectares. There were also the expected penalties for backing out - but once again - not sure who pays who on those. I think the plant was not to go into operation for a couple years yet - and my sense was that the idea of building the plant was born in the Spring 2016. Which - if you think about seems a little fishy - Ford's vision of the future can't change that quickly - can it ?
> 
> I should add - those 700 jobs which will be created in Michigan - they are not assembly line type jobs - but more like jobs related to programming the robots who will build the cars. The thought was there was more talent in that area in the US than in Mexico.


Ford has been consolidating design and engineering operations in Dearborn for several years and has a 10 year plan for updates to existing facilities as well as new buildings. Mexico has been a manufacturing center for Ford for many years and has never had much in the line of design and engineering. Mexico could have easily supplied necessary talent for a new assembly plant. Increased production at Hermosillo will require more of these workers if it goes to a 3rd shift to supply production and these "robotics programming" employees will be Mexicans (after appropriate training).

Working in an assembly plant requires much more knowledge than before especially in statistics ( 6 Sigma), robotics and computer machine control. Although trainers may appear from the USA at times, Mexico has more than adequate talent in these areas and these tasks will remain locally based. It is not unusual to find Mexican nationals working throughout Ford's worldwide operations in sales, marketing, manufacturing and engineering roles.


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## Gatos (Aug 16, 2016)

Next target - Toyota :

Trump: Toyota faces big tax if it builds Corolla cars for U.S. in Mexico | Reuters

Not sure Trump should be allowed to have foreign golf courses / hotels. He should bring those jobs back to the US. Fair is fair - even if the bulk of his 'holdings' are in brand name only.


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## michmex (Jul 15, 2012)

Here is a link to an article from Salon on January 6, 2017 that gives more coverage to the Ford decision and includes opinions of the locals that are being impacted by Ford's decision.

Mexican Ford plant workers blame Trump for dashed dreams - Salon.com

With site prep well underway and steel going up, the decision to cancel construction will cost Ford quite a bit not including improvements to its Hermosillo plant to handle increased volume. It does seem that Sr. trump will shoulder a good part of the blame and help to lessen the impact on Ford's reputation in Mexico.


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## DiverSailor123 (Sep 17, 2016)

At first I was really leaning towards the smoke and mirrors thing and then maybe the option of Corporate kissing up , ( But I realize II felt that way because of how I feel about Trump.. ) but the fact remains they could easily have anywhere from 1 to closer to 20 million dollars worth of skin in the game so far.. Is there a tax write off NONE OF US is aware of they can use to offset this loss? I was involved with the building of projects of this size much of my career and getting them half way to bones in the air can cost MILLIONS$$$ Maybe Ford , if the give a damn will lessen the negative public opinion with the additional capital investment in Villa Hermosa?


eastwind said:


> I believe that had they built the plant, they would have invested US$1.6B. Does anyone know how much Ford spent _so far?_ They would have had to spend something for planning, to acquire the land (or options on purchase of the land) and I assume they had to spread some money around in other ways to facilitate dialog with various stakeholders.
> 
> Does anyone know how long the planning effort has been in the works? My guess is they started before Trump announced his candidacy. I first read DiverSailor123's post as intending to imply that the whole thing was a phoney effort from the beginning, only done so they could announce that they weren't doing it after all, in order to suck up to Trump. A reread convinced me that he wasn't saying that. Believing that it is _all_ due to Trump would be quite a stretch.
> 
> Like Gatos & his linked article, I think they are making a US public relations virtue out of a business necessity.


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## eastwind (Jun 18, 2016)

I've recently been doing some light research into the auto industry because my brother read an article touting GM as a good stock to invest in and he asked my opinion about it. Here's what I found out:

- Sales (industry wide) have been going gangbusters for a number of years, encouraged by cheap (nearly free) credit.
- The credit standards necessary to get an automobile loan have been lowered repeatedly, and are now so far eased that it's as easy to get a car loan as it was before 2007. 
- Consumer debt levels are back up to where they were before 2007.
- The fed is beginning to increase rates and so the interest indebted people pay on their loans will go up. This makes new car loans more expensive and less attractive, and it makes people less able to qualify for new car loans 
- Sales are slowing, and all automakers are scaling back production

It looks very much like a bubble that is bursting, and I advised my brother to wait. I expect eventually the bubble will burst, the companies will start making huge losses and all the investors will flee as if no one will ever buy a new car again. Some auto companies may go bankrupt, Fiat-Chrysler being weaker than Ford & GM. 

The timing is unpredictable and it may take longer for the bubble to burst than I expect, not least because it looks like auto companies are taking action to cut back capacity on their own. If they act quickly and decisively enough they may avoid a hard landing. But the auto industry is essentially cyclic, and the Fed raising rates is going to cause the end of the current cycle, and the end of the cycle is precisely the wrong time to invest.

All of this speaks to why Ford might want to abandon plans for new plants _anywhere_. Add to the above Trump & his border tax proposal and it is obviously a terrible time to be building a new plant in Mexico, because it's unclear how the rules are going to change, but the direction of change _is_clear. And if Ford ends up needing a bailout to get through the next down-cycle, they don't want to piss him off before he's even in office.

I continue to believe that business was the primary driver of the decision, politics was secondary. Given the business necessity to stop the plant, Ford will happily collect a PR bonus in the US while diverting their PR hit in Mexico onto Trump. For his part, Trump will happily accept a PR bonus in the US and doesn't care what Mexicans think of him.


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## eastwind (Jun 18, 2016)

DiverSailor123 said:


> At first I was really leaning towards the smoke and mirrors thing and then maybe the option of Corporate kissing up , ( But I realize II felt that way because of how I feel about Trump.. ) but the fact remains they could easily have anywhere from 1 to closer to 20 million dollars worth of skin in the game so far.. Is there a tax write off NONE OF US is aware of they can use to offset this loss? I was involved with the building of projects of this size much of my career and getting them half way to bones in the air can cost MILLIONS$$$ Maybe Ford , if the give a damn will lessen the negative public opinion with the additional capital investment in Villa Hermosa?


I'm not a professional accountant, but money spent like that just goes down as business expense, and it's subtracted from operating profit before taxes are paid. So if they spent 20 million on the project it reduces their net profit (after taxes) by less than that. For example, if they're corporate tax rate is 30%, 20 million spent out of operating profit would reduce net profit by 14 million.

Anyway, those kind of numbers are "cost of doing business" for multi-billion dollar companies. It's not even enough to show up on their published earnings statement.

A quick look at their income statement for 2015 shows 417 million of "nonrecurring" operating expenses (compared to 305M in 2014 and 208M in 2013). This would get rolled into that.


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## joaquinx (Jul 3, 2010)

michmex said:


> Ford has no "Escort division" and, in fact, has not even produced any vehicles with the Escort name plate since 2002-2003 in either Europe or North America.


I believe that cited article mentioned the Ford Focus not the Escort. Since the Focus is not selling well in the US, it made sense to manufacture it in Mexico with possible exports to other Latin countries.

I wonder what Ford projects its sales to be in Mexico for 2017?


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## Bobbyb (Mar 9, 2014)

I live near HMO and the Ford plant employs over 3000 people. Feeder plants and service people probably add another 3000. These are good jobs and Sonora is terrified that some of these jobs will be lost. This comes at a time when Mexico's economy is going downhill quickly. Pemex is hardly worth anything. Production is down about 50%. Every day the local paper talks about all the recent price increases. Mostly due to the in creased fuel costs. Chicken, eggs, milk,tortillas, fuel, natural gas, propane and of course transportation costs. Every time Trump tweets the peso gets hammered. paper expects the peso to hit at least 24 ! The Republicans are now complaining about IVA and the Canadian GST. I don't think they understand a VAT. What will happen to Mexico? Will Trump next attack the Maquila plants? Will Mexico get into a trade war? I fear that Mexico is going to suffer. On the way to being a 3rd world nation. I might add that El Imparcial published an article that came from the Reforma news wire that 50,000 paisanos will not return to the USA. Where will these people work? Not good! My pessimistic rant.


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## DiverSailor123 (Sep 17, 2016)

There is a lot going on right now for sure.. Trump is pandering to the Ignorant and the Greedy.. He is doing a dang good job of it too.. 
NAFTA.. This one applies to both the ignorant and greedy.. A Trade agreement never benefits Just One Side.. I know I know you would like it too, but it wont... 
Lets build a wall (_ kind of like the zillions fences that have been built between arguing neighbors that seldom accomplished anything_..) Instead of a wall enforce the Numerous laws concerning the hiring of illegal workers. ( Back to the wall topic) Heck while we are at it , why don't we tell all our friends that we will make that neighbor pay for it too  It just might make sense if both of us , Mexico and the USA treated each other equally / amiabley .. but we don't and to be honest , most of the abuse is coming from Mexico.. But lets be honest the real issues of contention wouldn't be understood by the Trailer Park Crowd , who only have every been less that 5 miles across the border for cheap dental work and prescriptions, or those who have flown to Cancun or Gone by Cruise Boat to Cozumel.. Mexico is an easy target and to a great degree a worthy target. 






Bobbyb said:


> I live near HMO and the Ford plant employs over 3000 people. Feeder plants and service people probably add another 3000. These are good jobs and Sonora is terrified that some of these jobs will be lost. This comes at a time when Mexico's economy is going downhill quickly. Pemex is hardly worth anything. Production is down about 50%. Every day the local paper talks about all the recent price increases. Mostly due to the in creased fuel costs. Chicken, eggs, milk,tortillas, fuel, natural gas, propane and of course transportation costs. Every time Trump tweets the peso gets hammered. paper expects the peso to hit at least 24 ! The Republicans are now complaining about IVA and the Canadian GST. I don't think they understand a VAT. What will happen to Mexico? Will Trump next attack the Maquila plants? Will Mexico get into a trade war? I fear that Mexico is going to suffer. On the way to being a 3rd world nation. I might add that El Imparcial published an article that came from the Reforma news wire that 50,000 paisanos will not return to the USA. Where will these people work? Not good! My pessimistic rant.


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## Zorro2017 (Jan 9, 2017)

NAFTA was established Jan. 1, 1994. If you examine what has happened since that date it is quite revealing. This government chart goes back that far.

https://www.census.gov/foreign-trade/balance/c2010.html


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