The American automaker Ford (F, Financial) said that it would import the next-generation Focus cars from China to the U.S. from 2019 onward. Compact car sales in the U.S. have declined sharply in the past and automakers are willing to trim production costs. Joe Hinrichs, the Blue Oval’s president of global operations, said that it is a feasible move to shift Focus production to China, which would help the company save $1 billion in investment cost that includes $500 million for its cancellation of building Focus in a new plant in Mexico.
The company had other ideas last year. Ford planned to shift Focus production to a plant that was under construction in Mexico in view of low labor cost. However, this could not materialize as the company faced hindrances since such measures to move production overseas would cost jobs to the US.
Focus production moves to China
This would be the first time that Ford would export vehicles from China to the U.S. As far as China is concerned, the Asian economy would play a prime role in auto production for North America as a low-cost manufacturing resource.
Ford currently produces Focus vehicles in two manufacturing units in China, and it is not yet known which one would produce the vehicles that would be brought in into the U.S.
Ford gave the assurance that U.S. jobs will not be adversely affected at the Michigan Assembly Plant (where current edition of Focus is built) due to the production shift to China. The Focus production process will go on till mid-2018 after which the plant would commence manufacturing Ranger midsize pickup truck and Bronco midsize SUV in 2020.
Ford looking to be bullish on China
The Michigan-based automaker also has more plans regarding its expansion in China. Ford said that it would put in $900 million in a Kentucky plant in order to boost the production of its full size Ford Expedition and Lincoln Navigator. The company presently employs around 7,600 workers in Kentucky, and this investment would create 1,000 additional jobs.
In view of using the available capacity and resources, the Blue Oval is concentrating most of its small car production in China. Joe Henrichs, Ford’s head of global operations, said in a statement:
“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.”
Joe Hinrichs said that the company is looking for a production combination that would optimize its manufacturing cost. The move aims at “Finding a more cost-effective way to deliver the next Focus program in North America” and reusing the saved money in the production and expansion of SUVs, performance vehicles, commercial vehicles and autonomous cars. The decision underscores Ford’s long term plans for China where the company is making a conscious effort to strengthen its foothold, considering the potential growth that the market offers.
Last word
Jim Hackett, Ford’s new CEO, made his first-ever major industrialized investment decision regarding vehicle imports from China to the U.S. This shift was also brought about due to consumers' shift in preference toward costly and more profitable trucks and SUVs, which led the demand for small cars to vanish in the U.S.
Focus production has been shifting continuously as the company looked to trim cost and improve its bottom line. Demand for compact cars has been waning in the past few months in the U.S. Sales of compact cars dropped 20% because of declining gasoline prices and increasing demand for SUVs. It will be interesting to see whether the overseas production shift bears fruit for Ford or falls flat.
Disclosure: I do not hold any position in the stock discussed in this article.
