By Thomas Cullen,
International Business Editor
Ford Motor Company plans on investing $1.6 billion in Mexico for their production of small cars starting in 2018. The vice president of Ford said that their foreign direct investment will “improve their small-car profitability,” according to the International Business Times. The San Luis Potosí plant will host the production and it is expected to employ approximately 2,800 people by 2020. External sources have claimed that Ford is planning on assembling the Ford Focus as well as their gasoline-electric hybrid car; which is expected to compete with the Toyota Prius. Mexico is favored by American automakers, among other manufacturers, because of their favorable currency exchange rate as well as their low labor costs. Focus production will be leaving their Wayne, Michigan plant for Mexico, but they claim that there will be two different types of vehicles slated to be assembled in Michigan after 2018 in replacement.
The trade deal that has led to the trend of American companies outsourcing to Mexico is called NAFTA. It is short for North American Free Trade Agreement, and it is a trilateral agreement between the United States, Mexico, and Canada. It was signed into law in 1994 and its main goal was to eliminate tariffs on trade between the member countries.
The plans are receiving political backlash in the form of opposition from presidential candidates as well as the United Auto Workers (UAW) union. Forbes reported that the president of UAW, Dennis Williams, said that the plan was “very troubling” and that the jobs “should have been available right here in the USA.” The New York Times has said that US presidential candidate, Donald Trump, said that he would “break” NAFTA and demand that Ford assemble more of their cars in the United States with American workers. Bernie Sanders, who is also running for president, has also echoed these calls by maintaining a trade protectionism stance so that US jobs can be protected from globalizing forces. The irony is that there are still 800,000 jobs in the auto industry that have remained in the United States. Gordon Hanson, a researcher on NAFTA at the University of California- San Diego, said that “without the ability to move lower-wage jobs to Mexico we would have lost the whole industry.”This decision to outsource production of these two compact car models comes on the heels of a UAW labor deal last year which raised wages for unionized auto workers in the United States. Despite this, Ford has invested $10.2 billion in US production of larger vehicles such as their SUV’s and the F150 pickup truck, which have seen an increase in demand as of late. This investment also includes the hiring of 25,000 new auto workers in the United States. The problem with the production of these smaller cars in the US economy is that they have smaller profit margins because of their lower demand.
Ford’s CEO, Mark Fields, has responded to the backlash by saying that “we are global, multinational company. We will invest to keep us competitive and we will do what makes sense for the business.”
A version of this article appeared in the Tuesday, April 12th print edition.
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