Whacked by slow demand, Ford cancels plant in Mexico, shifts car production to existing plant in Mexico.
President-Elect Trump has been hounding individual businesses with his drive-by tweets, to knock them around some, get their shares to sink, and cut some “deals.” Last year, he singled out Ford, Carrier, Boeing, Lockheed Martin, Amazon, and others. Now companies have set up damage-control teams to prepare for and counter a hit of this type.
Today he singled out GM. It was automaker day. It started with a Trump drive-by tweet about threatening GM with a “big border tax” for importing its Chevy Cruze from Mexico:
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!
But he got the facts wrong, and GM’s damage-control team instantly retorted:
General Motors manufactures the Chevrolet Cruze sedan in Lordstown, Ohio. All Chevrolet Cruze sedans sold in the U.S. are built in GM’s assembly plant in Lordstown, Ohio. GM builds the Chevrolet Cruze hatchback for global markets in Mexico, with a small number sold in the U.S.
Reality is this: Demand for GM cars has been swooning, and inventories on dealer lots have been ballooning. For example, at the end of November, dealers sat on 127 days’ supply of Cruze models, more than double a healthy level, after sales had plunged 18%. In November, GM had announced the first wave of layoffs. In December, it followed up by announcing 10,000 layoffs and five plant closings [read… “Car Recession” Bites GM: Inventory Glut, Layoffs, Plant Shutdowns].
And it was Ford’s turn today to counter. It had been targeted by Trump last year for its plans to shift production of the Focus from Michigan to Mexico. Ford, which employs 85,000 workers in the US and 8,800 in Mexico, announced today that it cancelled building a $1.6-billion plant in Mexico and won’t create the 2,800 jobs that would have come with it.
Ford, like GM, is also reeling from declining car sales and ballooning inventories on dealer lots. It had announced in October that it would temporarily shut down production at several plants, including at its two plants in Mexico, and would also lay off about 9,000 in the US and 4,000 in Mexico (nearly half its workforce there).
In today’s announcement, Ford said a number of things, unrelated to each other, but put into the same announcement as to create the appearance of a relationship when there was none.
So Ford cancelled that plant in Mexico that was going to build the Focus. But Ford isn’t bringing jobs back to the US; it’s giving up on a production facility in Mexico it no longer needs and will shift Focus production from Michigan to an existing plant in Mexico that is now operating below capacity and is faced with shutdowns and layoffs.
And separately, it’s investing $700 million in Michigan, but not to build the Focus, for crying out loud – it’s already drowning in them – but “to create a factory capable of producing high-tech electrified and autonomous vehicles….”
Ford has been hyping its efforts in electrical and autonomous vehicles for years. It sees them as crucial to its future. They’re part of its “mobility solutions.” And the $700 million investment was just another step.
Before Ford’s propitious announcement this morning, Ford Chairman Bill Ford talked with Trump, and Ford CEO Mark Fields talked with Vice President-Elect Mike Pence. Then Fields was interviewed on CNN. And the story went all over the global media. That’s the kind of hoopla the Ford damage-control team is now prepared to generate in order to deal with the Tweeter-in-Chief, who is pushing crony capitalism to the next level.
With these sorts of twisted announcements, Ford is trying to gain leverage in a “deal” on corporate taxes, fuel economy standards, and other regulations, while pursuing its business, dealing with capacity issues, and slashing costs where needed.
Even Fields admitted that much in his interview with CNN. It all comes down to demand and production capacity: There’s not enough demand for cars and too much capacity. So CNN asked him if Trump, in their conversations this morning, had made promises “to cut some kind of deal?”
Yes they did speak, but “this business decision was done independently,” Fields claimed. It has to be “right for our business.”
Since it costs 40% less to build these cars in Mexico, CNN asked, what will the new administration “do to make it right for your business?” Did “he say he’s going to stop with the tweets and the attacks against Ford?”
“No, I don’t think we got into that level,” Fields said. “He was just very appreciative for the announcements that we’re making….” Then he explained reality – and to heck with the Trump-deal hoopla:
Well first off, we have to understand the reason we’re cancelling the plant in Mexico, the main reason, is because we’re seeing a decline in demand for small vehicles here in North America. So as a company, we’re always looking at our capacity and asking ourselves where can we fully utilize it? So therefore we’re going to be producing the Focus in an existing plant in Mexico. So we don’t have to build that new one and create those 2,800 jobs…
This is what this new and higher form of crony capitalism boils down to: Trump threatens a company with a tweet; the company responds in some twisted way that might include kowtowing to Trump, while driving up its stock price. In return, it expects some real favors from the administration.
And this is what this form of crony capitalism has accomplished in the markets today:
The Mexican peso plunged 1.9% in the few hours since Ford’s announcement, to a new all-time low of 21.1 pesos to the dollar:
GM shares, after jumping 1% following its terse rebuttal of Trump’s drive-by tweet, closed at $35.15, up 0.8%, but remain down about 17% from their post-bankruptcy “New GM” peak of $42 in January 2014.
Ford shares soared 3.8% to $12.59, but are still down 12% from their 52-week high, and down about 30% from their recent high in July 2014.
Kansas City Southern shares plunged 4.8%, as the cancelled Ford plant would have been built along one of its rail lines in Mexico, which would have created a lot of business for the railroad. Not anymore.
Thus, the stock market has entered a new era where the game is to front-run Trump’s next tweet. The trick is to guess what the company’s twists and turns will be, whether it will deflate or inflate the share price and the affected currencies. But behind the daily media show of these tweets, the real issues remain in the driver’s seat, so to speak. For automakers, as Ford has shown, they’re slack demand, overcapacity, and the cost of production.
A myth gets destroyed by facts. Read… The Bitter Reality of the Stock Market “January Effect”
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Hot dag, this Wolf original is a great read, you are doing a great job!
If it was up to me I’d bring back the Ford Falcon and call it the Orange Fouke’n. Huge seller… But nobody gets my humor.
i get it.
i found the tweet innocuous, and i like gm, ford too, though not as much, despite all the naysaying.
as to mexico, times are tough. we can break the rest of the world, but sooner or later, it hurts us too.
Wow, the whole world is suddenly getting swampier, the drought in California may soon be over…
Chris Hauser – Something the new “Supreme Leader’ probably wont learn fast enough. He is a clown and entertaining but hardly a ‘leader’ Sad but true. Those voting for him better prepare for alot of broken promises. To put it mildly…..
It’d be interesting to see whether anyone is consistently front-running Trump Tweets… pity that any investigation would be shut down in the afternoon of January 20th.
Some of the high frequency trading systems use data from news feeds to trade in the news stocks. So yes, they do front run trending news.
Trading on the news is not front running. You’d have to have knowledge of what Trump was going to tweet before he tweeted it to front run.
And for that, I don’t think Trump himself knows what he’s going to tweet, so it would be a total crap shoot.
Great information, especially the part about Ford trying to pretend that they were actually moving production to the US.
Trump will not outlast Ford…..take the long view as China is, as he is frankly quite easy to over look and move past. He is an utter child. Republicans own him and ive got he popcorn and butter ready to watch this shite show they have to answer for LOL!!
Funny but I think it’s the other way around with Trump owning the Republicans. He can go to them and say you would never have the majority without me here and you better get in line. Either way it is a disaster for capitalism and America. No longer will the world look to us as a beacon of hope but rather a cowardly nation of struggling lower and middle class citizens looking for scapegoats for their plight. I don’t feel sorry for American’s at all. They deserve Trump and there will be repercussions to his policies.
great drill down analysis WR . So the net ,net effect from
the hoopla is nothing . the issue with GM non existent ,
Ford was already planning factory in mich, and new
ford plant in mexico was previously scuttled perhaps.
It will take many years to implement the “GREAT UNWIND”
to make america great again. WR please comment on how
Germany is able to provide great export products AND provide its wage earners with wonderful benefits. Their
economic model seems to work . thanks
Don’t mean to jump in front of Wolf on this but I read this article a few years ago and was shocked at this other economic reality. It’s one of the (many) reasons Bernie Sanders’ message spoke to so clearly.
There are a lot of differences between the US and the German systems. People write dissertations about this. So I won’t even try to do your question justice. But here is one tidbit:
The German system isn’t that easy on German workers and consumers.
They don’t get paid big salaries. But they pay a HUGE amount in taxes (income and consumption-based). Americans would revolt if they had to pay those kinds of taxes. So they don’t have a lot of money left over with which to consume. Unlike Americans, they don’t like to borrow to make up the difference. So they consume less.
Think about it: a competitive system of production with moderately paid workers and purposefully weak consumption translates into trade surpluses … an export powerhouse, carried on the backs of workers and consumers.
Starting in the late 1980s, Germany went through many tough years – it was “the sick man of Europe.” Real wages dropped sharply, and so did the standard of living. Germany in effect engineered an “internal devaluation,” while the Greeks and Spaniards and Italians saw their wages and standard of living soar. During that time, consumers went “on strike.” The mood was morose.
In the late 1980s, German workers were among the highest-paid, even the highest-paid, in the world. Now they’re limping behind. But for the first time in ages, real wages are rising. And the mood is much better than before, but people forget what it was like.
“There are a lot of differences between the US and the German systems.”
Would you say there is a lot of difference between the population of US and Germany which explains the differences in the system?
“how Germany is able to provide great export products AND provide its wage earners with wonderful benefits.”
It’s called the Euro. Impoverish the rest of Europe.
Except the Scandivanian countries wich of course have our share of problems but not close to the southern part of Europe.
I knew instantly something was fishy when the flood of Facebook Trump supporters posted this story. After seeing the articles on GM I immediately started digging for the inventory levels of Ford to see if they are in a similar situation. I didn’t spend a ton of time but finding that facts is not easy. Thanks for doing the research for us.
“We’re seeing declining demand for small vehicles here in North America” …… “Party like it’s 1999 !!” ……
I read that as a go to continue to design & build large autos, and trucks, without regard for possible, and likely, future gaps in the flow energy, whether it be petroleum or electricity ……
The production of small, cheaply priced and efficient cars were pretty much nixed as the Alaskan and the North Sea oil fields came on line .. there are no new oil ‘jackpots’ in sight, but hey, lets pedal to the metal .. like there no tomorrow .. Buy that new SUX 2000
Can you say ‘short-term thinking’, boys & girls ??
The US needs is an efficient passenger rail service build-out, from coast to coast …… but what do the fine captains of ‘industry’ and ‘governance’ see ?? … CARS … cars as far as the eye can see …. with all the attendant problems that go with them … Moar gridlock & congestion, Moar accidents and deaths thereof, Moar wasteful use of gasoline, Moar sprawl to .. nowhere, or at least no-go-there-where .. you know … miles, and miles from ‘home’ to work, that kind of paradise, with all the time lost in transit !!
This country needs to change course, but we won’t, and we’ll eventually hit the wall at warp 11 instead !
I agree that rails rather than roads are the way to go, but I think ultralight elevated rails, for PRT, will ultimately succeed.
I’ve bet my own research dollars on it!
My mom worked for Dr. J Edward Anderson at the University of Minnesota back in the late 1970s, and he was the ‘father of PRT’.
In 2004, the Minnesota DOT proposed a HOV and bus lane for 35W, and was exploring a light rail line from Minneapolis to St Paul (at a cost of over $100 million per mile).
Why not simply extend the median of our highways vertically upward and have a monorail running alongside? It would use a larger rail on the bottom to support the mass of the cars, and a smaller rail above to guide and supply electricity.
In the fall of 2004, I put a proposal to the U of MN’s Mech. E Department for a Senior Design Team to investigate this idea. We had a five student team design this and built a scale model which was completed in spring of 2005. The cost was calculated to be one half the cost of land based light rails, and would have been easy to implement as highways were being constructed and renovated.
The students all got an A grade on the project, but no one at the U of MN and none of the politicians I’d been consulting with wanted anything to do with this simple and economical possibility. After a few months of trying to promote this, with no real success, I gave up on it and let it die. A damn shame IMHO.
Your exactly right The US and its love of huge trucks and SUVs and it’s dislike of mass transit(rail) will eventually be our undoing Tic too MFers forgive my greek
The USA had an excellent rail system until the Government decided to get in the road building business
“…there are no new oil ‘jackpots’ in sight…” ?
Right ….. ‘oil sands’ Ah ha ha ha ….
Ok .. Pull the other one.
This sounds … too reasonable. Then again, eating GMO food might result in a mutant strain that will strive for reason and logic. Don’t give up.
GM and Ford were bailed out by the US Taxpayer. Like it or not. I used to buy Corollas when they were made here in California. They are made in Mexico now, so no thanks.
If I am not mistaken, GM and Chrysler were bailed out and Ford was not in the mix. But I could be wrong.
I think that’s true. If I recall, Ford mortgaged everything they could, including the Ford logo to stay afloat.
True- and they had the good luck to do it before the Financial Crisis. There was no way they could have been privately refinanced once it began, when banks were being kept alive by the Fed.
As well as the factories and land, they also pledged the Ford Logo. It has since been redeemed.
I cant wait till its Amazons turn. I hope he hits Bezos with WAPO as well.
My bet against the Peso keeps paying off.
It will until it doesn’t Beware the dollar strength
The peso’s strength hangs on the huge Dollar flows into Mexico that primarily come from:
Drug Trafficking (70% Marijuana)
Immigrants sending Dollars south to family.
California has now legalized pot. That will in time kill narco proceeds going south.
Tourism will eventually slow as instability rises due to events like this week when Mexico became all but paralyzed due to a $.50 per U.S. gallon hike.
Immigrants sending less and less due to inflation/harder times.
Glut in the automobiles and eventual layoffs.
Your bet against the peso is a prudent one.
It seems like when production comes back on to US soil , it’s only because it doesn’t need people to run it any longer. The USD just keeps getting stronger.
It’s still cheaper to hire legions of engineers needed to keep the lights-out fab going, US government won’t levy an import tax b/c cheap prices are good for unemployed US consumers loading up on debt.
Average age of vehicles on the road is pretty old but it’s confusing, is this one of those posts where you’re suggesting automakers are cheap?
No, I’m not suggesting automakers are cheap. Sorry if it came across that way. I’m suggesting that automakers are facing leaner times in the US, and that they’re trying to adjust their businesses to it, though that wasn’t the main point of the article.
We want free trade but forgot its requirements.
The minimum wage is set by the cost of living and that must be the same in West and East.
High housing costs add to the cost of living and housing booms across the West have priced its labour out of international markets.
The US has probably been the most successful in making its labour force internationally uncompetitive with soaring costs of housing, healthcare and student loan repayments. These all have to be covered by wages and US businesses are now squealing about the high minimum wage.
Trump is the first leader in the West to realise that this situation requires tariffs to protect its labour that has been priced out of global markets.
The Corn Laws and Laissez-Faire, the requirements of free trade, a historical lesson:
“The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners’ interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive.”
The landowners wanted to maintain their profit, charging a high price for corn, but this posed a barrier to international free trade in making UK wage labour uncompetitive raising the cost of living for workers and as a consequence, wages.
The anti-corn law league had to fight the vested interests of the landowners to get the UK in a position where it could engage in free trade. They had to get the cost of living down to a point where they could pay their workers internationally competitive wages.
Nothing’s changed, our leaders just forgot and Trump is the first to remember.
Tariffs and capital controls are necessary until the US can get its cost of living down, investors can make more profit almost anywhere else on the planet due to the high cost of living in the US.
Free trade, they understood it in the 19th Century.
Finding “free trade” is like looking for virginity in a whorehouse. Free trade has never, ever existed. Widgits are widgits- an academic exercise. Wages, working conditions, taxes, envronmental regulations, all other regululations are never equal on both sides of a trade. And without a well paid employed middle class, borrowing hits a brick wall.
Trump is right-managed trade or watch this nation die.
Tariffs will doom exports and China will eat US’s lunch. Trump heralds the end of an empire.
The US has a major trade deficit.
If it imported and exported nothing it would be better off.
+1 his idea’s are old news in an economy bypassing him and the folks who elected him. Great again means what?? Even he doesnt know but the Carrier CEO said it best during the bluster about his deal with Indiana and 7 mil$ tax break to be paid for by those in Indiana – ‘those are yesterday’s jobs’
Trump wont save anything in mass. The tech train driving the end of the old economy has left the station and he only uses a worthless piece of it called Twitter. For him the world is far more complex than he can imagine or for those who support him. Slogans wont bring back a single job. This is more like a 5 years complaining about an old lollipop on the ground and he cant pick it up.
He needs to save or move MILLIONS of jobs not 700 in piece-meal fashion like Carrier. As long as FOR PROFIT companies exist Trump will lose. They will always and only care about their investors/shareholder value and market access. Trump is just another of many politicians to be appeased and paid……period
Anyone who has been reading your page would have know that the reason was clear that Ford decided not to build the plant was the crash in demand for the Cruz. How stupid people are to believe the press. Informed people are educated and read you page among many others. stupid people believe the press
“How stupid people are to believe the press.”
That’s because truth is in very short supply and must be carefully rationed to be profitable.
One wonders why they came up with all these new ways of lying when the old ways were working so well.
I believe Ford chose not to build the Mexican plant because of the “crash in demand” for the Focus, not the Cruz which is a Chevrolet brand.
See Wolf, people DO read and comment!
Wow! Trump must really want the US automakers to go bankrupt, forcing them to manufacture cars in America. Did anybody remember why they left the country?
Please. They got rich making cars in America.
Proving, incidentally, and contrary to your insinuation, that U.S. workers are far from overpaid.
They never ‘left the country’. They expanded overseas to more effectively exploit labor arbitrage and foreign markets.
The GOT rich (past tense) making cars in America. In days gone by. Now they are bankrupt or teetering on the edge of it.
If they didn’t make all those components in Mexico and other countries, they would all be shut down.
“The GOT rich (past tense) making cars in America.”
Now, of course, they’re primarily financial services companies. That’s what their annual statements say. Automotive manufacture is just a side business and has been for years.
“Now they are bankrupt or teetering on the edge of it.”
They’re in the bad loan business too, which lends itself to all sorts of interesting financial extraction games.
“If they didn’t make all those components in Mexico and other countries, they would all be shut down.”
Perhaps if you did some research you could avoid such foolishness in the future instead of being suckered into mere appearances.
“The GOT rich (past tense) making cars in America.”
And they still get rich making cars in Amerika.
Richer, in fact, mostly because so many of their workers are no longer middle class. For example:
Just goes to show just how wrong you can be.
and on CNN Money this morning:
“Dow opens up 50 points. S&P 500 and Nasdaq up 0.3% each. GM gains 3% after reporting 10% December sales increase.”
Wonderful analysis and insights. Your journalism is so valuable.
Help keep it coming:
P.S. I hate advertising (except when I do it …)
-Ford will build the car of the future that will look like a fish.
-It will have big eyes with face recognition.
-Small radars with anti “collision software”.
-Cyber attack defense.
-A mechanical arm.
-A propeller, just in case that you want to swim under/above
-In charge of the new future project will be Dr. Dugan.
Rather a bizarre and ignorant description of ‘crony capitalism”. Care to tell us how Trump is making money off this situation. No? I didn’t think so.
My guess is Trump, with the Congress, can squeeze the automakers a lot harder than they can squeeze back.
“Instead of success being determined by a free market and the rule of law, the success of a business is dependent on the favoritism that is shown to it by the ruling government in the form of tax breaks, government grants and other incentives.”
“Care to tell us how Trump is making money off this situation. No? I didn’t think so.”
That has nothing to do with ‘crony capitalism’ but appreciate your effort to deflect.
In case you hadn’t ‘noticed’ the rule of law consists of the laws passed by an elected legislature and carried out by an elected president.
Governments have ‘sold’ tax breaks, grants and other incentives since they began. To you simply governing must be ‘crony capitalism’ but I suggest you pull your pants up from around your ankles and pay attention. Trump’s campaign was built around stopping US corporations from moving jobs overseas. Perhaps you didn’t hear that though if you were watching or reading MSM. Most of us did however and it appears, mirabile dictu, we have a candidate who, once elected, intends to do what he promised.
“Trump’s campaign was built around stopping US corporations from moving jobs overseas.”
Amazing how many people got suckered with that one.
He also opposed guest workers. For about three weeks. Now he’s all for them, particularly for himself.
“mirabile dictu, we have a candidate who, once elected, intends to do what he promised.”
Day one, he’ll get the nuclear codes and get to work. Day two will depend on how day one went.
NO ONE said Trump was making money of this.
Of course not. His accountants are sworn to secrecy.