New CEO Cuts Costs: Ford shifts production of compact car from Michigan and Mexico to China.
The new guy at Ford, Jim Hackett, who became CEO a month ago after Mark Fields was forced out, said he had a mandate from Executive Chairman Bill Ford to crank up the company’s decision-making speed.
“Every CEO that starts has a 100-day clock ticking,” he said. “So I am working on a 100-day plan that is really coming along nicely.”
And sure enough, today Ford announced parts of that 100-day plan. “Manufacturing actions centered on improving the company’s operational fitness,” it called them. The biggie was that it would switch production of the “exciting new Focus” from plants in Mexico and Michigan to China, and that it will import those Chinese-made Focuses to the US.
Ford wouldn’t be the first major automaker to import China-made cars into the US. But in terms of sales, the Focus would be the biggest.
Volvo, owned by Geely in China, has been importing the China-made S90 sedan, but the numbers are small. And GM started importing the China-made Buick Envision SUV last year. So far, it has sold over 30,000 of them. By contrast, Ford sold 170,000 Focuses in the US in 2016. So this would be real numbers.
Production in China will start in the second half of 2019. Ford said that this plan “makes business sense – with no US employees out of a job.”
The Focus plant in Michigan will stop producing the Focus in mid-2018. The plant will be converted to building the Ranger midsize pickup and the Bronco midsize SUV. Ford’s statement points at what counts:
Ford is saving $1 billion in investment costs versus its original Focus production plan, improving the financial health of its Focus business, and further improving manufacturing scale in China – all helping create a more operationally fit company.
This $1 billion in savings includes some double-counting: the $500 million in savings Ford already announced on January 3 when it – after catching some tough Twitter-love from then President-Elect Trump – canceled plans to build a plant in San Luis Potosí, Mexico.
Ford executive vice president and president of Global Operations, Joe Hinrichs, rationalized the decision in inimitable corporate speak:
“At the same time, we also have looked at how we can be more successful in the small car segment and deliver even more choices for customers in a way that makes business sense.”
“Finding a more cost-effective way to deliver the next Focus program in North America is a better plan, allowing us to redeploy the money we save into areas of growth for the company – especially sport utilities, commercial vehicles, performance vehicles as well as mobility, autonomous vehicles and electrified vehicles.”
Compact-car sales in the US are in a world of hurt. Car sales in the US so far this year have plunged 11%. Truck sales are up 4.7%. And total vehicle sales are down 2%.
Profit margins on cars – pushed down by sagging demand and an ancient unwillingness by Americans to pay more for smaller vehicles – are thin. And making lower-end compact and subcompact cars in the US can be a losing proposition.
By contrast, trucks and SUVs have fat profit margins, as Americans don’t mind overpaying for them. And the volumes are larger. So when GM and Ford offer $10,000 or more in incentives on US-made trucks or SUVs, they’re still making money. When they offer $1,000 in incentives on US-made compact cars, those few they still make here, they’re in the hole.
Since mid-2016, GM, Ford, and Fiat Chrysler have been announcing layoffs, shift reductions, and plant-shutdowns for plants that build cars. The most recent layoff announcement hit GM’s Fairfax Assembly Plant in Kansas City, Kansas. On Friday GM notified workers that starting in September it would eliminate an entire shift and lay off 1,000 workers. In the statement, GM blamed “lower demand for passenger cars across the industry.”
The Trump administration has repeatedly lambasted automakers for assembling cars in Mexico. One of its big agenda items is renegotiating NAFTA to lower the incentives to manufacture in Mexico. But the administration has caved to China on trade – to recruit China’s help with North Korea? And Ford’s pivot to China is unlikely to be the only one.
But shifting production from the US and Mexico to China, as Ford is doing with the Focus, comes with a bad twist for the US-based component manufacturers.
For the Focus currently manufactured in Michigan, 46% of the components are sourced from US or Canadian suppliers, according to the National Highway Traffic Safety Administration, cited by the Wall Street Journal.
Ford’s and GM’s assembly plants in Mexico source many of the components in the US. There is heavy bilateral trade between the countries, precisely because of the sourcing of components.
But for vehicles built in China, components are mostly sourced in China, and to a smaller extent in other Asian countries. The component industry in China is huge as China has become by far the largest auto market in the world.
This shows in the Buick Envision that is sold in the US: 88% of its components are from suppliers in China, according to the NHTSA. US and Canadian companies get to supply only 1% of the components.
Ford and GM sell far more trucks than cars. But automakers whose lineup is concentrated on cars, face particularly tough issues – as seen by factory-fresh Hyundais stored on vast new gravel lots near the Mexican border. Read… Haunting Photos of #Carmageddon: Hyundai Gets Crushed, as GM, Ford, Others Struggle
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Less money circulating on Main Street.
The price of the Chinese Focus won’t be low
enough to offset the loss of jobs among suppliers. Won’t be long until this country
loses the ability to compete in any area. All
to chase the quick buck.
The retail price in the US will probably be higher by then, but the cost for Ford will be lower, and Ford’s profit margin will be higher. So don’t worry, consumers won’t benefit :-]
Trump is already calling the kisses with China a bust. Surely there will be many more to come.
Is there no honor left? I realize that nationalism has been branded with a red hot branding iron, but these companies have no loyalty to the country that made it possible for them to exist to begin with. Or the country they come crying to for protection…namely the USA.
Her we are looking and more states going bankrupt, more consumers going bankrupt, more pensions going bankrupt, so why should I be surprised that “go West young man” is also the philosophy of the ‘now declared’ companies are people too.
It is like have a child that you nurtured, loved, pampered, respected, only to find out the kid is a criminal needing a bailout or leaves home without so much as telephone call and guilt free.
Good bye America, we knew you well. Bread and water for all, well the 99% anyway.
They are being loyal to their stock holders. The only loyalty that counts for big companies.
Well stated . Every single solitary decision being made across the board ( pun intended ) when it comes to all shareholder owned corporations around the world is to the short term benefit of the shareholder only all else be damned : with no consideration what so ever for the long term consequences , employees or what country they are ‘ based ‘ in . Fact is … in todays economy CEO’s for the most part are mere overpaid figureheads in the service of the shareholder who in reality run the show
But hold on a minute . There is another set of shoulders for which much of the blame must be firmly placed upon . That being the conspicuous consumer addicted to cheap goods and services demanding more and more for less . But thats an entire book in and of itself
Sigh … oh well .. let the corporate cronyism , blatant lies and exaggerations continue .. and err .. lets make America … something again .. all while going down Alice’s Rabbit hole of conspiracies and blame shifting desperately seeking scapegoats to blame rathe than taking a good long look at ourselves .
“But hold on a minute . There is another set of shoulders for which much of the blame must be firmly placed upon . That being the conspicuous consumer addicted to cheap goods and services demanding more and more for less .”
Is it really that simple? Or are trends that are being seen in the marketplace and consumer choices impacted by some of the following – necessitating the purchase of “cheap goods and services…”?
1. Outsource / offshore industry. Consumer – fewer jobs. More population, less jobs – lower pay. Consumer cuts back. Lower tax collection, fewer private sector jobs supporting gov function.
2. Import foreign labor in masse. Consumer – fewer jobs at sustainable domestic living level. Consumer cuts back. Lower tax collection, fewer private sector jobs supporting gov function.
3. Outsource / offshore services. Consumer – fewer jobs. More population, less jobs – lower pay. Consumer cuts back. Lower tax collection, fewer private sector jobs supporting gov function.
4. Outsource / offshore industry and services in masse over the long term (would several decades qualify as long term now?). Ability of country as a whole to innovate future technology and systems evaporates. Fewer private and public sector jobs. Remaining consumers cut back.
I think you see how the finance strip-mining cycle works now…
Financial strip-mining
Perfect metaphor.
I don’t know about that. When the choice is none, there is no choice. We are slowly being manipulated into no choice based on bad choices and worse choices from candidates to insurance to search engines to cell phones, to groceries to well…on and on and on.
There are many many things not made in America anymore, no choice there.
You forgot the unions with their ridiculous demands for wages and benefits.
I have always found it interesting that while American owned auto manufacturers have to deal with the unions, foreign auto manufacturers in the USA don’t have those issues. Maybe because they treat their employees like they matter, so they never vote to unionize?
Look at the states where foreign automakers set up shop. These are states whose laws are not the friendliest for unions.
Large corporation management are globalist thinkers, they have to be.
The financial elite can live anywhere on the planet they choose. They tend to think outside of our box. They can escape allegiance to any population.
We are American, and tend to be nationalistic and tribal in nature, as well as in our thinking. We have less options available to us thus cry foul when we fear loss of support for our local interest.
Our local (village) way of thinking helps to make us prey for the financial elite who operate without incumbering allegiance to national borders and local interests.
None of us (probably) are members of, nor have ever, nor will ever, sit in on global financial, business, media, and military planning meetings of the Council of Foreign Relations.
It is not our place.
The global shifts of the seats of power are decided upon by those who wield enormous influence upon worldwide events.
The financial elite can scower and analyze data from around the planet for opportunities to exploit, and then execute influence towards the best plans to feed off of the herd of humanity in the most productive ways.
The financial elite are the modern Kings.
Many Americans have taken note, realized an international way of thinking, have moved, and are living in areas of the world with nice views and lower costs.
Back on point: do we all not want our investments to produce the best returns? Regardless?
Corporate management’s mandate is to do this (to) for us.. the stockholders.
Expect more of the same as the elite planners continue to learn, refine, and execute.
History is full of shifts in the seats of power back and forth across this third rock from the sun. The story is dynamic.
One thing is for sure, probably: the Chinese workers are less likely to be loitering while checking their Facebook pages while they are on the company clock.
Join the play: think, plan, execute as a globalist.
Ford probably figured out by now that there will be no beautiful duties on Chinese imports.
Trump has fallen for the North Korea puppet play- the one that China manipulates- so that America automatically plays nice with China.
These corporations are legal fictions- they exist only because of American law. And since they are benefiting the enemies of America, it is time to pull the pin on the legal fiction.
The CEOs and the politicians are selling out the entire country from right under our noses. Meanwhile the richest man in China Jack Ma is giving lecture in Detroit on how humans can stay ahead of the machines. It takes ‘wisdom’ aparently.
As every manufacturer starts to outsource to China; how will US workers make enough to pay for products priced according to US standards?
Isn’t this why Henry Ford started a fair wage, so his workers could afford the cars that they built?
Maybe the end result is that US becomes like the 3rd world, pockets of haves in a country full of have-nots.
So the rich can exploit workers everywhere. The utopia that has been America is dis-integrating right in front of us.
Maybe they’re preparing for a Chinese market for the cars.
New Ranger and Bronco don’t look so good :-(
“Maybe the end result is that US becomes like the 3rd world, pockets of haves in a country full of have-nots.”
Aren’t many places in the USA already like the 3rd world or worse in terms of crime, poverty, and educational levels?
You know cities like Chicago, Detroit, Baltimore, LA, and many others.
I left out hard drug use and gangs because the USA has already surpassed many 3rd world hellholes in how bad these places are.
Don’t worry though here in Oz we are trying as hard as we can to beat you in some areas!
Lee,
There is a tremendous amount of rural poverty in the U.S. Wages have stagnated and jobs have succumbed to both automation and outsourcing. Our brilliant new administration’s remedy is to bring back coal mining jobs.
Somehow, all the attention paid to international events and stereotypes about “rural poverty” are simply irrelevant to real life here. Most of us do OK – our values are just different, that’s all.
Spend about five days in a 3rd world country … any 3rd world country and you’ll see first hand despite the ( very ) real problems we face just how freaking damn good we have it here in the US of A . Suffice it to say 90% of Americans wouldn’t survive the first year in 99% of the genuine 3rd world countries across the globe
I am curious, what remedy or great solution did the last administration come up with?
There is rural poverty. The rest of your post is BS. The automation that is taking place is taking place in China, Germany, Japan and other manufacturing countries. Automation makes possible the production of better products which are demanded by the consumers and is no different than any other type of capital investment. Here in the US financial engineering is what draws capital, not real engineering.
Coal mining jobs are high paying and support a vast number of associated manufacturing, transportation and service jobs as well.
Including money spent on stock buy backs into corporate 1099s for shareholders, and a VAT or BAT high enough to zero out the Corporate Income tax would end outsourcing. Tomorrow.
I guess that comes down to the fact that the US manufacturers are no longer fit to compete internationally, if markets are kept open. So you have to roll up globalization, as Trump originally proposed (no incentives will help here), but that will mean that the US will no longer be able to offer to its allies the biggest incentive of all – a huge American market. Once that happens everyone will start looking somewhere else.
So you here lot of those loud noises about dimishing US role in the world. But what is the alternative?
Also left out of the myth – he raised wages (starting during ww1) when the source of immigrant replacement labor was limited by legislation or world conditions.
“Isn’t this why Henry Ford started a fair wage, so his workers could afford the cars that they built?”
This is off-topic, but no. Total myth.
Henry Ford raised wages because the working conditions at Ford were so abhorrent that turnover was excessive and labor costs were mounting. He needed a higher retention rate.
Besides that fact, even after wages were raised, most workers could not afford a Ford.
Henry Ford was absolutely ruthless towards his workers. The so-called “Service Department”– his private security force– consisted mainly of ex-boxers, ex-cons, ex-police (thrown off the force, not retired) to keep his employees in line. There’s no doubt they were involved in murder, kidnapping, extortion, etc.
“”There are about eight hundred underworld characters in the Ford Service Department,” labor leader Benjamin Stolberg said. “They are the Storm Troops. They make no pretense of working, but are merely ‘keeping order’ in the plant community through terror.”
Among the Service Men employed by Bennett: Norman Selby, an ex-pugilist who fought as “Kid McCoy,” married ten times, paroled to Bennett after serving twenty years for murdering his sweetheart. Joseph “Legs” Laman, admitted serial kidnapper, nicknamed for his ability to evade the law on foot. Joe Adonis, a mobster called by the New York Post “a gang punk” and “dope king.” Sicilian mob boss Chester LaMare, the “Al Capone of Detroit,” who controlled Detroit’s waterfront during Prohibition. Former journeyman pugilist Elmer “One Round” Hogan, Sicilian gangster Joe Tocco, Jack Dempsey’s former manager Leonard Saks.”
Bill Ford didn’t like Mark Fields’ business model of having the government impose more tariffs/etc. on their competition.
But I’m sure Jim Hackett won’t turn that down.
But whatever happened to the notion of doing business by building a better mouse trap and not by making it cheaper or imposing tariffs on your competition? Making it cheaper is a fine strategy as long the product is not poorly made.
Will China automate? What will the 7 million college grads across China do for work?
The entire scheme is not sustainable as-is. More holes are appearing in the good ship Globalism daily (hourly?). It really does look like a rearranging of the deck chairs on the Titanic.
Better mouse traps can be built anywhere. Ford chose China due to cheaper labor costs, cheaper regulation compliance costs, lower risk of labor unrest, financial assistance from local governments in China, and to avoid US Taxes (including the crazy notion that US companies should pay US tax on profits they make selling overseas). Also China will insist on local manufacturing presence for any cooperation in setting u a sales and distribution network.
A VAT or BAT large enough to eliminate the corporate income tax will offset most of the advantage and at least help to preserve local manufacturing for the local market.
I guess that “giant sucking sound” moved from Mexico to China. Presumably a few Wolf St readers are old enough (as I am) to get the reference… I actually watched the debate in question!
Pavel,
Final Jeopardy: “Who is Ross Perot?” Had he not melted down, we may have a very different USA today. =:-D
2GeekRnot2Geek
Well if not for Ross Perot’s splitting the vote, Bill Clinton probably would not have won and Bush père would have had a second term. Not that that would have been ideal… GHWB being one of the worst of the worst (cf his CIA and Iran/contral roles).
I guess choosing between George H. W. Bush and Bill Clinton is like choosing between the devil and the deep blue sea.
It’s like one big F-U to the American voter.
From Dearborn to Dengzhou.
Thanks Ford.
Buick Envision made in China, Buick Encore made in Korea.
Lest we forget the scores of vehicles made in Mexico for American use.
Unreal!
bee, My 1995 Dodge diesel pickup truck was made in Mexico.
In those days, the international corporatocracy had not gained control of civic affairs everywhere and warped them to enrich themselves. So, trade between the U.S. and Mexico made sense.
It could have enabled Mexican workers to build up their own country and alleviated the illegal immigrant problem we have today.
Thank Ford ? Hell Ford’s just trying to keep its head above water . Try thanking the individual Ford supported and have been playing corporate crony footsies with and his long ongoing string of broken promises and outright lies instead . ;-)
What Ford support? Like most corporations, unions and wall streeters didn’t they play it safe with HRC?
Errr … want a real shock ? Have a look at where the majority of parts are manufactured in todays Chevy/Cadillac /GMC full-size P/U , SUV not to mention the ” most American of motorcycles ” … Harley Davidson .
So Ford is manufacturing cars in China and Boeing is making planes there. Well, that’s ok because U.S. will have new high tech manufacturing jobs, like making solar panels, except, well this case https://www.greentechmedia.com/articles/read/a-guide-to-the-latest-solar-trade-case
I checked out Ford’s Twitter page—
Today: “We’re proud of our continued investment in U.S. manufacturing, including $900M to build new Ford Expedition and Lincoln Navigator – $900 million new investment + 1000 jobs secured —- Ford Kentucky truck plant”
Yet no mention of CHINA.
Ironic Ford, no longer Iconic Ford.
#BoycottFord
Updated Henry Ford: “You can have it in any colour you want as long as it is black (and MADE IN CHINA).”
How empires (political and financial) fall.
Not sure which would be the worst vehicle to own: the last Focus off the line in Michigan or the first off the line in China. Thankfully I’ve never owned a Ford and never will.
No wonder my elderly grandmother become irate when I tried to steer her to a new Ford instead of a GMC this spring (to save a little money). “I’M NOT BUYING A FORD—I’VE GONE MY WHOLE LIFE WITHOUT A FORD, I’M NOT BUYING ONE NOW!!!!!”
Traitors!
When I was a kid in the 1950’s, I once asked my dad why we didn’t drive a Ford (we always had a Dodge). His answer: “Because Henry Ford was such a son of a bitch.’
Horace Dodge built engines for Ford and was one of Ford’s executives for a time.
He was a crude man and socially unacceptable to Detroit’s elite.
https://en.wikipedia.org/wiki/Horace_Elgin_Dodge
I wrote a little about Henry Ford above, and yes… he was a BAD guy.
A horrible anti-Semite, and a horrible racist… and hated the average worker.
Henry Ford is the only American named in Hitler’s Mein Kampf.
“You can tell Herr Ford that I am a great admirer of his. I shall do my best to put his theories into practice in Germany. … I regard Henry Ford as my inspiration.” – Adolf Hitler
And the icing on the cake– and probably the single biggest reason many older Americans refused to buy Ford for decades… in 1938, Ford received the Grand Cross of the German Eagle from Nazi Germany.
That being said, his son Edsel was very well respected, and Edsel’s son Henry II was as well.
Henry Ford, while like a lot of folks could be accused of anti antisemitism, I don’t believe he could have been considered a “horrible racist” at least as far as blacks were concerned.
Remember- Ford was subject to much criticism, especially in the south, for paying black workers on equal scale as whites.
Many older Americans- especially those with roots in the south refused to purchase Ford automobiles for just that reason.
rx
Would GMC even exist today as is if it hadn’t been bailed out by the government after years of mismanagement leaving unable wrather a financial crises?
The Old GM doesn’t exist anymore. It was liquidated in bankruptcy court. The New GM, which you see today emerged from bankruptcy court in much smaller form, after it obtained a Debtor-in-Possession (DIP) loan from the US government that allowed it to do business. DIP loans are common. Normally banks provide them. They have special protections. So they’re not very risky. Banks would probably have provided them, but the rate would have been higher and the conditions might have been harsher.
… and, it is unlikely that a bank would have agreed to give 19% of the stock to the United Auto Workers union.
A lot of things went the wrong way in that deal. But that’s often the case in big bankruptcy cases, where the behind-the-scenes dealings and shenanigans at the expense of some stake holders are legendary.
Honestly I am surprised Ford didn’t do this already seven or eight years ago. This was coming and everyone with half a brain knew it.
Re: “..everyone with half a brain knew it.”
You knew it, am i right?
Now, Andy! Be nice …
Why would “All-American” Ford be the first to import China cars? Volvo was the first 1.5 years ago, followed by Buick’s Envision. Ford is the no-bailout king waffing in the sweet aroma of Americana—that’s why people are upset.
Volvo S60: 1500 sold per month
Buick Envision: 2000 sold per month
***FORD FOCUS: 15,000-20,000 sold per month***
BIG LEAGUE TRAITORS! BYE FORD!
The funny thing is that Ford did sell Volvo to the Chinese
Because Ford has not been “ALL American” since it started to manufacture parts and build cars outside the US, several decades ago. And because is very common for big companies to end moving manufacturing to where is cheaper.
Please pardon the caps – I am pissed….. My family has driven FORDS since the late 40’s. No more…….
We DO NOT need to be sending more of OUR MONEY to China. They have more than enough of it.
What do you not understand up there in your ivory towers??
How do American companies expect Americans to buy their merchandise when all of OUR DECENT JOBS get sent elsewhere? No jobs = no money = no sales = no money —- a vicious circle to the bottom of our way of life.
THANKS FORD…. AND OTHERS. I WILL NOT BUY FORD MADE IN CHINA. I may never buy another Ford product at all – unless it is used….. and a collectible.
I WILL DRIVE MY CURRENT TRIPLE BLACK MUSTANG DROP TOP INTO THE GROUND – THEN RUN MY FORD PICKUP INTO THE GROUND – MY WIFE WILL RUN HER LINCOLN INTO THE GROUND……
THEN I will buy a new Camaro Z car (or whatever they call it) convertible, a new RAM truck (ugly in my opinion) and my wife will end up with a Tesla or a Cadi – or something else of her choice… IT WILL NOT BE A FORD PRODUCT – AND – IT WILL NOT BE A IMPORT.
Ford has gotten the LAST of my support………….
“How do American companies expect Americans to buy their merchandise when all of OUR DECENT JOBS get sent elsewhere?”
Well, that’s the rub, ain’t it? Americans want cheap. American made is more expensive. You can’t have it both ways, and I think people are myopic in that they’d prefer cheap here and now, even if the long-term consequences outweigh the short-term benefits.
“Well, that’s the rub, ain’t it? Americans want cheap.”
I think you are quite wrong. Perhaps this is the thinking of limited exposure.
I look for quality not cheap. I know I am not alone, perhaps you do too.
AMEN , me too!
Wolf,
No article on the Barclays execs being tried for fraud? I figured that would be front page news.
That’s just routine daily average news,a Banker helping an old lady across the street,now THAT would be front page news!
It’s not country versus country, it’s workers versus capital. Workers have all the power via the votes, but throughout history they’ve been too stupid to organize and exercise it properly.
+1
I agree, except for “stupid”.
Uninformed, sure and ignorant.
As with all human institutions, hubris sets in with age.
Where workers have organized under honest, principled leadership (Walter P. Reuther comes to mind) decadence, featherbedding etc. sets in (Dave Beck comes to mind).
LOL. You mean like in the Peoples Republic of China?
I suspect this is a very, very bad decision. Just as bad – or Worse than Amazon purchase of Whole Paycheck. The whole “outsource to China” is cokehead MBA delusion for a total lack of insight on the “business end” of the building for real strategy and innovation. Another symptom of the over-financialization of thought. Intelligent manufacturing companies were already and are reshoring to the US/North America, or looking at new emerging economies that the labor cost is far less than China – with far less of an issue with all your technology being stolen.
That the new CEO isn’t even smart enough to know that places like Vietnam or Indonesia are quickly going to take China’s thunder in terms of low-cost wage competitive advantage, and a sense of quality and pride in workmanship (something China seems to lack completely) shows he is a know nothing. A know nothing that knows even less about his customer base.
The only people I know with Fords drive them because they are Made in America. Boycotts can be hard or ineffectual for small purchases, but very easy for a big-ticket item like a car – you better believe they just lost basically every customer in the country. There will be no bailout for Ford this time.
China is about to hit its “democratic moment” as Thomas Barnett and other geopolitical thinkers (like myself) often refer to it. The global prisoner’s dilemma game of the last few years of Central Bank money printing is about to end – everyone cooperated in the money printing and Shanghai Accord – it’s just which countries; bankers are smart enough to Defect before it all falls apart and take all the Dollars (and bitcoin and gold). China has no middle class for consuming these vehicles, and that’s at today’s nonsense future forecasting (no Chinese recession ever is all the mainstream models ever assume). China is Rich and Poor, there is no middle class, and the rich buy prestige cars, they do not need a family car.
Too many know-nothings strategists around the world thinking that “China” is a monolithic unified thing – 5000 years of history, diverse regional cultures, strong diversity of language, dialect, and ethnicity (until Mao declared everyone was Han), China has been “unified” for maybe 200 of them and always ends in revolution. Money printing and bad loans have gone on way, way too long and it is destroying what is left of the global economy through dislocations across the globe.
They must devalue the Yuan – my charts put a low-end stable point of 14 Yuan to the Dollar. My gut tells me that it will actually stabilize at around 35 Yuan to the Dollar. Think Asian Financial Crisis, but this time 10x as large and a whole lot of angry people asking what happened – remember these are the same people responsible for the Cultural Revolution when you think how they are going to react to their “wealth” being wiped out.
Two seperate comments here – – – –
#1
Despite my rant about Ford I think it would be great for Ford to build high volume cars/trucks in the far east for sale in Asian markets. Moving ALL of the production of a decent selling car offshore sticks in my craw…
#2
TheDreamer wrote;
I think””a sense of quality and pride in workmanship (something China seems to lack completely)””
While the above statement MAY be true, I find it hard to believe that many of the folks over there do not have sense of quality and pride in workmanship. I have seen exquisite work in molds and dies coming out of China and South Korea.. Have also seen crap that a grade school shop student would have put in the trash.
China has a definite world class ability to make darned near anything as good as anyone. They can – and do – make machine tools that are as good or better than hallowed German and Swiss machines. (I can’t say that about Russia)
In my opinion, the major reason we see so much China junk is the buyers (both corporate and our public) chisel to the last penny, the quality be damned.
The difference of a good and a junk $1 part can be 1, 2 or 3 cents. The short sighted buyers do no one a service by chiseling a penny on the dollar part…….
Off my soapbox…..
@Jim – while I have not been to China, I have many very close friends who have, as well as people who have actually set up factories there. The general impression I am left with is that the Chinese business culture is that theft and deception by any means are A-OK. Profit by any means necessary.
At University we had to have to take classes on Ethics in Academia (and in Research). I know a number of my fellow doctoral students who are Chinese from various east asian countries – when the professor asked when people were taught about “plagiarism”, those students said they were totally unfamiliar with the idea until they came to the US. Meanwhile, us Americans explained we were taught about it in the 2nd grade and had been forced to learn proper citation since then. All of us had horror stories of some teacher threatening us with expulsion.
This really informed my opinion about Chinese business culture. The attitude from what I hear is very much “by any means necessary” and “it’s not stealing if you don’t get caught”.
Curiously, once they learn about Plagiarism, they tend to take it very, very seriously.
I think you are right, I will amend my statement, the workers themselves likely simply consider it a job, and I have had many friends and co-workers from China. They seem to really respect and value American culture and values, particularly our sense of fair play, and that prosperity need not be a zero-sum game. (At least on the individual level – we all know how the elites seem to feel with their actions).
I also think you are right on quality – many “business” folk seem to have thrown quality out the window in favor of small profit increases. I blame over-financialization, an assumption that you can always increase profit (vs. sustainable profitable business model) and poor buying habits fueled by credit. If you don’t have a disposable mindset, you are going to pick quality and craftsmanship every time. I believe there’s only so much efficiency possible with various widgets, yet when “stockholders” demand increased profits every year, in a finite world, eventually something has to suffer. Given the “business” folk are rarely going to fire themselves, quality is the only variable that can be reduced. Works for a while, until you are suddenly branded as a garbage product and you lose everything overnight.
Oh, but don’t give it away- the soap box that is.
I’ve been looking at furniture lately and a lot of it now comes from Vietnam, not just China anymore.
Petunia – I expect to see a lot more diversity in place of manufacture – Vietnam has already gone to Furniture, and my new bicycle (to replace the one that was stolen) was designed in the US and built in Vietnam. There are some jobs I don’t if ever will come back to the US, outside of a world war 5 scenario (standard textiles, for example, live off of low wages and expensive machines make it very hard to compete from what I understand).
Look at East Asian wages, as well as Latin America and Africa. Many places are already 2-3X cheaper than China’s wages with far less baggage. Thus my issue with CEO’s lack of strategic thought – they are regurgitating an idea that maybe made sense 20 years ago, but its antiquated by my way of thinking. If you are going to outsource, there are way better places. Here’s an example: http://www.business-in-asia.com/asia/minimum_wage/Minimum_wages_in_Asia/minimum_wage_in_asia.html
I actually saw a number of pieces not so long ago that suggested the shipping time from China made complex supply chain management very difficult. That was one of the primary moves back to Mexico – no time zone issues, language is far less of a barrier, similar culture, and shipping was 2 days vs. 2 weeks or months.
South East Asian peninsula is very attractive from my point of view. You also have a Billion people between the various countries and a lot more coastal area (no one builds a factory far from a port). You also don’t have to deal with all the other issues. You may get “shut out” of the mainland Chinese market, but I suspect more likely than not China is entering a recession/depression. A lot of people misunderstand that market as well. They think it is a billion middle-class Americans. It is not even close, China has 750,000,000 people in inland China living at below sub-Saharan poverty (this is more than the entirety of Africa). There are maybe 200,000,000 on the coast that has benefitted, but per capita income is around $7,000 dollars. These people are not consumers. There is also no social safety net programs (thus high rate of savings), pressing environmental issues, the 4-2-1 problem, and more. I love Chinese culture and what they have given to the world over history, but I fear for the people in the near term, they seem to be sleepwalking into a world of suffering.
“The only people I know with Fords drive them because they are Made in America. Boycotts can be hard or ineffectual for small purchases, but very easy for a big-ticket item like a car – you better believe they just lost basically every customer in the country.”
You’re dreaming… it’s 2017. Most Americans couldn’t care less where their car was manufactured, whether it was in Korea, China, Mexico, or Michigan.
Actually you are dreaming. I was looking to buy a new Volvo.
I forgot Ford sold it to China. No sale because it is made in China not because Ford sold it. If I can’t at least try to keep my money in the USA, who is to blame. I bought a car made in South Carolina, guess what it is.
So yes, I DO CARE, and I am not alone from the reads on this page.
Most people care a lot about where their cars (or any products) are manufactured.
The problem is the deceitful way the country of origin is hidden from the consumer.
Americans’ preference for pickup trucks and SUVs is probably contingent on cheap and abundant fuel. Remember in the 1970’s when fuel was suddenly expensive and scarce, we quickly became buyers of small cars. It’s not difficult to imagine a scenario (geopolitical, environmental, financial) in which the price of gas jumps back up to $5 per gallon. There will be a lot of other pain in that instance (e.g. jump in price of food, which is heavily petroleum dependent). The pickups and SUVs will sit in their garages because the owners can’t afford the gas, and people will be looking for small efficient cars which will have disappeared from our manufacturing lineup.
On the subject of why consumers tolerate such high prices on trucks, I would guess that many–perhaps a majority– are purchased as work vehicles and therefore can be depreciated as a business expense. Between self-employment tax, federal income tax, and state income tax, a $60k truck might only cost $35k out of pocket, which makes the high price more tolerable.
Old Farmer Bingo You’re the winner Americans are not the brightest bulbs
Nah. Americans buy trucks because that’s what real men do. The more expensive the truck, the more manly you are.
Sorry, Kent, I’m an American and my Dodge Diesel pickup truck hauls a gooseneck cattle trailer, among other farm-related stuff.
Generalized stereotypes just insult the exceptions.
Lol..
And buy some boots and a hat and now you are a cowboy.
Whose smartphone wakes him up.
Then turns off the alarm system.
The electronic coffee maker has already prepared the morning cup of Joe.
The remote turns on the flatscreen to catch up on the morning news, shower done, the electronic watch goes on the wrist.
Grab the backpack with the laptop and out the door.
Press the keyswitch to unlock the cowboy truck door.
Set the gps to the first location of the day and get traffic reports and a satellite view weather report.
Stop at the convenience store and buy some cowboy dip.
Now, turn on that favorite country station and get your cowboy day going.
Yeehaw.
BTW, the convenience store operator owns his cars and house outright. Does not shop in convenience stores.
Packs his food to save every penny. His emotional needs do not dictate that he spends all he has, rather, to save as much as possible.
The not overweight illegal immigrant on the corner you pass on the way to work (in your cowboy truck), will mow your grass this weekend while the cowboy sits in the house watching the flatscreen.
The cowboy pays the immigrant to sweat for him, with his reserve currency borrowed dollars, instead of using that money to pay down the multi-year loan on his cowboy truck.
My friend is a manager at a clothing factory in Thailand. They earn $10/day. They are very careful with every dollar.. every cent actually.
We “Muricans” erroneously believe we are great due to birthright. Such is a dangerous societal trap. Many civilizations in history have trodden down this pathway to their demise.
Our lifestyle here is due to our being born in the nation that wields power over the reserve currency. We did nothing to earn this. We won the birthplace lottery. We get to borrow and spend dollars printed out of paper. Most of the world has to work, save, life very frugally, and invest carefully in whatever sustains life.
Many of those people do not have the luxury of thinking about suicide or feeling sorry for themselves, for they are far too busy just trying to survive today.
Making America great again does not start in Washington – it starts in our own homes; after we turn off the TV and DO SOMETHING.
I respect the hard working remnant.. but overall .. our basic drive is not to improve our station in life, but to pursue pleasure and leisure.
While the job may be important, our addiction of checking our social media is more important.
Overall, as a nation and a people, we do not have the “fire in the belly” drive to live within or beneath our means to enable savings and be as productive as we can be.
But, we sure have our Facebook pages up to speed: Useless and unproductive vanity.
At no cost to anyone who can gain access to our social media, due to our vanity, we offer up our every habit and behaviors details, family and friends list, and pay to carry a tracking device that details a history of our routes.
Cowboys included. :)
Yeehaw.
About 58% of the vehicles sold in the US (in states like TX and OK, it’s around 64%, in other states it’s a lot lower) are trucks, including SUVs.
Most of them are used for personal transportation. I don’t know what the percentage of work trucks is, but it’s relatively small (just guessing 15%?).
Mexico production benefits the U.S. economy in the sense that the workers buy a lot of U.S. products. Also, by providing employment in Mexico it keeps them in Mexico instead of them needing them to come up here.
That’s the way it started out, Mike, before the international corporatocracy gained control of civic affairs everywhere and warped them for their self-enrichment.
Don’t worrt guys, people in the us will be able to work in the new economy. Either delivering food by bicycle, driving uninsured cabs or the luckiest of them coding apps for some random start up which will never create any tangible wealth whatsoever nor deliver any profits.
They call it the knowledge economy, because apparently delivering food by bicycle requieres a greater deal of knowledge than cars or computer manufacturing.
There are ways to live “under the radar” Hiho.
Look for them.
Russian peasant farmers did it during the reign of the Soviet Union and it is much easier, both to do and to enjoy, in the contemporary U.S.
Well yeah that’s what I said, people somehow will get by delivering food, driving cabs or creating useless apps.
Luckily I do not live in the USA.. and also luckily I do not have any serious trouble in order to survive. I am one of the few millenials in my country (that’s Spain) that has an stable, relatively well-paid job.
It’s not that we are much better here, true, but hey, at least I am not afraid of getting shot in the street by some crazy random guy nor I have to fork out 100.000$ if I break my leg, neither I had to go into debt to study. And the food is pretty good. that’s a point I guess. Isn’t it?
By the way, russian farmers had trouble to survive once the URSS collapsed and the neoliberal reforms kicked in. In only 10 years Russia went from being the second industrial power in the world and the most equal country to have 30% of its population planting subsistence farms in their gardens in order to survive. Do not rewrite history please.
“the knowledge economy”
The knowledge about how market capture can be achieved via financialization so that slave wages can be paid to those in distribution. a la Amazon.
Loosing good jobs is always shitty but it gets hard to get worked up about something that has been happening non stop for decades.
Still not seeing any solid plan from our fearless leader on how to stem the bleeding. In fairness I don’t think anyone president could fix this and all potential solutions probably come with some pain.
You mean the same fearless leader who sent Kushner to make peace in the Middle East That fearless leader?
Don’t forget Ford outsourced production to Germany in the model T era. A lot of Fords are manufactured in Germany to include the Fiesta and Focus. I think they are designed in England and Germany to a large part. All the big German automakers are producing in China. Wisely China demands that production be done in China in large part if a company wants to do business in China. And Kuka the industrial robot producer in Germany….was bought by the Chinese and many other high tech advanced manufacturing companies as well. The only solution is for trade agreements like TPP and Nafta to incorporate the right of unions to organize cross borders. The trade agreements make a big deal about protecting American wing tip lawyers and copyright rights and lawsuit rights but the unions are the ones that need to organize internationally. As a former Ford employee (Mahwah N.J.) I can say that in the 1960s we were more into dope and booze and partying than in building a good car.
“Wisely China demands that production be done in China in large part if a company wants to do business in China.”
And stupidly the USA says- take our technology and our jobs and welcome to the biggest, free-access market in the world.
If money were in limited supply and honest, things like this would not happen. The World’s money system is broken. It has not been able to keep trade relatively balanced since 1971, since the supply is not well regulated like Government independent forms of money…Gold.
Americans can bask in the privilege of being able to manufacture the world’s reserve currency, and just pull out the unlimited balance credit anytime they need to buy something from people overseas. Cost is no issue with Uncle Sam’s Credit Card.
The Federal budget deficits actually drive the uncompetitiveness of American production. When the Uncle puts on more debt, cash flow from overseas must finance it. The people overseas get the cash flow from givings us products, and buy the Uncle’s debt. It is much easier to make $s than to make actual products. I would never work either, if I could print my own money.
As long as the rest of the world takes our conjured up computer credits, the US does not need to work.
As jobs fall away, people can get money from the Government for SNAP and section 8 housing, and Obama Care Subsidies, which it conjures out of thin air. Not having to work is a small price to pay for “free stuff” from the foreigners. Look at all the free time one would have, if he does not have to go to work!
It will the fulfillment of America’s destiny to be the world’s consumer and suppler of money.
I’ve done some calculations and roughly I find the cumulative balance of payments for the US to be about 10 Tr to the negative. When you consider the national debt is 20 Tr, it is easy to figure out how it happened.
Just wait until all those foreigners take that $10Tr in “claim checks” and want to cash them in for propertied in the US like the Chinese are doing now. You ain’t seen no inflation yet.
Yup this is going to end well for sure( sarcasm off)
The dollar is not gonna last as the world currency forever, either we will end going back to the gold standard due to all the bubbles and crisis, that happen with more and more frecuency or it will probably be replaced by the Yuan in a few decades.
But it has been 46 years, so who has it can’t last for a hundred?
Raxidian A hundred years seems highly unlikely I would be VERY surprised if we make it to 60
Given all the crashes that occurred during the 19th century, why do people think that the gold standard is the miracle solution for economic problems?
Besides, the gold standard won’t save you from vast population overshoots, pandemics, or climate crashes. And no, I have no interest (especially at my age) in hiding away as a survivalist with a bunch of guns and Jim Bakker Jesus rations!
Warren Buffett came up with a mechanism to balance the trade deficit. Essentially every dollar of export by a company would result in a dollar “import credit”. Importers would then have to buy the import credits from the exporters. They could then exchange the import credits one-for-one for dollars worth of imports.
The beauty is that the market determines what gets barriers instead of Congress.
Warren Buffett suggesting it should have been the first clue it was a bad idea. Buffett loves making the easy money and this would be shooting fish in a barrel.
Those credits would be sold on Wall Street and the import/export markets would be hostages to their pricing models, on an hourly basis. It would be a backdoor tax going into Wall Street’s pockets.
Might be. But it still might be better than what we have now.
Thank you for slicing open one more Buffett scheme.
And they would all be packaged into various “securities” (with rent and fees extracted at every step along the way.
Warren Buffett = worst of the worst. Uses the “old guy” charm to steal your job, wallet, house and automobile.
China has been building up China. Its military, its infrastructure, everything- all on the backs of America’s future as America has had to borrow the money to pay her bills rather than create jobs and incomes for its citizens.
Now how f’ing dumb are we?
– For GM China is as important as is the US. But I don’t whether or not that’s the case for Ford as well.
– I assume that then Ford is going to export those chinese made cars to the US ??
– Did the Trumpster already respond/reply to this news ? Did his head explode in fury over this news ?
Ford move make sense.
1) Colonial Ford, under the new Xi EV dictat, will survive by producing cars in :
China, Thailand and India.
Portion of that production will be allocated to export to the US.
2) We are probably heading to a prolong recession. It means : $USD strong, long term.
Ford can produced small cars in $5k to $8k range, and sell them in
the US for $10k profit, after 10% discount.
3) The gorgeous Expedition and F150 with Silicon Valley components
will be produced in the US. The prolonged recession will cannibalized
the $40k to $80k segment.
4) A new industry is growing in front of your eyes :
security guards in every building, every mall, stadium, every corner..
and cyber attack.
Millions of unemployed retailers, hospitality, accountants & lawyers
will find “national defensive” jobs, that will allow them to purchase a brand new, most beautiful, imported Ford for $12,500.
Perhaps, even less.
5) Ford is seeking a delicate equilibrium between the high cost US and the low cost in the East.
6) Ford have to survive the EV threat, which is a tool to destroy the
foreign implants in China, like Ford, GM, BMW… China inviting the
extremely vocal, useful CO2 intellectuals, to their camp, to finish off
Ford.
It would be interesting to know how many of the posters expressing outrage about Ford moving Focus production overseas are driving imported cars.
They might be driving a US-assembled BMW, Honda, Toyota, Volkswagen, Nissan…
How can Toyota make a profit on its US assembled cars, but Ford can’t?
It might not make a profit on its lower-end cars either. We don’t know.
We recently purchased a new Toyota Camry manufactured in Kentucky which contains the highest percentage content of American made parts of any car in the world.
Are we driving a foreign car?
rx
As far as I am concerned you bought a American made car, no matter whose name is on the grille.
Life is getting increasingly complex, and the simple answers no longer work :-)
OK, go: I drive a Michigan-made Buick. Next.
Michigan Focus ST (fun car! love it!)
We owned an Expedition, an Explorer, and a Mustang over time, trying to buy American. The cars are really nice but don’t hold up. The SUVs both went at about 100K+ miles needing expensive repairs. The electrical systems were faulty, and one needed a transmission. The Mustang was 14 years old, 47K miles, always garaged, and the inside panels started separating and falling off and the transmission was starting to go. Paying extra wasn’t worth it so we bought cheaper Japanese.
You have seen NOTHING until you drive a German car. Starter, key, multiple headlights problems, fuel pump, alternator, engine gasket leaks, temperature gauge resulting in a check engine light. I love the heritage and look of BMW, but mein gott.
The parts costs and service labor rates are eye watering. Especially when the best local BMW mechanic was a dour rude boy verging on Autistic (no offense)
Japanese may be the way to go, but I would not survive owning a Japanese car because they are so damn boring. Or so amazingly UGLY.
(Whatever happened to the Acura line. It was kinda cool at one point. Can you design a blander, more generic car. And the new Civic. My God. Almost as ugly as the new Prius)
Korean may be the real solution. But for the moment I like my Ford.
This reminds me of the Ron Paul ad the LSM wouldn’t play during his presidential run…because it told the truth regarding the US and its eventual enslavement to China (something foreign to the US-Tas agencies): https://www.youtube.com/watch?v=-iPXY-m2iZ0
china has been positioning itself to be a manufacturing powerhouse for years. When president bush asked the premier of china HU what kept him up at night , the premier , without missing a beat, responded that what kept him awake was creating 25 million jobs a year to feed the beast that is China’s modernizing economy. perhaps we should embrace this ideology . Look at the nature of the IPO’s coming out of wall street post recession II. I don’t see one that is manufacturing related.
http://www.businessinsider.com/china-labor-market-showing-strain-2016-4
If the US were smart, they’d accelerate the move to a post industrial society — by investing in the cutting edge technologies of the 21st century. Trump’s tenure will mean 4 lost years.
And the last 8 produced what?
Record Debt
An economy with nothing but jobs that can’t support someone that is single let alone a family
An increase in housing costs, both rental and purchase, that only benefited the TBTF banks and Wall Street
Feel free to add
“the cutting edge technologies of the 21st century”
Yeah, that is why every other country is robbing America of middle class jobs- they have too much “cutting edge” technology.
what are these miracle technologies? The only thing we can “produce” right now is useless Internet code that enables the 1% to consolidate their hold on us a little more easily and provides unnecessary services to the pampered 10%.
A statement like this is about as useful as “Make America Great Again”
Meanwhile the Democrat thumb suckers mull the notion of offering an economic policy after yet another election defeat. Oh, just give the chumps more Soma.
Versus the Republican program of More Jesus Rand and looting the sinking Titanic?
We may be on SOMA, but you all are on crack.
Oops. Sorry. METH is the preferred drug of the Heartland. My Bad.
Still think that the “people who know” knew a long time ago and still know that the “middle class” – those who can afford that designation, is world-wide, not any one nation’s reality. It is a global reality and companies know that to sell product they have to cater to those people wherever they are. That the Western nations no longer comprise the sole arena of the “middle class” was no surprise 40 years ago, and is certainly not the case now. Only so many vehicles are made, and they have to be sold to those who can afford them, no matter where they are.
Interesting too that oil analyst has claimed that the “demand” problem is actually in the U.S., despite the gas guzzler culture! (BNN broadcast, June19, 2017).
The U.S. market is plenty big enough to gain economies of scale, such that livable wages could be paid to buy local products.
The only beneficiaries in the US of all this outsourcing are the Globalists and corrupt politicians that can be bought for trinkets to sell out their countries.
JD Power initial quality released today: Volvo [as discussed here] third from the bottom. Kia #1. Haha
Ford Focus has a problem with the Clutch plate and transmission in the 2015 model that is know to them and they refuse to recall them . My brother had to take them to court to get it repaired. Lawyer settled in class action lawsuit along with others. he has had clutch plate replaced twice since he has had the car and now another component went on transmission and car has only 65,000 miles on it. It is a crap car now going to be made in a crap country
for the last few months or even longer every second ad on my local (south London UK) radio, is about cars – trading in, buying new, sharing journeys, buying another one and buying some more.
absolute desperation, I tell ya.
I for one am looking to replace my BMW with a Japanese or Korean make, no more of my money funding the Evil Empire.
hardest possible Brexit please.