- 2018-10-17
Ford challenged Trump: "Made in America" is twice as expensive
"You fired American employees, built new factories in other countries, and wanted to continue to make profits without being punished. This is impossible!"
Trump tweeted on December 4, 2016, again targeting companies that set up factories overseas. Although he didn't name which one, the media still turned their attention to Ford.
In April 2015, Ford announced that it would build two new plants in San Luis Potosí, Mexico. In early 2016, Ford increased its investment to US$4.1 billion. In September, Ford confirmed again that in 2019 Ford will relocate all small car production capacity to Mexico.
According to the Detroit Free Press, Ford’s new plant will bring at least 2,800 new jobs to Mexico after completion. This has aroused dissatisfaction with Trump and the unemployed blue-collar workers in the United States-Detroit is still experiencing serious unemployment, how can it let jobs outflow?
In the past 18 months, Trump has repeatedly criticized Ford's plans to invest in factories in Mexico. He threatened Ford from time to time: After being elected President of the United States, he will ask Ford to give up investing in Mexico, otherwise he will formulate a new policy to impose a tariff of more than 35% on new cars sold back to the United States.
In response to this, many car companies have also begun to catch their breath. After all, in addition to Ford, companies that build plants in Mexico and sell their cars back to the United States include Nissan, General Motors, Fiat Chrysler and Toyota.
In the face of Trump's heavy tax threats, on December 9, 2016, Ford Motor Company CEO Fields finally came forward for an interview with the Associated Press. He said that Ford's plan to relocate the Fox factory from Michigan to Mexico will continue.
This is because "consumers will have certain price and cost-effective expectations for a specific model. What we, as a car manufacturer, do is to meet the needs of consumers in all aspects". He says. Ford Focus’s current selling price is already lower than half of the average price of a car purchased in the United States. If you want to continue to maintain this price, you must work hard to keep costs down. If you put the factory in the United States, this effort will be in vain.
With Trump taking office, auto companies, the auto industry chain, the manufacturing industry, and even the North American Free Trade Agreement have all fallen into huge uncertainty. Either offend consumers or be criticized by the president, which puts Ford and the auto companies that have built factories in Mexico into a dilemma.
Lost jobs
After Trump won the election, he made a phone call with Ford Motor Company Executive Chairman Bill Ford. According to Trump, Bill has confirmed to him that the Lincoln MKC assembly plant in Louisville, Kentucky will not move out of the United States, which is highly praised by Trump.
But in fact, Ford has transferred the production of Lincoln MKZ sedan and Fusion family cars to Mexico. To this end, Ford invested in a 160 million US dollars small car factory, and this factory will bring 2,800 jobs in 2020.
Since the beginning of the year, news of Ford's establishment in Mexico has continued to spread. The media first broke out that Ford would upgrade its factory in Chihuahua, Mexico to prepare for the production of new engines. Later, it was reported that Ford would invest 1.2 billion U.S. dollars to build a new factory in Guanajuato, Mexico. In addition, Ford also plans to relocate the production of the Focus compact car and C-Max hybrid version to Mexico. In total, these factories will create more than 6,600 jobs.
In this regard, Fields explained that the relocation work will not cause any American residents to lose their jobs, and it is conducive to further investment and production in the United States. The number of products produced at the Fox plant in Michigan will be increased from one to two. At the same time, Ford has also invested in a new SuperDuty pickup truck plant in Kentucky, USA. "Workers should now feel that their jobs are more secure," he said.
Ford ranks fifth among Mexican car manufacturers, but it is the largest manufacturer in the United States. In the past five years, Ford has brought 28,000 jobs to the United States, and the number of workers it has hired has exceeded 85,000. This makes Ford feel wronged. It has only 8,800 workers in Mexico, which is almost negligible compared to its contribution in the United States.
Having said that, Trump is obviously more concerned about the production line lost to Mexico. He chattered to Ford: "Why not keep them in America?"
Why not stay in America?
In an interview with Fortune magazine, Fields said that this is because the price of gasoline in the United States is too low. “It makes it difficult for us to make money on small cars,” he said. According to data released by the U.S. Energy Information Administration, the average gasoline price in the United States in November 2016 was $2.16 per gallon, which is the lowest level since 2008.
The agency also predicts that in January 2017, the price of gasoline will fall below US$2, and the average price for the entire 2017 will be US$2.27. During 2011-2015, the price of gasoline per gallon has never been lower than $3.
Low fuel prices have allowed American consumers to regain their love for SUVs and pickups, and have also left small cars out of the cold. According to Ford's sales data in the United States in November 2016, SUVs are in a very good situation, with sales increasing by 20% over 2015, but sales of cars have fallen by 13%.
After all, fuel saving is one of the reasons why consumers buy small cars. Now that the price of gas is cheap, the demand for small cars is getting weaker. Since labor costs in the United States are 80% higher than those in Mexico, if Ford builds a small car production line in the United States according to Trump's statement, it must be sold at a higher price to make money back. But in the field of small cars, "we can't sell cars!" Fields said.
In the United States, Ford also has to deal with the average fuel economy standards (CAFE) for American companies promulgated by the Obama administration. The standard is set before 2025, and the number of miles per gallon of gasoline produced by automakers must be more than 54.5 miles. According to Reuters, the agreement will force automakers to redesign their cars and use lighter and more expensive materials in new cars, which will greatly increase the cost of cars.
Temptation from Mexico
"In 2000, the labor cost of Mexican manufacturing was twice that of China. But since 2004, the wages of Chinese workers have almost doubled, while the wages of Mexican workers have increased by only 67%." A book titled "Mexico: "Global Rising Star" wrote in the book.
Since the then US President Bill Clinton signed the North American Free Trade Agreement in 1993, Mexico has attracted huge investment in manufacturing, and its exports to the United States have also begun to soar.
The average manufacturing wage in Mexico is 80% lower than that in the United States. After nearly 10 years of development, the increase in production efficiency in Mexico has gradually made up for the cost of rising wages.
In addition, the depreciation of the Mexican peso has become a bright spot in attracting investment in the near future. “The depreciation of the peso has brought many benefits to the construction of factories, which is also one of the reasons for the recent large-scale investment by foreign companies”. Yi Xianrong, a researcher at the Financial Development Office of the Institute of Finance, Chinese Academy of Social Sciences, told Times Weekly reporters.
Currently, the Mexican government has signed free trade agreements with 44 countries, including the North American Free Trade Agreement. This allows Mexican cars to be exported duty-free to 47% of the global market, and even the United States can only export duty-free to 9% of the market. Therefore, Mexico is one of the world's largest automobile export bases.
In recent years, Mexico has further improved its competitiveness by promoting infrastructure development, improving the investment environment and reducing energy costs. In addition, the Mexican government has also invested heavily in the education system, cultivating more than 90,000 engineers and technicians each year.
Since 2010, low labor costs, North American Free Trade Agreement encouragement, and Mexico’s own preferential policies have led nine multinational auto companies including General Motors, Nissan, and Fiat Chrysler to invest in Mexico, with a total investment of 24 billion U.S. dollars.
According to data from the American Automobile Research Center, Mexico’s annual automobile production will double in the next ten years.
According to Bloomberg News, Volkswagen's Audi, BMW and Daimler have already or planned to assemble luxury cars, engines or heavy trucks in Mexico. This also means that it is not just low-cost small cars that are produced in Mexico.
An indisputable fact is that more and more American car companies rely on production in Mexico and have formed a stable industrial chain. There are millions of car parts, which can be said to affect the whole body. For this reason, Fields called for the production and supply chains of Mexico, Canada, and the United States to be interconnected. Therefore, if Trump implements heavy taxes, it will affect the entire economy.
Trump threat
"Trump's current behavior is not much different from that of his campaign. This is a more dangerous thing." said Luo Wei, an American scholar at the Public Policy Research Institute of South China University of Technology.
He believes that the extreme remarks Trump made during the campaign have not been eased because of his coming to power. "From all indications, the implementation of tariffs is possible, but it is not as high as 35%, and it is still impossible to judge." He said.
Trump released his "Hundred-Day Action Plan" on YouTube. In this plan, he threatened to release a letter of intent on the first day of taking office and withdraw from the "Trans-Pacific Partnership Agreement" (ie TPP). TPP has a total of 12 member states participating and is committed to abolishing tariffs on more than 10,000 products, including automobiles, and achieving zero tariffs on intra-regional trade.
Although Ford Motor is an opponent of the TPP, it believes that Japan has a currency manipulation problem, which will affect the interests of American automakers. However, Yoshihiro Yano, chairman of the Japan Automobile Manufacturers Association, said that if TPP is threatened, will the North American Free Trade Agreement, which is closely related to Ford's interests, be frustrated.
Rowe believes that Trump’s veto of the North American Free Trade Agreement will definitely be opposed by the business community, but he does not rule out that he will set some trade barriers, such as tariffs. "But it should be American consumers, car companies and the American economy that are the most harmed in this way," Rowe said.
"The cost of labor in the United States is very high, and the cost of production and transportation in Mexico, tax costs, etc., are not as high as the cost of production in the United States." A person in the investment community told the Times reporter. If small cars are produced in the United States, the price may double, which is not good for consumers and may also cause Ford to lose its customers.
The North American Trade Agreement has been signed for more than ten years, and an integrated industrial chain has been formed in North America. If tariffs are used to disrupt the trade of any party, it may have an impact on the US auto industry. And perhaps only a few unemployed blue-collar workers will profit from it.
The person also told reporters that the large number of American car companies moving to Mexico is also related to the rapid increase in labor costs and production costs in China in recent years. Yi Xianrong also said: "Currently investing in China to build factories, the government has interfered too much, and labor costs are soaring."
The latest Boston Consulting Group’s Global Manufacturing Cost Competitiveness Index shows that China’s factory manufacturing cost advantage relative to Mexico has been reduced to less than 5%, and it has been included in the category of “stressed economies”. Mexico and the United States have also been included in the “global” category. Emerging economies". But in terms of production cost advantages, Mexico is still slightly better than the United States.