Ford Makes Big Investment in Mexico

The company is shifting the production of lower margin vehicles in the region where the production cost is lower.

Ford has recently announced about its expansion plan in Mexico. The company is likely to open a small car-assembly plant in the region. Additionally, it has also declared about its probable investment in South Africa worth $170 million.

Ford’s decision of the investment in Mexico – which worth around $1.6 billion – is likely to create 2,800 additional direct jobs in the region by 2020 while the construction on the proposed plant will commence in summer. The reason behind the setup of the small car plant San Louis Potosi State is not a complex one; it will elevate Ford’s competitiveness and help the company to raise its small cars profit margins. This is something that isn’t easily achievable in the U.S., but it doesn’t mean that through this initiative, the jobs in the U.S. will be at stake.

Although, the move has the fair share of criticism and opposition, the existence of the company in Mexico is not new. It has been operating in the region since 1925. According to it, the country stood at the fourth position of global consumers’ largest manufacturing site. United States, China, and Germany have the positions ahead of the country. In addition to the United States, the vehicles manufactured in the region are delivered to Paraguay, Chile, Brazil, Peru, Canada, South Korea, Columbia, Argentina, Uruguay, Bolivia, and China. Moreover, Mexico can play a pivotal role for the company’s compact car export strategy.

Ford’s investment – worth $1.6 billion – in Mexico is a part of one big plan of the company. The company, in U.S. Ford facilities, has already invested around $10.2 billion. In addition to it, the company has made an investment of $2.7 billion in Spain, $4.8 billion in China, and $2.4 billion in Germany, under the umbrella of its One Ford product plan.

Even then, opposition has welcomed the most recent initiative in Mexico; particularly by the UAW President, Dennis Williams, who said in a statement to Automative News, “For every investment in Mexico, it means jobs that could have and should have been available right here in the USA.” He argued that companies have adopted this strategy of operating in countries with low-wage rate and then subsequently importing the products back in the U.S. He added, “This is a broken system that needs to be fixed.”

This move is likely to be beneficial for the investors as the automobile manufacturer looks forward in boosting its production capacity in the United States in order to create the products on which it can adjust higher margins such as F-Series trucks, SUVs, Bronco, or Ranger. Therefore, by moving vehicles for the production to the area that costs lower is a good cost-benefit analysis of the company.

Apart from the investment in Mexico, the company has also taken itself in South Africa worth $170 million. The step is being taken to build all-new Everest SUV. Through the initiative, around 1,200 new jobs will be opened up in the area while simultaneously enhancing the Everest’s competitiveness.