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Globalization, including offshoring, is here to stay in the automotive industry

Article-Globalization, including offshoring, is here to stay in the automotive industry

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Ford is moving assembly of its next-gen Focus from Wayne, MI, to China and, for the first time, shipping the vehicles back to the United States. The automaker stresses that no U.S. hourly employees will lose their jobs because of the new manufacturing plan.

When Ford Motor Co. announced on June 20 that it was going to move the assembly of its next-generation Focus from a plant in Wayne, MI, to China and bypass Mexico, a lot of people were stunned. Just two years ago, Ford announced an investment of $2.5 billion in plants in Mexico, where the company has had extensive manufacturing capabilities for more than two decades. Since many of the Ford Focus cars will be for the U.S. market, it seemed like a no-brainer to build them south of the border. However, Ford has shifted gears and is moving Focus assembly to China and, for the first time, shipping the vehicles back to the United States.

The Wayne, MI, facility will begin building the new small pickup, the Ranger, in 2018, after the Focus moves to China. “No U.S. hourly employees will be out of a job tied to the new manufacturing plan for Focus,” said a release from Ford. “Production of the current North American Focus at the Michigan assembly plant continues through mid-2018. Following that, the plant will be converted to produce the Ranger in 2018 and the Bronco SUV in 2020.”

The new North American production plan saves $1 billion in investment costs versus the original plan—$500 million on top of the $500 million in savings announced earlier this year by cancelling plans for an all new manufacturing facility in San Luis Potosi, Mexico, and moving Focus production to Ford’s Hermosillo, Mexico, plant, Ford said.

“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 electrical vehicles,” commented Joe Henrichs, Ford Executive Vice President, Global Operations.

But before the reshoring crowd gets up in arms, Ford announced in the same release that it is investing $900 million in upgrades at its Kentucky truck plant, where it builds the all-new Ford Expedition and Lincoln Navigator, which begin arriving in dealerships this fall. Both full-size SUVs will be exported to more than 55 markets, including the Navigator which is going to China. Ford is a top auto exporter in the United States, said the release.

The $900 million investment is in addition to the $1.3 billion investment at that plant in late 2015 to build the all-new Ford Super Duty. The latest investment secures 1,000 jobs for hourly workers at the Louisville plant, on top of the 2,000 jobs created in mid-2015.

While President Trump has been critical of the automotive industry for its offshoring to China and near-shoring to Mexico, global manufacturing is here to stay for a variety of reasons, and the news isn’t all bad for U.S. workers. While U.S. OEMs may be putting manufacturing plants in foreign countries, foreign auto manufacturers are investing in manufacturing capacity in the United States to serve this market.

Diamler AG, maker of the Mercedes-Benz, announced on May 31 that, in response to continued pressure on the auto industry from President Trump, it will increase its parts buying from U.S.-based suppliers. The United States has a $15.4 billion auto trade deficit with Germany.

Many European and Japanese brands of vehicles have manufacturing plants in the southeastern United States, and the fact that Diamler promises to purchase more components from U.S. suppliers is good news.

Given the global nature of manufacturing today, as well as the fact that it’s not exactly a new phenomenon, I don’t see any great rush to reshore manufacturing, especially in the automotive industry. Companies are learning to weigh their options, and perhaps even calculating the true cost of doing business offshore, as the Reshoring Initiative has been encouraging them to do for a number of years now.

It’s a balancing act: Some work will stay in the United States, while some will go to China and Mexico. I do believe that the mad rush to chase low-labor costs in both China and Mexico is over, as the realization sinks in that the playing field is levelling off. And when all other factors are considered, the right choice of where to manufacture must be made based on the information at hand.

Opportunities to supply the OEMs will always abound, however, and it’s up to the suppliers to be ready to grab the brass ring when it comes around.

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