Ford confirmed this week that production of the Focus and C-Max will be moved from this factory in Michigan to a new plant in Mexico after 2018. That news brought another round of condemnation from the Republican presidential nominee. Image source: Ford Motor Company.
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Donald Trump's war of words with Ford Motor Company (NYSE: F) continued this week, after Ford confirmed on Wednesday what had been widely known for months: It's moving production of two of its small cars from Michigan to Mexico after 2018.
During an appearance on Fox & Friends on Thursday, Trump let fly: "I think maybe they announced it because they think I'm going to win and I'm going to stop them. You know, I have a way of stopping them very, very easily. I can't believe the brazenness."
Trump has railed at Ford for months, citing the Blue Oval as an example of a U.S. company that is shipping jobs to Mexico. But here's what Trump and his supporters are missing: Ford isn't doing this to cut jobs in the U.S., andabsolutely no U.S. jobs will be cut as a result of this move. In fact, there might even be some new ones created.
It isn't really news: Ford first told us about this over a year ago
First and foremost, we should dispense with the idea that Ford rushed to make the announcement this past week. Investors and analysts have known about it for over a year.
Here's the background: Ford currently manufactures its compact Focus and C-Max hybrid models at a factory in Wayne, Michigan, just outside of Detroit. In July 2015, Ford announced that production of the next-generation versions of those models will be moved to another country, and that production of the current versions in Michigan will end in 2018.
About a month and a half after that announcement, the Detroit News reported that Ford and the United Auto Workers (UAW) were discussing two new products to be built at the factory in Wayne after the Focus and C-Max depart. Those products are believed to be an all-new version of the midsize Ranger pickup and a new brawny SUV to be called the Bronco, possibly based on the Everest SUV that Ford sells in Asia. Significantly, Ford didn't deny that report.
Ford's Ranger-based Everest SUV is a popular off-roader in Australia and Asia. It could be the basis for the upcoming Michigan-built Ford Bronco. Image source: Ford Motor Company.
Then, in April of this year, Ford announced that it would spend $1.6 billion to construct a new factory to build small cars in Mexico. Ford made it clear in that announcement that the new Mexican factory wouldn't affect jobs in the United States.
You didn't need to be a professional analyst to add that up: The next-generation Focus and C-Max will be built in that new Mexican factory, making room to build the new Ranger and Bronco in Michigan. As CEO Mark Fields reiterated in response to Trump on Thursday, no workers in Michigan will lose their jobs over this move. Not one.
Why Ford is moving small-car production to Mexico
Simply put, the move is about making the small cars more profitable for Ford while making room in a U.S. factory to build a pair of highly profitable new products. For the small cars, that's partly about Mexico's lower labor costs, and partly about the fact that Mexico has free-trade agreements with over 40 countries. That will make it easier for Ford to export the cars made at its new Mexican factory to other markets if demand for them in North America should fall. That will keep the Mexican factory running at a higher rate, which in turn will increase its profitability.
It's also about making sure that the Michigan factory is strongly profitable. Ford's latest labor contract with the UAW gave workers a raise. That's a good thing, but it increased Ford's labor costs in the U.S. The way to keep that factory profitable is to give it more profitable products to build -- like, for instance, a new pickup and a new SUV.
So it's true that Ford is making these moves to boost its profits. But contrary to what Donald Trump has been suggesting, no U.S. jobs are moving to Mexico. In fact, if the new Ranger and Bronco are successful, Ford might even add jobs at the factory in Michigan.
Long story short: Donald Trump is off base on this one.
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John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.