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OM in the News: Ford Moves Its Small Car Production to Mexico

October 19, 2016
Ford’s factory in Wayne, Mich., will focus on making trucks and S.U.V.s, while production of smaller cars will be moved to a plant in Mexico

Ford’s factory in Wayne, Mich., will focus on making trucks and S.U.V.s, while production of smaller cars will be moved to a plant in Mexico

There is no doubt that Nafta played a role in the migration of many American manufacturing jobs to Mexico in the last 22 years,” writes The New York Times (Oct. 19, 2016). Before the trade agreement, U.S. automakers barely had a presence in Mexico. Now, Mexico’s car-making work force is about 675,000 strong. And in a move that has drawn fire from critics of the Nafta, Ford is giving up on making small cars in the U.S. and plans to move production of its Focus compact cars from its Wayne, Michigan factory to a new plant under construction in Mexico.

Ford’s retooling of its Wayne factory, though, is a reflection of the industry’s desire to keep pace with growing demand for high-profit trucks and S.U.V.s, while continuing to produce less expensive models at lower costs with the cheaper wages paid in Mexico. Detroit simply cannot make money producing small cars in the U.S., where a UAW union worker earns about $29 an hour, more than triple the wages of a Mexican employee.

Detroit’s Big-3 auto companies are loath to close any existing facilities, both to keep peace with the UAW and to protect their billions of dollars of assets in factories in the U.S. that are already up and running. What’s more, plants like the one in Wayne are staffed by experienced workers and able to deliver high-quality products. .

It is unlikely, though, that any Detroit automakers will invest in new manufacturing plants in the U.S.. Mexico is simply too attractive an option for carmakers looking to add to their overall production capacity. “Nine of the last 11 auto factories built in North America have been in Mexico,” said one expert. “The fact is Mexico offers high productivity and low wages, and that is a hard combination to beat.” Ford is hardly alone. G.M. is investing $5 billion to upgrade its plants in Mexico. Toyota, Volkswagen, Kia, Honda and BMW are all adding jobs and new products there.

Classroom discussion questions:

  1. Is Ford cutting U.S. jobs?
  2. What factors impact major location decisions such as this?
2 Comments leave one →
  1. fred van bennekom permalink
    October 19, 2016 5:25 pm

    Also, discuss the role of CAFE standards in how it affects plant location.

  2. October 23, 2016 3:05 pm

    Thanks for the idea, Fred. I think smaller cars are an asset to meeting the CAFÉ std. Also there is less margin in small cars. Companies must build them and sell them cheap to entice buyers so the mileage average goes up, allowing them to make money on the big cars that people actually want. But I don’t think the CAFÉ std per se is the reason plants are moving to Mexico. Your thoughts?

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