After refusing to back down for months, Ford CEO Mark Fields unexpectedly decides to cancel his plans for opening a new $1.6 billion plant in Mexico on the same day as the president-elect Donald Trump threatens General Motors with heavy tariffs on its cars produced in Mexico. A coincidence?
Yesterday, Ford Motors (NYSE: Ford Motor Company [F]) announced its decision to scrap the plans for production plant in Mexico's San Luis Potosi, where it planned to produce smaller models like Ford Focus. Instead, the automaker promised to invest $700 million in its existing factory in Michigan's Flat Rock as well as create at least 700 new jobs at the location that will produce electric and self-driving vehicles.
Ford's announcement that fulfills the demands of the president-elect Trump came as a surprise since the company's CEO Mark Fields repeatedly ignored Trump's criticism of Ford's production abroad. Back in November, after Trump's victory over Clinton had been officially confirmed, Fields told CNN that he found it "unfortunate when politics get in the way of the facts", when asked about his thoughts on Trump's plans to impose a 35% tariff on cars imported from Mexico.
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!— Donald J. Trump (@realDonaldTrump) January 3, 2017
GM replied to Trump's criticism by claiming that only 2.4% of all Chevrolet Cruze cars sold in the United States last year were produced in Mexico while the overwhelming majority of vehicles that are supplied to the U.S. car dealers are built in GM's plant in Ohio's Lordstown. The company added that Chevrolet Cruze hatchbacks that it builds in Mexico are sold in global markets outside the United States. Investor Business Daily mentioned that General Motors has the biggest part of its production located in Mexico among all other domestic car manufacturers. For example, 63% of all GM cars produced in North America were made in the U.S. whereas as many as 80% of Ford vehicles were produced domestically, according to IHS Automotive statistics.
Interestingly, Ford CEO Fields emphasized that his decision to cancel the plans for the Mexico plant was in no way connected with Trump's Twitter threat to GM or his policies on trading with Mexico. Fields told the journalists that yesterday's announcement was a result of declining demand for compact cars that would be produced in Mexico rather than of any kind of political influence. He added that there was no negotiation between Ford and the president-elect regarding this decision and he would cancel the plans of producing additional vehicles in Mexico even if Donald Trump had not been elected, reported Reuters.
In turn, Fields called his decision a "vote of confidence" for Trump's political agenda and said that Ford only planned to "fully utilize capacity at existing facilities" located in the U.S.
"Our view is that we see a more positive U.S. manufacturing business environment under President-elect Trump and the pro-growth policies and proposals that he's talking about, so this is a vote of confidence for President-elect Trump and some of the policies that they may be pursuing," said Fields, as reported by Fortune.
Even though Fields ruled out any influence of the president-elect on his decision, a few hours later, Trump tweeted a link to the Fox News article saying that Ford decided to "scrap Mexico plant" and invest in Michigan instead thanks to "Trump policies". Therefore, it seems like Fields and Trump have quite different views on the situation.
At the beginning of his election campaign, Donald Trump "predicted" that the automaker would change its mind about investments in Mexico by claiming that Ford simply had "no choice".
"They’ll say, ‘Mr. President we’ve decided to move the plant back to the United States — we’re not going to build it in Mexico.’ That’s it. They have no choice," Trump said, as reported by Reuters.
In the last months, Trump slammed Ford for stealing jobs from the U.S. and expanding its factories in Mexico, what the company suggested to be wrong by claiming that Ford produces more cars and employs more people in the U.S. factories than any other American car producer. During his November's speech at Los Angeles Auto Show, Fields sounded quite confident about his plans to continue negotiations with the president-elect over the proposed 35% import tax that he thought would have a "huge impact on the U.S. economy".
Mexican government was understandably disappointed by Ford's decision and warned that the plan to keep jobs in the U.S. by all means might not be that realistic:
"Jobs created in Mexico have contributed to maintaining manufacturing jobs in the United States, which would otherwise have disappeared to Asian competition," the Mexican government wrote in a statement Tuesday, according to CNN Money.
Trump's yesterday tweet is yet another attack on U.S. companies, though it was not nearly as devastating as his previous remarks about Boeing (LSE: BAE Systems [BA]) and Lockheed Martin (NYSE: Lockheed Martin Corporation [LMT]) that had billions of dollars wiped off their market shares as a result. GM stock shrugged off the initial reaction to Trump's threat and finished the session 1.5% higher.