Ford Evens the Odds: From Wayne to Mexico

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 Ford Evens the Odds: From Wayne to Mexico

            The changes in consumer preferences of vehicles have made Ford Motors to make a corresponding shift in its focus towards maintaining profitability.  The increase in the affordability of gas, $2 per liter, US automobile consumption has changed from the smaller personal cars to the relatively expensive sport utility vehicles (SUVs) and trucks. The resultant weak sales of the private vehicles coupled with its already low-profit margins negate its economic sense.  Nonetheless, Ford has to retain value to the personal car customer segment. The company is aware that consumer preferences are seasonal. The demand may shift creating a vacuum that Ford’s competitors will gratefully fill. Towards achieving this balancing feat, Ford has moved the production of compact cars from its Michigan plant to a new one in Mexico. Ford’s decision to shift manufacture of small compact cars to Mexico is a customer driven strategy towards serving the lower end customer segment without compromising the company’s profitability.

             The signing of the North America Free Trade Agreement (NAFTA) has provided Ford among other auto-producers a cheaper alternative to manufacturing their vehicles. Relative to US laborers, Mexican employees work for free times lower wages without compromising on productivity (Vlasic). The move has faced much opposition from the Republicans with Donald Trump being the most vocal critic. The presidential candidate in line with his campaign mantra condemns Ford for exporting jobs to the Mexico at the expense of the American economy. In their defense, the Ford Motors Company has illustrated that their move is justified in light of dwindling sales.

            Ford’s business strategy is influenced by several external factors ranging from the strength of the dollar, reception of its products at the marketplace, the profitability of its vehicles, and the state of the economy. The expansion to Mexico is not a phenomenon unique to Ford Motors validating its assertion that it is a rational cost-reduction strategy adopted by the entire industry in response to changing realities (Vlasic). Their largest competitors have General Motors has invested about $ 5 billion in revamping its Mexico plants with the likes of Honda and Chrysler emulating its example. In the September, the Ford vehicle sales have flattened with the government six-year recovery projects proving an ineffective cushion. Ford claims that despite the severe external conditions it has added 25,000 jobs together with 55,000 hourly workers to date (Vlasic). The new recruitments occurred at the nadir of the economic depression. While its primary competitors, Chrysler and General Motors, were beneficiaries of government bailouts, Ford weathered the recession by its means. The culmination of the above factors illustrates that the Republicans unduly victimize Ford for pursuing an economically rational move.

             Their Chief Executive Officer, Mark Fields, reiterates that there are no workers in the Wayne, Michigan, plant that have been downsized. Rather, their skills are being leveraged to build more specialized vehicles such as trucks and SUVs. Given the high markup of these vehicles, they neutralize the high costs incurred in salaries. Ford makes upwards of $ 10,000 per SUV as opposed to $ 2000 generated in single small personal cars sales. Furthermore, the collective experience and skill possessed by the workers at the Wayne plant are too valuable for Ford to lose. While initiating cost reduction strategies in Mexico, Automakers strive to optimize productivity in their US plants that remain open. To Ford, maintaining firms in the US when there is a cheaper alternative is a social consideration as well as impression management strategy.

Work Cited

Vlasic, Bill. “Ford Plants Go to Mexico, but U.S. Jobs Stay Around.” New York Times, Oct. 18, 2016.  <http://www.nytimes.com/2016/10/19/business/yes-ford-is-building-plants-in-mexico-no-its-not-cutting-us-jobs.html?rref&_r=1> Accessed 1 Oct. 2016.