Ford Motor will move all U.S. production of its small cars to Mexico, chief executive Mark Fields confirmed Wednesday, despite criticism from Republican presidential nominee Donald Trump of the company's plans for expansion south of the border.
"Within the next two to three years, the majority of our small vehicles will be produced in low-cost areas," Fields told investors at an event on Wednesday. "In North America, we will have migrated all of our small car production to Mexico and out of the U.S."
The company first announced the plan last year. The Mexican expansion will not affect U.S. workers, a Ford spokeswoman said. The company will shift production of its Focus models across the border, and the Michigan plant where those cars are made now will build other vehicles.
When the company announced plans for a new, $1.6 billion plant in the Mexican state of San Luis Potosí in April, Trump called the decision "an absolute disgrace" in a statement quoted by Bloomberg News.
"These ridiculous, job-crushing transactions will not happen when I am president," Trump said.
Ford is not the only automaker that has announced plans to increase production in Mexico. Of the 11 new assembly plants automakers have planned in North America since the financial crisis, nine have been built or will be built in Mexico, according to the Center for Automotive Research, an independent research group in Ann Arbor, Mich.
At the same time, automakers are still investing heavily in maintaining and retooling their existing U.S. plants. The automotive industry has invested $77 billion in the United States since 2010, the center reported. Investment in Mexico totaled just under $26 billion during the same period.
"We’re not taking a U.S. plant, closing it down and replacing it with one in Mexico," said Bernard Swiecki, a senior analyst at the center. "It's really been a case of us missing out on the growth in the industry."
Mexico is attractive for automakers for several reasons, Swiecki said. The companies can pay Mexican workers less, which is particularly important for smaller and less expensive cars.
Automakers also locate new plants in Mexico because it has far more trade agreements than the United States, meaning that automakers can avoid paying burdensome tariffs on cars manufactured in Mexico. For example, automakers must pay a 10 percent tariff on cars exported to Europe from the United States. They must pay a 35 percent tariff on cars sold in Brazil.
In a report published last month, Swiecki and a colleague estimated that the labor to assemble a Ford Fusion would cost about $600 less in Mexico than in Michigan. If the car were sold in Europe, the tariffs would be about $2,500 less.
Swiecki suggested those costs might be one reason that Volkswagen announced in 2013 that it would build a new Mexican plant for assembling luxury Audi vehicles.
Trump has been vocal in his opposition to a number of free-trade agreements on the stump. Jeff Schott, an expert on trade at the Peterson Institute for International Economics in Washington, countered that these agreements can reduce costs for U.S. exporters, as well.
"He’s trying to impose costs on U.S. manufacturing that will make them less competitive," Schott said.