Ford Motor Company this week announced that it would import the next generation of the US-market Ford Focus compact car primarily from China after the Michigan Assembly Plant quits production next year. Ford claims the move will save the company a total of $1 billion in investment costs relative to its original plans to erect a new small-car production facility in San Luis Potosi, Mexico to build the US Focus.
However, being a foreign enterprise in China, Ford is required to conduct all of its business in the country through a joint venture. It does this through Changan Ford, meaning that half the profit from each and every Chinese-built Ford Focus sold belongs to Changan Automobile. Mexico has no such joint venture requirement, so it’s natural to wonder how that might affect the cost-effectiveness of Ford’s decision to shift production.
But the impetus behind the shift – and the reason it still ought to prove beneficial – is that by producing the next-generation Ford Focus in China, the automaker will reduce the spread of production sites for the small car. A company spokesperson tells us that the third-generation Focus is currently produced at three global locations: Michigan Assembly Plant, Saarlouis Body & Assembly, and Changan Ford Automobile Assembly Plants 1 and 2. After the surprise cancellation of the San Luis Potosi plant earlier this year, the company’s existing car plant in Hermosillo, Mexico was expected to add the car to its range of products.
Now, it won’t have to, and whether production of the next US-market Ford Focus is added to Changan Ford Assembly 1 or 2, or it’s shifted to another plant in the country, Ford can capitalize on its established Chinese supply chain and spare itself some costly investments. On top of this, labor is generally less costly in China than in the US or Mexico, and US tariffs on Chinese-made goods are low (2.9-percent for non-agricultural products). Shipping costs will rise, but ultimately, that ought to be offset by the company’s other savings.
Ford will have more to say about precisely where the fourth-generation Ford Focus is planned to be built closer to the start of production in 2019.