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Trump tightens the screws on Mexico’s automotive industry

Under pressure from president-elect, Ford cancels major investment plans in San Luis Potosí

New York / Mexico City

The Ford Motor Company is rethinking its strategic expansion and relocation plans. Under intense pressure, Detroit’s second-largest carmaker has announced it is cancelling a $1.6 billion investment in Mexico. Instead, it will spend $700 million on its electric car plant in Michigan. The move came hours after US President-elect Donald Trump threatened General Motors with high import tariffs on Mexican-made vehicles it sells in the United States.

A Ford assembly plant in Kansas City.
A Ford assembly plant in Kansas City. AP

Ford’s announcement is a major blow to one of the Mexican economy’s strategic sectors. Along with manufacturing, the automotive sector survives on demand from its northern neighbor. This dependency on the United States, which absorbs almost 80% of exports and more than half of foreign direct investment (FDI), is one of the motors of the Mexican economy, and is already being shaken to its foundations, even before Trump takes office.

“The decision confirms the risk of a drop in FDI in Mexico from 2017 and makes it likely that the exchange rate will reach new maximums in the short term,” Gabriela Siller, the director of Banco Base, told EL PAÍS. Within minutes of Ford’s announcement, the Mexican peso hit 20.9 to the US dollar. The currency has fluctuated sharply over the course of the year, but hit a high of 21.3 to the dollar on November 11 in the wake of Trump’s election victory.

Ford employs 8,800 people in Mexico at three plants

Ford had announced its investment in Mexico in April. The plans of CEO and president Mark Fields were seen by many analysts as a challenge to the protectionist rhetoric of the Republican candidate and other politicians who have criticized US corporations for relocating to more productive regions with lower labor costs.

The company had intended to build a new plant in San Luis Potosí that would create some 2,800 jobs by 2020 when it became operative. The original idea was to concentrate production of Ford’s Fiesta, C-Max and Focus models, which have a smaller profit margin than the company’s larger models.

Trump described Ford’s plans for Mexico as a “disgrace,” accusing it of “stealing candy from a baby” by taking jobs abroad, and threatening to apply a 35% import tariff on cars imported from Mexico.

Following Trump’s win, Fields insisted he would press ahead with Ford’s Mexico investment, saying at the same time that its US workforce would concentrate on the company’s more profitable models.

Within minutes of Ford’s announcement, the Mexican peso hit 20.9 to the US dollar

Now, without waiting for Trump to carry out his threat, Ford is to expand its Flat Rock plant in Michigan to increase production of electric and self-driving vehicles. It is also to beef up its Mustang and Lincoln Continental assembly lines.

The company says it is to invest a total of $4.5 billion in electric cars up until 2020.

Ford has two assembly plants in Mexico, as well as an engineering center, employing 8,800 people. The country makes up 6% of its global output. Ford says it will continue making the Ford Focus at its Hermosillo plant in order to improve the model’s profitability.

English version by Nick Lyne.

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