Earlier today Ford announced that it expects operating income to decline in 2017 as the automaker increases investment in electric and autonomous vehicles, before rising again in 2018. This news came after Ford had just lowered it's expectations for FY 2016 EBIT to $10.2BN from $10.8BN due to increasing costs associated with an expanded recall related to faulty door latches.
So how do you offset rising costs and a top-line that executives recently admitted have "reached a plateau?" Well you shift more production to low-cost countries, like Mexico of course. According to Reuters, Ford CEO, Mark Fields, confirmed at the company's investor day today that all of Ford's small-car production would be shifted to Mexico over the next 2-3 years.
"We will have migrated all of our small-car production to Mexico and out of the United States," over the next two to three years, Fields told Wall Street analysts at an investor conference hosted by the automaker.
As we wrote about a month ago, Ford is scheduled to open a brand new $1.6 billion plant in Mexico in 2018. The plant will employee roughly 2,800 workers who will be paid $1.15 - $2.30 per hour which is a mere 97% less that the $70 per hour all-in cost of an United Auto Worker employee performing the same labor in Detroit. The move is expected to yield savings of $1,300 per vehicle relative to production costs in Detroit. Per the Wall Street Journal:
Ford is scheduled to open a new $1.6 billion small-car assembly factory in San Luis Potosí in 2018 and hire 2,800 workers. People familiar with the matter say Ford will produce its Focus there, which is currently built in Michigan.
A contract reviewed by The Wall Street Journal puts factory wages at the facility at about $1.15 to $2.30 per hour, on par with what other auto-assembly plants currently pay in the region. The move to Mexico will yield cost savings of about $1,300 per vehicle, or about $300 million a year, according to manufacturing experts familiar with the Detroit car maker’s finances.
As we've said before, supporters of minimum wage hikes could learn from the efforts of the United Auto Workers Union which did a masterful job negotiating off-market wage and benefits packages which have ultimately only served to provide their members with permanent job losses.