Ford’s plan to shift the production of small cars from Michigan to Mexico dismayed those people worried about the demise of American manufacturing. Donald Trump—who has called the factory Ford already operates south of the border a “disgrace“—took to Fox News last week to make the bogus assertion that the automaker “plans to fire all its employees in the United States.”
Of the 11 new car factories built in North America since 2011, nine are in Mexico. But that does not equate to cutting jobs in the US. In fact, Ford building small cars in Mexico allows the automaker to ramp up production of trucks and SUVs in the states, which is good news locally and more widely.
“They’re losing something that makes a small economic contribution, and gaining something that makes a larger one,” says Bernard Swiecki, from the Center for Automotive Research.
A report from the group shows that BMW, General Motors, Honda, Kia, Mazda, Nissan, Toyota, and VW/Audi also build small cars in Mexico. It’s easy to see why. Ever-stricter US emissions and safety regulations increase manufacturing costs. Building cars where wages are lower is cheaper for automakers, and consumers.
This effect is greatest with small, inexpensive automobiles—where labor comprises a significant chunk of production costs and margins are narrow. Mexico’s free trade agreements with 44 countries make it attractive to automakers because exports aren’t subject to tariffs.
Labor comprises a smaller percentage of the cost of larger, more expensive vehicles like trucks and SUVs, which have far larger profit margins for automakers. In other words, it makes more economic sense to build cheap cars abroad and expensive cars at home—which is what Ford plans to do. This helps American workers, because Ford has promised to build two new vehicles in Dearborn. It won’t say more, but they are believed to be a Ranger pickup and Bronco SUV.
Premium features like leather seats and large touch-screens make such vehicles more expensive to produce and “higher content,” meaning they contain more parts—and therefore require more labor to assemble. That means more jobs for Ford, and its suppliers.
What’s more, the factory jobs in the US often require more highly skilled—and more highly paid—employees. For example, Ford uses aluminum to build the F-150 pickup. The material requires specialized equipment and skills. In those cases where robots do some of the work, factories need technicians to keep them running. Automakers favor “just in time” inventories in which suppliers deliver parts when they’re needed. These suppliers tend to set up shop near the factories they serve. That, too, can lead to more jobs.
“It’s changing manufacturing, factories look nothing like they did a couple of years ago,” says Swiecki.
Looking ahead, hybrid and electric vehicles will be a growing part of the market, as will autonomous vehicles. Automakers may build their cheap cars abroad, but they tend to keep the design, R&D and manufacturing of their most advanced vehicles at home. Again, Ford is not alone here: General Motors proudly developed and built its new halo cars, the Volt and the Bolt electric cars, entirely in Michigan.
The benefits of this are obvious with regard to autonomous vehicles, which Ford plans to have on the road by 2021; Boston Global Consulting predicts the self-driving vehicle market will be worth $42 billion and create 100,000 new jobs by 2025.
So despite the alarmists and liars, US automotive jobs aren’t going anywhere, at least not in the short term. “Detroit is still the head on the body of the automotive industry,” Swiecki says. Motown needn’t worry about Mexico. Now, Silicon Valley may be a different story…