We haven’t checked in on the state of affairs in the auto industry recently, but it may soon be back in the news in a big way. Ford is making noises about the fact that they are losing money on the smaller, high efficiency cars which they must produce to stay on top of the eco-minded consumer market, such as the Ford Focus. So what’s a business to do? One suggestion being floated is that they just give up on turning a profit in Detroit and head down south of the border.
Ford Motor Co.’s decision to end production of two slow-selling models at its Michigan Assembly plant in Wayne, confirmed Thursday, signals the critical role Mexico is likely to play in high-stakes wrangling with the United Auto Workers.
The Dearborn automaker said it was reviewing “several possible options” for production of the slow-selling Focus compact and C-Max hybrids, which would end in Wayne in 2018. But in a bulletin handed out to UAW members at the plant, Local 900 Chairman Bill Johnson said production of the Focus would move “to a location outside of the United States,” most likely Mexico.
The move comes days before Ford, and its crosstown rivals, are set to begin national contract talks with the UAW. A key issue for Ford, as well as General Motors Co., will be closing their all-in labor cost gap, executives say, and one of the leverage points in bargaining and contract ratification is expected to be the real threat of moving some production to Mexico.
Ford, along with GM, already has a significant presence in Mexico, so it’s not like they’d be breaking new ground and starting from scratch. But will they really do it? Just because “a decision has been made” at the corporate level doesn’t mean that they couldn’t turn around and make a different decision later, at least until they’ve actually begun moving and setting up equipment, hiring new Mexican workers and redirecting their supply chain.
So why do this now? It’s no coincidence that they’re getting ready for the next round of negotiations with United Auto Workers, the same crew who nearly drove them out of business before. At Yahoo News, Bill Mccoll thinks this move is intended to show the unions that Ford has other options if they are pushed too far.
“Everybody tries to get every little bit of leverage when these negotiations come up,” [Yahoo Finance Columnist and auto industry specialist Rick Newman] explains. “And Ford can say ‘Look, you’re impacting our profitability, and if we can’t have good labor rates here we might just move them down to Mexico, like we had to with the small cars.’”
But Newman feels the union still has a trump card to play at Ford.
“They will continue to make pickup trucks in the United States,” he notes. “And that’s where the action will be for the UAW.”
No doubt Ford would like to continue making their pickup trucks in the United States, and specifically in Detroit if possible. It’s part of their image and it’s embedded in most of their advertising. And there’s no doubt that Americans continue to be angered when they see manufacturing jobs heading out of the country, so Ford doesn’t need that sort of headache either. But they are still a business which exists to make a profit and if the unions force a situation where that’s no longer possible the end game is pretty obvious.
The union has been establishing its footing for these negotiations since early in the year and plan to present demands to abolish the two-tiered wage structures and boost employee pay. That two tier system came into effect during the crash of 2007 when the unions were forced to allow Ford to begin hiring some new workers at an average of $14 per hour rather than the old union rate of $28. This apparently causes some discord in the ranks as you might expect, but Ford was thinking that the old, high paid union guys would eventually retire and the newer, more affordable workers would flesh out the ranks. (Average wages have already drifted up to $16 for the new hires anyway.) But if the union is demanding an end to the two-tier system you can rest assured that they’re not pushing for all of the old timers to take a pay cut. That’s not how they roll.
So this Mexico move by Ford may indeed be a way of letting the UAW know that they aren’t going to be able to kill the goose that lays the golden eggs this time. If they push things past the red line this year that goose may just fly south for the winter and not come back.