On Tuesday Ford Motor Company announced their cancellation of plans to build a $1.6 billion factory in San Luis Potosi, Mexico and instead will be investing $700 million at a factory in Michigan. Although Ford Chief Executive Mark Fields claims the the decision to cancel the new factory and opt to invest in the United States has nothing to do with President-elect Donald Trump's twitter criticism of specifically Ford moving jobs out of America, cancellation of the factory does seem to show Trump had an effect. Fields claims the cancellation comes amidst the decline in demand for small cars in North America and even if Trump had not been elected, the cancellation would have still happened. "We've seen the market demand drop for small cars. Every year, we look at industry, segmentation changes and then we compare that to our capacity needs. And it was very clear as we were going through the year that we didn't need the capacity," quoted Fields. "There was no quid pro quo because there was no negotiation" with Trump over the plans to cancel the factory in Mexico.
The San Luis Potosi factory was to produce the Ford Focus in order to improve profitability. Fields also stated the Focus production is staying in Mexico and those jobs are not returning to the United States as the production of the next generation compact Ford Focus will be allocated to an existing factory in Hermosillo, Mexico. The announcement of the cancellation of the plant has sounded alarms all over Mexico. Mexico lost the potential of 3600 jobs and saw the peso, Mexico's currency drop nearly 1 per cent. Mexicans have already been nervous about Trump's tough election rhetoric toward their country which included disparaging remarks about illegal immigrants, building a border wall and renegotiating the North American Free Trade Agreement. This shows how much actual leverage Donald Trump has within specific companies, which before this point is actually far greater than what Mexican elites thought. They had claimed that at the end of the day, economic interests would prevail over political messaging and that is clearly not the case.
"Mexico loses thousands of jobs with no word on a clear strategy for confronting the next US government which has presented itself as protectionist and especially, anti-Mexican," quoted from a Mexican editorial, El Universal. "Trump will try to recover as many US companies that have set up in Mexico as possible. He will try to make them return at whatever costs, through threats or using public resources." Even though Mr. Trump has not been inaugurated yet, it shows what kind of influence he may hold with his unpredictable and at some incidents, childish yet effective tweeter posts. Donald Trump had threatened to impose a 35 per cent tariff on a list companies for products made in Mexico and then exporting it to the United States. On Tuesday he had added General Motors to the list in a tweet which threatened a "big border tax" if the Chevy Cruze was not made in the United States. After the tweet, shares of General Motors had fallen 1 per cent in pre-market trading. GM has not made any announcement or statements in regards to Donald Trumps tweet.
Among Detroit's Big Three automakers, the trend was heading towards producing smaller cars for the North American market in Mexico in an effort to lower costs with cheaper labor while producing more profitable trucks, sports utility vehicles and luxury cars in the United States with higher-paid US workers. About 80 per cent of Ford's sales in the United States come from vehicles that are produced in the United States and less than 15 per cent come from Mexico. The automobile production industry are not the only ones on Trump's radar. Trump had negotiated a deal in December with Carrier to keep 800 of 1300 jobs at an Indiana furnace factory from being moved to Mexico in return for tax incentives. Other companies had not been as lucky as they suffered billions in loses in market value from the Donald's tweets. Boeing lost about $1 billion in market value when Trump tweeted about the cost of the 747 Air Force One being built for future presidents being out of control. Boeing CEO Dennis Muilenburg had to meet Donald Trump at his Mar-a-Lago resort in Florida to ensure the president that the cost will be brought down before their shares recovered.
Lockheed Martin suffered billions more when Donald Trump tweeted about the F-35 costs being out of control and had threatened by asking Boeing to give him a quote on the F-18 Super Hornet. Once again, Lockheed's CEO Marillyn Hewson had to meet trump at his resort to discuss the costs before shares recovered. And while Mexico has taken the brunt of of Donald Trump's rhetoric, Canada has braced themselves should the Donald focus his attention northward. On Tuesday, Prime Minister Justin Trudeau and David MacNaughton, Canada's ambassador to the US, released a video message to the new US Congress, stressing the importance of the Canada-US economic relationship. "We're the largest international customer for goods and services mad in the USA," Prime Minister Trudeau says in the video. "And not only do we buy from you, but we're also part of the world's most advanced economy: American and Canadian companies work closely together to develop and sell our products to the world." Decisions like Ford's are indicative of the future ahead. And while one factory does not change the entire economy of North America or the status quo, it does show there will be dramatic changes ahead.