On Tuesday, Ford announced a massive new investment of $4.5 billion over five years in electric and autonomous vehicles.
Ford CEO Mark Fields delivered the news at the company’s Flat Rock Assembly Plant, which will get a $700-million boost and add 700 workers.
Fields also said that Ford had decided not to build a new $1.6-billion plant in Mexico to manufacture small cars, whose narrow profits margins have made it difficult to continue assembling them in the US, where labour costs are substantially higher.
Speculation immediately developed that Ford had bowed to pressure from President-elect Donald Trump, who had attacked Ford during the election campaign for its Mexico plans. Trump later claimed, erroneously, that he had prevented a Ford factory in Kentucky from being moved to Mexico.
Fields said in interviews after the announcement that the company hadn’t done a deal with Trump, although he did maintain that Ford’s decision to invest in the Flat Rock plant was a vote of confidence in the pro-business policies that a Trump administration will presumably endorse.
He later explained to Business Insider the thinking behind the decision to switch gears on the new plant in Mexico, a $1.6-billion project.
“In the case of the plant, we go through an ongoing process every year, looking at segment changes, and then we do our volume and capacity planning,” he said.
“By late fall, it was very clear we didn’t need the capacity, and we made the decision.”
A balanced approach to electric cars
Although Ford operates globally and sells small cars worldwide, adding additional manufacturing capacity for these vehicles is now a tricky business as consumers shift their preferences toward trucks and SUVs. Some industry leaders, most prominently Fiat Chrysler Automobiles CEO Sergio Marchionne, believe a structural change is underway and that small-car demand will never return. For this reason, FCA is ending passenger car production in the US.
Fields doesn’t want Ford to go there.
“It’s important for us to stay in the small-car business,” he said, but he added that “here in the US, we’re starting to see a bit of secular shift” while stressing that consumers have more appealing options with SUVs and crossover in 2017 than they did a decade ago, when the vehicles were built on truck platforms and served up poor fuel-economy.
Fields also addressed the reality of the US markets, even as he was fresh off announcing a spate of new hybrid, electric, and self-driving vehicles.
Demand for EVs is currently weak, but automakers are being compelled to build them to achieve government-mandated fuel economy standards.
Ford has taken an aggressive strategy with respect to both EVs and self-driving cars: Fields announced that a compact all-electric SUV would go into production by 2020, and in 2016 the company said that it would launch a full self-driving vehicle by 2022.
Ford also intends to get its advanced vehicles on the road.
“We don’t run our business for press releases,” Fields said. “We’re thinking ahead 10-15 years from now, rewinding to today, and [figuring out how to] deliver on those promises.”
But Ford also wants to build and sell the vehicles that customers want to buy — and Fields wants to revisit the regulatory environment as the new administration enters office.
“If you’re a business that’s forced to develop products that aren’t selling, that doesn’t end well,” he said, with respect to more fuel-efficient cars that consumers have moved away from.
Getting a break from the government
The government established higher Corporate Average Fuel Economy (CAFE) standards in 2011, expecting automakers to raise the numbers to an average of 54.5 mpg by 2025. But there would also be a midterm review in 2018, to determine if the goals were realistic.
“We were going to look at assumptions around cost of fuel,” Fields said. “We should have data-driven approach to whether the pacing made sense.”
Gas prices in the US have been relatively low for the past two years as the price of oil has declined. That’s propelled a boom in pickup and SUV sales — vehicles that Ford sells a lot of, with high profit margins.
Last year, the EPA said that it would lock in the regulatory standards for the 2022-25 vehicle models years.
“The government decided to short-circuit the review,” Fields said. “We want to make sure with new administration that we have that discussion. Legislation can’t get ahead of the limitations in the market.”
He added, “At the end of the day, we’re a for-profit business.”