Ford (NYSE:F) Abandons Plant, Turns Mexican State into “Wasteland”

Ford (NYSE:F) Abandons Plant, Turns Mexican State into “Wasteland”

Ford (NYSE:F) Abandons Plant, Turns Mexican State into “Wasteland”

$F, $GM, $TM

Ford Motor Co.’s (NYSE:F) abrupt move to scrap a planned $1.6-B car plant in central Mexico has spooked a network of suppliers who bet on a growing customer base and dramatized the risk that Donald Trump’s agenda poses to the country’s broader economy.

Many auto parts makers had started to expand in anticipation of Ford’s plant in the state of San Luis Potosi, where industry is “easily 70%” dependent on the auto sector, said the managing director of Preferred Compounding de Mexico, a US-owned maker of rubber compounds operating here.

“It’s going to have a huge impact on the local community,” he said.

The loss to the economy could run into the hundreds of millions of dollars, and maybe even into the billions, over the next five years, as manufacturing, contracting and indirect jobs all fall short of plans. Officials say they are still analyzing the economic impact of the Ford decision.

The hemorrhaging may be just the beginning of Mexico’s pain from Trump’s vows to shake up trade and bring manufacturing jobs back north when he takes office on 20 January.

Ford ascribed its move to a decline in North American demand for small cars like the ones it planned to make in San Luis Potosi.

But Donald Trump had been lambasting Ford for its Mexico operations, months before he was elected president in November.

Donald Trump upped the ante Thursday, threatening to slap a “border tax” on Japanese automaker Toyota Motor Corp (NYSE:TM) for cars it sells to the United States from a new plant in Mexico, fueling fears of an all-out offensive by his government on Mexican industry.

Mexico’s government on Friday “categorically” rejected any attempt to use threats to influence investment decisions in Mexico, saying it wanted to boost the competitiveness of North America. It did not mention Trump or Toyota in its brief statement.

In a matter of days, Ford’s retreat has turned the factory site into a barren plain bereft of its economic promise.

Ford’s decision also puts the brakes on Detroit automakers’ push to build small cars in Mexico to reduce labor costs, while using higher-paid US workers for larger, more expensive vehicles.

Not far from the doomed Ford site, other major players from the global automotive industry are in the midst of multi-million dollar investments, including General Motors Co (NYSE:GM), which Trump has also repeatedly berated for investing in Mexico.

German carmaker BMW is assembling a $1-B plant, and a few miles from the Ford site, Goodyear Tire & Rubber Co. is busy building a $550-M tire facility.

The US President Elect’s broadsides Vs Mexico have shown how exposed companies in the supply chain are to the whims of US automakers under pressure not to offshore production.

Shares in Kansas City Southern, one of the main railroad operators in Mexico, fell following news of the Ford cancellation and have lost 3.3% since Tuesday morning.

Between 40 and 50, mostly foreign-owned, suppliers were ready to come and supply the San Luis Potosi plant, said real estate broker Colliers International.

Around 12 to 14 of the suppliers had already invested money buying land or signed a contract with developers, said Colliers.

“It’s a very, very complicated hole,” Colliers said. “The suppliers, depending on their level of advancement, will lose money. They had already made big investments.”

At the Ford premises, shocked and dejected workers packed up construction materials and prepared to leave.

Some of the ground at the 280-hectare site had already been leveled and the skeletons of 2 large, white buildings stood out against a rusty brown and green backdrop.

Workers said they had heard plans for an industrial park opposite the site for suppliers had also been suspended. The park’s developers were not immediately available to comment.

The auto sector is at the heart of a Mexican industrial boom since the 1994 North American Free Trade Agreement (NAFTA) between it, the United States and Canada, a deal Donald Trump has threatened to renegotiate in favor of the United States or scrap entirely.

“It hurts because we’re partners in trade, culture, sports, we’re partners in everything,” said the San Luis Potosi economy minister. “It hurts because they – he – is pushing a policy that wants to break those ties.”

About half of the FDI (foreign direct investment) to Mexico since the start of the century has come from the United States, where it sends around 80% of its goods exports.

Mexico produced 3.22-M autos in the first 11 months of last year, and exported 2.55-M, local industry group AMIA said. Fully 77% of the exports went to the United States.

Some Mexican states have come to depend on autos almost entirely for growth.

In San Luis Potosi, 15,000-17,000 new direct jobs are expected to be created in Y 2017, all in the auto sector, according to federal labor delegate Edgar Duron. The total does not include the Ford plant, which had been expected to create thousands of additional jobs in coming years.

The San Luis Potosi state government had already paid part of the $47-M it owed under a contract to support the Ford plant. The federal government said Ford would reimburse the sum.

Projects, both private and public, are underway to spend hundreds of millions of pesos to expand the city’s airport and build a new bus line in expectation of a busier future.

But the real fear in Mexico is that, as Donald Trump himself tweeted after the Ford decision, “This is just the beginning.”

Symbol Last Trade Date Change Open High Low Volume
NYSE:F 12.76 6 January 2017 -0.01 12.8 12.84 12.64 40,315,800
HeffX-LTN Analysis for F: Overall Short Intermediate Long
Bullish (0.34) Bullish (0.30) Bullish (0.38) Bullish (0.33)

Have a terrific week.

 

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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