DETROIT -- On the surface, Ford Motor Co.'s decision to scrap a $1.6 billion Mexican plant and invest $700 million in Michigan is a public relations victory. It makes peace with the incoming Trump administration that repeatedly berated Ford on the campaign trail.
But in reality, the decision has more to do with good business practices -- namely, using plant capacity and coping with a drop in demand for small cars -- than any tariff threat or aggressive tweets from the president-elect.
Ford still plans to do what Donald Trump has criticized: build small cars in Mexico. It's just saving itself money by shoehorning Focus production into its plant in Hermosillo instead of sinking $1.6 billion into a new plant in San Luis Potosi to build cars that have lost ground to light trucks. CEO Mark Fields said last week that the new plan will save Ford roughly half a billion dollars in capital expenditures, although he declined to provide specifics.
Stephanie Brinley, senior analyst with IHS Markit, said, "The decision to build a plant is not made lightly, and the decision to cancel a plant is not made lightly. It's unlikely there's one driving force behind it. I think demand is a pretty big factor in this move; the SUV and crossover trend isn't going anywhere."
Fields said as much last week, telling reporters, "The main reason we're not building the plant is because we've seen a decline in the overall demand for small cars in the U.S.," although he said its U.S. investment news was a "vote of confidence" in Trump and his pro-growth policies.