should ford motor co. relocate its small vehicle manufacturing operations to mexico?

Joshua Neeper & Michael BrooksBusiness Information & Decision

MakingNovember 1, 2016

A presentation that outlines complex variables in strategic decision making.

Should Ford Motor Co. Relocate Its Small Vehicle Manufacturing Operations

to Mexico?

Alternative Solutions Recommendation &

Implementation Monitor & Control Hindsight Q & A

Case Study Introduction Procedure & Methodology Basis Issue(s) or Associated

Issue(s) Issue(s) of Information

Summary

Overview

Ford Motor Co. announced they will be relocating all small car manufacturing to Mexico.

Immediate Issue or Problem

Research & Sourcing Qualitative & Quantitative

InterpretationNeutralityBusiness Context vs. Political Context

Procedure / Methodology

Trends Motivation Labor & Taxes

Results

Environmental Impacts Trade Relations Labor Taxes Supply Chain Management

Factors for Consideration

Basic Issue(s) or Associated Issues

Issue(s) and Analysis of Information Summary

High Level Economic Dialogue:Mutual Economic Growth

Job CreationGlobal Competitiveness

Source: America, D. o.-U. (n.d.). High Level Economic Dialoque. Retrieved October 25, 2016, from www.trade.gov: http://www.trade.gov/hled/

Issue(s) and Analysis of Information Summary, cont.

US & Mexico Relations

Source: Affairs, B. o. (2016, July 12). U.S. Relations With Mexico. Retrieved from www.state.gov: http://www.state.gov/r/pa/ei/bgn/35749.htm

Since 2013, Mexico has become the 7th fastest growing investor in the United States (35% growth rate over a 5-year interim).

U.S. company stock investments into Mexico have surpassed $100 billion.


Automotive Exports

Source: Government, E. -U. (2016, April 13). Automotive Parts Opportunities for U.S. Exporters in Mexico Automotive Parts Opportunities for U.S. Exporters in Mexico. Retrieved from Export.gov: https://www.export.gov/article?id=Automotive-Parts-Opportunities-for-U-S-Exporters-in-Mexico

Mexico is currently ranked 2nd in the world for automotive exports.

The United States is not ranked in the top 10.

There are 10 auto-manufacturers in Mexico that produce 500 models across 42 brands in 21 different facilities.


Host Country’s Trade Relations

Source: Government, E. -U. (2016, April 13). Automotive Parts Challenges for U.S. Exporters in Mexico. Retrieved from Export.gov: https://www.export.gov/article?id=Automotive-Parts-Challenges-for-U-S-Exporters-in-Mexico

Althaus, D., & Boston, W. (2015, March 17). Why Auto Makers Are Building New Factories in Mexico, not the U.S. Retrieved from The Wall Street Journal: http://www.wsj.com/articles/why-auto-makers-are-building-new-factories-in-mexico-not-the-u-s-1426645802

NAFTA

Mexico has roughly 2,559 auto-parts companies comprised of 70% foreign-owned companies and of that 70%, 26% are U.S. companies, 31% are Japanese companies and 23% are German.

United States has free-trade agreements with 20 countries.

Mexico has free-trade agreements with 45 countries.


NAFTA & Environmental Impacts

Source: Stern, D. I. (2007). The Effect of NAFTA on Energy and Environmental Efficiency in Mexico. The Policy Studies Journal, 35(2), 291-322.

Are there any correlations that can be made between environmental impacts and economic development post NAFTA?

There has been very little research conducted in this area.

We found a study that proved there has been a downward but not dramatic decline in atmospheric pollutants as Mexico’s economic development increased in the 1990’s into the early 2000’s.

Corporate Tax Rate, 30%. Average hourly wage for

autoworker, $2.59.

Mexico

Corporate Tax Rate, 38.9% (4th highest in the world).

Average hourly wage for autoworker, $20.59.

United States


Labor & Taxes

Source: www.tradingeconomics.com & Servicio de Administración Tributaria, SHCP. (n.d.). Mexico Corporate Tax Rate. Retrieved October 10, 2016, from Trading Economics: http://www.tradingeconomics.com/mexico/corporate-tax-rate

Ford Savings


Financial Impact

Source: Sarmiento, T. (2012, March 30). Ford to invest $1.3 billion in northern Mexico plant. Retrieved from Reuters: http://www.reuters.com/article/us-ford-mexico-idUSBRE82T0X220120330

Ford experienced this scenario in 2012. Their tax savings in Mexico equated to roughly $65 million by

manufacturing 450,000 vehicles in Mexico. We compared 1,000 jobs in the U.S. vs. Mexico and

determined Ford would save an estimated $700,000 per week in payroll/labor expenses.

Alternatives

Ford brand name may suffer

Disadvantages

Mexico’s 45 FTA’sLabor costsLower TaxesLogisticsAbility to meet U.S. consumer demand for large vehicles

Advantages

Alternative 1: Relocate all small car manufacturing to Mexico

Free-Trade Agreements

Source: Althaus, D., & Boston, W. (2015, March 15). Why Auto Makers Are Building New Factories in Mexico, Not the U.S. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/why-auto-makers-are-building-new-factories-in-mexico-not-the-u-s-1426645802

Gas Prices

Source: Kreindler, D. (2014). Chart Of The Day: Gas Prices, Trucks And Automobiles. The Truth About Cars. Retrieved from http://www.thetruthaboutcars.com/2014/11/chart-day-gas-prices-trucks-automobiles/

Streamlining will eliminate some American jobsRetention of customer base

DisadvantagesRetention of customer base that left due to move to MexicoVolatility of fuel prices

Advantages

Alternative 2: Keep all small car manufacturing in the U.S.

Negative impact on Ford brand“Hidden costs” 50,700 layoffs Severance packages Employee travel and living expenses Loss of revenue from abandon assets

Disadvantages

Compounded financial benefits of 2.6 billion(export, labor & taxes)

Creation of more American jobs

Advantages

Alternative 3: Relocate all manufacturing to Mexico

Ford’s Top 5 Long Term Objectives1. Becoming among the top five automakers in global sales and growing revenue at a rate of more than double the global GDP growth rate2. Achieving more balanced profitability3. Achieving operating margins of 8-plus percent and a return on invested capital that is greater

than our cost of capital4. Achieving top-quartile total shareholder return, and 5. Being highly regarded by all stakeholders

We conclude that, Alternative 1, Ford moving small car manufacturing to Mexico, would be the best option for Ford meeting their major Long Term Objectives

Recommendation and Implementation

Source: Fields, M. (2016). Letter From the CEO. Dearborn, MI: Ford Motor Co. Retrieved from http://corporate.ford.com/annual-reports/2015/letter-from-president-and-ceo/index.html

Standard business practices

Weekly meetings, quarterly filings, and continuous financial oversight

General Guidelines

Committee Executives Key Metrics Operational Financial Economies of Scale

Oversight

Monitor and Control

What we have learned? Critical thinking skills Trade Agreements must be examined in depth and correlated to

consequences. Read between the lines and think outside the box. Saving face is a precursor to Ford’s long-term strategy. Financially

speaking and examining Ford’s history, they are poised to transition ALL manufacturing to Mexico in the years to come.

Where do you draw the line between politics and business? What are the sequences of free-trade agreements and the

responsibilities of our elected officials to promote a competitive business climate?

Hindsight

Q & A Discussion