Noon: Making America a place one can invest
Ford Motor Company made headlines Sept. 9 when CEO Mark Fields told attendees that it will invest $1.6 billion building a manufacturing plant in Mexico and will move all of its small car production there.
In the throes of an election, the decision — which Ford has been talking about for a year — was an invitation for attention. The next day, during a speech in Flint, Mich., Donald Trump declared that it was: “horrible.” He’s previously promised to punish Ford with a 35 percent tariff on cars made in Mexico that are then sold in America.
No one wants American jobs to go away — and Ford plans to build more profitable vehicles in the plants that currently produce the small cars. Reports do indicate that no jobs at the Wayne, Mich., plant will be lost, as it will likely be converted to building the new mid-size Ranger pick-up truck and, possibly, a new Bronco compact sport-utility.
But there’s more to the story that isn’t generally being addressed.
Earlier this year, Fields told CNBC: “We’re always going to invest where it makes sense for business.”
Obviously, it no longer makes “sense” to invest in small car production in America. Most of the news surrounding the move to Mexico addressed the benefit of low-cost labor. According to the Detroit Free Press: “The industry has known for decades that domestic manufacturers struggle to make a profit on small cars.”
The number of auto jobs in Mexico is up 40 percent from 2008, while they are only up in the U.S. by 15 percent over the same period. Reuters reports: “American automakers pay Mexican workers $8 to 10 an hour, including benefits.” By comparison, Ford’s labor costs average $57 per hour at home.
Even with the huge labor cost differential, domestic companies’ trucks and SUVs are profitable to manufacture in the U.S. and they are the vehicles Americans want to buy — which should raise the question: Why do car companies make small cars when they can’t make them profitably? The answer is the story not being addressed in the current coverage of Ford. And this is where Trump could, possibly, change the outcome.
In a free-market world, companies that want to stay in business stop activities that lose money and focus on those that make money. Yet, the big three automakers, continue to produce small cars that for years have made little, if any, money.
However, in America, automakers are not free to make just the kind of cars they want to make—or that consumers want to buy. Because of Corporate Average Fuel Economy, or CAFE, standards — which have increased dramatically under the Obama administration — they must produce cars to meet government regulations. In short, it means that a car company can only sell the bigger vehicles that Americans want, if it also produces cars that achieve very high fuel efficiency that results in an “average” of the mandated miles per gallon — which is now 54.5 by 2025.
While the CAFE standards may be driving Ford to manufacture cars in Mexico, they are not set in stone. The rules are scheduled for a midterm review in 2017. At that point, automakers will likely push for changes.
A President Trump could, perhaps, by promising to allow car companies to make whatever kind of cars they want to make, entice Ford to keep its money in America — though, admittedly, CAFE is just one of the many policies that make doing business difficult in America.
Revising the Standard is something Trump could do that would make America a place where it, again, makes sense to invest.
The author of Energy Freedom, Marita Noon serves as the executive director for Energy Makes America Great Inc., and the companion educational organization, the Citizens’ Alliance for Responsible Energy. She hosts a weekly radio program: America’s Voice for Energy — which expands on the content of her weekly column.