Donald Trump and the UAW’s Dennis Williams apparently are shocked that Ford Motor Co. is building a $1.6 billion plant in Mexico.
Where have they been? More precisely, what don’t they understand about the financial and market realities driving the Blue Oval’s move, a step the automaker and its Detroit rivals signaled clearly during last fall’s contract talks? Answer: they understand everything.
The United Auto Workers president and the mogul masquerading as a Republican presidential candidate know full well the rationale behind Ford’s move — Williams because his negotiators exchanged new investment in Michigan for investment in Mexico long before last fall’s contract ratification, and Trump because more than a few of his branded products are built outside the United States, lest they become as pricey as one of his condos.
Ford knows the politics, too. Antipathy to free trade is animating the candidacies of Trump and Vermont Sen. Bernie Sanders, and anything that smacks of “sending jobs to Mexico” is a deadly headline easily distorted. This case is no different, but it’s not enough to reverse a Ford choice that is neither Mexico nor Michigan. It’s both.
The only surprises here are, first, how long it took Ford’s official communications to catch up to the narrative confirming that it would no longer build compact cars, including slow-selling hybrid models, at Michigan Assembly in Wayne. And, second, that anyone doubted Ford would actually follow through on an investment designed to maximize profits by building lower-margin cars in lower-cost Mexico.
Looked at its stock price lately? Despite seven consecutive years of expanding sales and record North American profits, shares in Ford remain mired in a narrow band that signals investors are not yet persuaded an icon of Old Detroit (much less its rivals across town) can navigate successfully an inevitable slowdown or the potentially existential disruption posed by Silicon Valley’s automotive-industrial complex.
Get used to it: disruption is becoming the new normal in an industry historically slow to recognize it. Opportunities for new investments and new technology won’t change market perception of Old Detroit — vital to financing its future — if leaders base decisions more on popular sentiments against trade and less on the numbers.
Since the bailout and bankruptcies of 2009, the numbers generally have favored the UAW, Michigan and U.S. plants. Detroit’s automakers, lured by aggressive state-level incentives, especially in Michigan, reinvested heavily in existing American plants even as they joined the global industry’s deeper push into Mexico.
Detroit’s chunk of the global auto industry still faces tough choices. It can wilt under the ravings of Trump — “these ridiculous, job-crushing transactions will not happen when I am president” — and the anti-trade tirades of the UAW, pretty much confirming investor suspicion. Or it can hedge its bets by producing pricier, high-margin vehicles in unionized U.S. plants and lower-margin vehicles outside the country.
Labor accounts for roughly 8 percent of the cost of finished vehicles, a historic low. But it can be a critical variable in profitability because the cost of globally sourced parts and other components can transcend national boundaries.
The UAW understands this, clearly, even if Trump does not (or chooses not to). Its leadership knows Ford has invested $10.2 billion in its U.S. operations and created 25,000 jobs over the past five years; knows Ford employs more UAW members than General Motors Co.; knows the loss of compact production from Michigan Assembly will be replaced with a Ranger pickup and Bronco SUV.
And it knows that more profitable sales of Ford’s Mexican-made small cars would redound to the benefit of UAW members. The more those next-generation compacts contribute to the North American bottom line, the more those compacts help to fatten union profit-sharing checks.
The Detroit industry’s labor-management relations resemble presidential politics in that each are equal parts economics, politics and theater — emphasis here on the theater part. Ask yourself: if the UAW didn’t get compensated for Ford’s plans to ship compact production south of the border, wouldn’t Williams and his crew have made a whole lot more noise in the run-up to ratification?
Of course they would have, especially amid hot U.S. sales and record profits. Among the dirty little secrets of national bargaining is that deal-making almost always favors short-term gains for dues-paying (and voting) members over abstract gains for would-be members who neither vote nor pay dues.
In exchange for overdue base-wage increases and dilution of the second-tier wage rates the rank-and-file learned to loathe, among other things, Ford effectively won union acquiescence to move small car production to Mexico.
A surprise it’s not.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.