Ford has announced a production change in the United States ahead of the start of negotiations with the United Auto Workers (UAW) union, while Fiat Chrysler Automobiles (FCA), already in UAW talks, plans to invest USD166 million in its Sterling stamping plant.
IHS Automotive perspective | |
Significance | Ford has said that production of the Focus and C-Max at its Michigan assembly plant will end in 2018. Ford has not named the plant that will take over manufacture of the vehicles, but has said it will be outside the US, according to media reports. Meanwhile, FCA has announced a US stamping-plant investment of USD166 million, which will increase body-stamping capacity by about 75,000 pieces per day. |
Implications | Both announcements come during a period of negotiations with the United Auto Workers union in the US: FCA has begun negotiations and Ford is set to begin talks on 23 July. |
Outlook | The production change at Ford’s Michigan assembly plant reflects difficulties in making small cars profitable in the US, an issue eased by the two-tier wage structure of the union contracts. When Ford enters negotiations with the UAW, the union may push for a commitment on a specific future product at the plant. In the case of the FCA investment, the Sterling stamping plant supplies parts for a number of the automaker’s best-selling products, particularly the higher-margin and currently popular Jeep products. |
Ford Motor Company has confirmed that production of the Focus and C-MAX C-segment vehicles is to be moved from the assembly plant in Wayne, Michigan, United States, in 2018, according to several media reports yesterday (9 July). Ford has not confirmed where production will move to, though the speculation is that the vehicles will be built in Mexico. According to an Automotive News report, Ford said in a statement, "We actively are pursuing future vehicle alternatives to produce at Michigan Assembly and will discuss this issue with the UAW leadership as part of the upcoming negotiations." Additionally, a Ford spokesperson said, "We currently are reviewing several possible options for the Focus and C-Max and will share details once our studies are complete." Ford is scheduled to begin its negotiations with the United Auto Workers (UAW) union on 23 July. Several weeks ago, Ford cut production at the plant from three shifts to two.
Meanwhile, Fiat Chrysler Automobiles (FCA) has announced a USD166-million investment at its Sterling stamping plant, also in Michigan. The investment will be in three new press lines "to support increased product demand", a company statement said. The new press lines are already under construction and are expected to begin production in the fourth quarter and reach full volume in the first half of 2016. According to a company statement, the Sterling stamping plant produces body panels and assemblies for several FCA products, including the Jeep Grand Cherokee, Cherokee, Compass, and Patriot; the Ram truck; the Dodge and Chrysler minivans; the Dodge Dart and Durango; and the Chrysler 200. The plant celebrates 50 years of operations this year. The new lines will increase the production capacity of stampings by nearly 75,000 units per day, FCA said.
Outlook and implications
The change in production at Ford’s Michigan assembly plant reflects difficulties in making small cars profitable in the US, an issue eased by the two-tier wage structure of the union contracts. Ford is set to begin negotiations with the UAW on a contract that will run from September 2015 to September 2018, ending about the time Ford has indicated the production change at Michigan assembly plant will end. When Ford enters negotiations with the UAW, the union may push for a commitment on a specific future product at the plant, as often happens in such negotiations. In the case of the FCA investment, the Sterling stamping plant supplies parts for a number of the automaker’s best-selling products, particularly the higher-margin and currently popular Jeep products.
FCA has already begun negotiations with the UAW on the next contract, ahead of Ford. Often in such negotiations, the template set by the first automaker is largely followed by the other US companies in their negotiations. FCA’s plant employs 2,300 workers and the announcement highlights the company’s ongoing investment during negotiations. The investment in the stamping facility will largely support vehicles that are seeing year-on-year sales growth, while Ford’s Michigan assembly plant is building products for which sales are shrinking - products that Ford can relatively easily find another home for in its vast global network. The Focus is produced at nine locations around the world.
Ford is expected to find products to fill the Michigan assembly plant's schedules, which has capacity of 340,000 units per annum on a three-shift basis. The conclusion of Focus and C-Max production at the plant aligns with the timing of the arrival of a new generation of the vehicles, according to IHS Automotive production data. IHS Automotive production analyst Joe Langley says the high-volume plant is unlikely to be used for overflow production. The possibilities for new products at the plant include a truck in Ford’s portfolio. "This announcement highlights the challenges the industry faces in producing C-segment cars in the US and Canada profitably. Given the changing dynamics of the market, I would expect Ford to look at exploring new options in the truck space," said Langley. Sales of the Focus and the C-Max have been declining as the models age and come under pressure from growing demand for crossover utility vehicles (CUVs). Ford expanded the Focus family's production in 2012, as the two-tier wage system meant labour costs were low enough to allow this (see United States: 9 November 2012: Ford's Michigan Assembly plant adds fifth vehicle to production line); coming out of the recession, Ford’s then-CEO Alan Mulally had promised production at Michigan assembly plant partly in exchange for the lower wage UAW contract.
General Motors (GM) has also scaled back production of small cars in the US, specifically at its assembly plant in Orion Township, Michigan, another factory that has seen a second lease on life post-recession thanks to the wage agreement. GM has announced investment at the plant to support a new, unnamed product (see United States: 23 June 2015: GM announces USD245-mil. investment in US assembly plant), and is expected to end production of both the Chevrolet Sonic and the Buick Verano at the plant. Both Ford and GM began increased output of small cars in the US after the recession and with the two-tier UAW wage agreement in place (see United States: 2 August 2011: General Motors Begins Production of Chevrolet Sonic in US Plant).
While media has speculated the Ford move is intended to send a signal to the UAW that the company is willing to shift production as necessary, it also indicates the difficulty of making small cars in the US and Canada profitably. During the recession, when Ford announced its notable investment to produce the Focus at Michigan assembly plant and GM opted to keep the Orion plant open, there was pressure on domestic automakers to increase small-car production in the US. This was because high fuel costs drove the expectation that US consumers would make a broader shift to small cars and domestic automakers were criticised for their over-reliance on trucks and sport utility vehicles (SUVs) for corporate profitability. Conditions have now shifted to some degree and buyers are returning to CUVs and SUVs, with car sales slipping month on month.