Why Ford Won’t Build the Focus Active Here
Economics of auto production have changed for the better since Lehman Brothers
For those of us who remember the catastrophic threat to the U.S. auto industry that began with the Lehman Brothers collapse 10 years ago, the news that "Ford will not build the Focus Active in the U.S." is not news.
You'll remember President Trump tweeted last week that Ford had reversed its decision to import the Focus Active from China, and would produce the compact crossover in the U.S., thanks to his tariffs, instead.
Not so, Ford PR promptly replied.
"It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment," Ford said in a tweet.
The competitive segment consists of the Volkswagen Golf Alltrack—a version of the Golf wagon whose sub-model name I had to look up to remember—and the much more popular Subaru Crosstrek, of which 99,039 have been sold this year, through August. The issue for Ford isn't so much its expected annual volume, but that other Focus models have been cancelled for the U.S.
You might remember that Ford announced last year it was moving Focus production out of its Michigan Assembly plant in Wayne, first to a new Mexican factory, and then to China when the Trump administration's plans to exit the North American Free Trade Agreement prompted the automaker to cancel the building of its Hermosillo plant.
The good news for the American worker is that Ford is in the process of retooling Michigan Assembly for production of the Ranger midsize pickup, and later the Bronco SUV (possibly both-size versions of the revived model). This means there are no U.S. assembly plants making compact transverse-engine variants where the Active could go. That plant would need at least five times the 50,000-unit maximum expected annual volume to be worthwhile. That's not going to happen with any Focus-based volume car or crossover (though Ford sold more than 308,000 Escapes last year).
Global auto production has been on the rise for a long, long time, bolstered when Toyota, Honda, and Nissan opened assembly plants here in the 1980s following Voluntary Export Restraints early under the Reagan administration.
The general trend has been to build premium and luxury models and trucks and SUVs with high profit margins in the United States, Western Europe, and the United Kingdom, and to build compact cars in emerging economies, like those in the former Soviet Union. Thus, Fiat Chrysler, famously under the late CEO Sergio Marchionne, decreed that from now on all Alfa Romeos would be built in Italy, while cars like the Fiat 500 continue to be built in Poland and Mexico.
This trend has intensified in North America since the Lehman Brothers collapse. Until the General Motors and Chrysler bailouts and bankruptcies—and let's not forget, the $8.9 billion Energy department loan in 2010 to Ford Motor Company, which pushed the company into re-opening Michigan Assembly in order to build fuel efficient Focuses and C-Maxes—the U.S. alone had an estimated annual auto production capacity of about 21 million vehicles.
Automakers consider it a success that we reached 17.5 million sales in both 2016 and 2017, with 2018 having settled down to roughly 17.25 million vehicles. Current capacity estimates are harder to come by, but it's generally considered to be much closer to those annual sales records.
Until the GM and Chrysler bankruptcies came with sweeping changes that also affected the United Auto Workers, assembly line workers were virtually guaranteed a large portion of their annual income as a result of the infamous job banks. Those guarantees are long gone. Assembly plant layoffs will hurt more from now on.
U.S. car and truck sales dipped to 10.4 million in calendar 2009. I don't expect the next economic downturn to get that bad, but I know there will be another recession, either during the current administration, or some time after. The global supply chain, and global auto production can cushion the effects in any one country, of that next downturn. And there won't be so many assembly lines making thin-margined, low-volume models like the Ford Focus Active, to shut down here.