In the world of manufacturing, cutting your production costs as much as possible allows you to maximize profit. In recent years, many new production and manufacturing plants have been set up in Mexico rather than the United States for that very reason.
The production of automobiles, in particular, is being done at a lower cost south of the border, with vehicles forming one of the main exports of Mexico. Ford is one of the latest car manufacturers to take this step.
The move has been met with a combination of criticism and praise from former politicians, competing manufacturers, and even consumers. Let’s take a look at the advantages and reasons behind Ford's decision—not to mention the many industries and companies that have chosen to make the same move in recent years.
One of the primary motivations for businesses to move to Mexico is the greater flexibility offered them due to the North American Free Trade Agreement (NAFTA). In addition to NAFTA, there are ten more such arrangements, spanning forty-three countries in total.
For Ford, this offers the opportunity to build cars in Mexico, and ship them to areas such as South America, Canada, and the United States with minimal disruption or inconvenience.The logistics of the situation also make it easier to export goods.
Mexico is known for offering solid transportation logistics, and this allows businesses and manufacturers to send their goods across the globe easily, and with minimal impact on their profit. These factors are sure to have appealed to Ford.
Increased Potential Profit
Another popular reason for the move to Mexico for many businesses is the chance to increase their potential profit. Mexico pays its workers a lower wage than many other countries, the United States in particular. By way of comparison, 2014 saw workers in the US make around $30 per hour, while Mexican workers received around $5 per hour during that year for the same work.
In Mexico, Ford can take full advantage of the reduced cost of labor, and see their overall profits increase. This offers a tempting motivation to place their plant there, especially when combined with the benefits of the free trade agreements currently in place.
It is also important for Ford to keep pace with its rivals and competitors. In recent years, a number of automotive manufacturers have decided to move south of the border.
General Motors, Nissan, Toyota, Hyundai, Mazda, and Volkswagen have all opened plants in Mexico. In order to remain competitive in a growing market, Ford needs to make the same move as its rivals.
The idea of building plants in Mexico is not new for many businesses, and Ford is no exception. They have a history of building cars in the region since the 1920’s, and already have infrastructure in the area. An engine plant, two stamping plants, and two assembly plants are already located there.
In addition, the Lincoln MKZ and Lincoln MKZ Hybrid are being produced in Mexico, as well as the Fiesta, the Fusion, the Fusion hybrid, along with Ford’s four-cylinder and diesel engines.
Plus, the goal of Ford is not to replace all their US plants, but to have their Mexico-based ones work alongside them. Unlike many other car manufacturers, Ford retains a strong presence in the United States; 2.4 million cars and trucks were created in the US last year.
Also, the brand has invested over ten million dollars in plants in the USA with another nine billion due to be invested over the next four years. That figure is estimated to create over 8,500 jobs.
Overall, while the move is not without controversy, it seems clear that expanding their automotive manufacturing plants to Mexico is a serious step forward for the company, and one which offers a large number of benefits to Ford—benefits that can, in time, be passed on to their customers. And if you want to learn about the main imports of Mexico, you can read more here.
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