Was Tuesday an ominous day for Mexico? U.S. president-elect Donald Trump definitely started out on the wrong foot with an ogre attitude against his southern neighbors by threatening General Motors Company (GMC) with a “great border tax” (namely a countervailing duty) if GMC opted for assembling its Cruze Chevy model in Mexico.
Right next in Flat Rock, near Detroit, Ford Motor Company announced it was cancelling its plant project in San Luis Potosí and moving it — you got it — to Flat Rock. The announcement, of course, was applauded in the United States, but for most of the morning the silence from the Mexican government was sepulchral, reluctant to be noisy about it.
Finally by midday, the San Luis Potosí state governor Juan Manuel Carreras uttered the first words both of concern and confusion over the cancellation, announced to him by Ford director general in Mexico Gabriel López. López had told this writer prior to the U.S. presidential election that there would be no such thing as cancelling the plan.
Gov. Carreras was concerned because for San Luis Potosí, this was a done deal with great enthusiasm from Ford that would create 2,800 jobs for the city. He was confused because it was an unexpected economic blow to his administration, as the Ford plant was to be tantamount to the jewel in the crown of this commerce bustling central Mexico city.
The San Luis Potosí state government had awarded Ford great advantages in terms of facilitating the scant water resources in this semi-arid land, as well as great tax breaks. To make a long list of facilitations short, Ford committed itself to pay back the state government for the inconveniences it caused.
Surely no amount of refunded money is going to pay for the broken hearts and hopes of the nearly 3,000 people who had applied for a job, nor the economic growth expectations the Ford Plant had brought to the city.
Ford manager Gabriel López stood side to side with Gov. Carreras during the press conference, but by that time all the dishes had been broken.
Ford announced it would be moving part of the production slated for San Luis Potosí to its Hermosillo plant.
What does this all mean in terms of the future for U.S. manufacturers in Mexico?
My interpretation is that the Ford might have ended up embarrassed by cancelling the plant plan, but the figures paint a picture both of manufacturing financial engineering and a bit of politicking.
Surely Trump will be bragging about his victory over taking U.S. jobs to Mexico. But in doing so, Ford top executive Mark Fields pointed out that only $700 million will be invested in the Flat Rock plant, bringing about 600 jobs.
By doing this, Ford downsized the investment to please Trump who even before taking office can brag about being the stalwart of U.S. workers.
Most likely, GMC will follow suit with a similar move of taking the Chevy Cruze manufacturing to the United States.
But the fact remains that since 2014, Ford and GMC competitors Mazda, Honda, Volkswagen, Hyundai and Kia have all decided to establish plants in Mexico. And just this year, Volkswagen is opening a second plant in Puebla and Nissan, BMW, Volvo and Fiat-Chrysler have selected Mexico as its manufacturing center for several reasons.
Competitive wages is definitely one of them, but the Mexican government has opened up to the world the with 44 free trade agreements with different nations and its exports are tariff exempt including Europe, which counts as one country.
Mexico will remain extremely appealing to principally small car manufacturers (as the San Luis Potosí Ford plant was to be). Now Ford will have to make small cars in Flat Rock, which as it is known, is not a good investment even if it means jobs for U.S. workers.
So what’s the gist of this Ford cancellation? The way I see it is that Ford did it to please Trump and make him look good — “a vote of confidence” as Ford’s Fields put it. But it really is a lollypop to pacify a wailing political brat.