Should Ford Motor Co. Relocate Its Small Vehicle Manufacturing Operations to Mexico?

Running head: SHOULD FORD MOTOR CO. RELOCATE 1
Should Ford Motor Co. Relocate Its Small Vehicle Manufacturing Operations to Mexico?
Joshua Neeper and Michael Brooks
Johnson & Wales University
November 9, 2016

SHOULD FORD MOTOR CO. RELOCATE 2
Immediate Issue or Problem
The immediate issues that this case study research proposal will examine are the factors
Ford Motor Co. should consider before making the decision to relocate their small car
manufacturing operations from the United States to Mexico. We are using a hypothetical time
frame, in which the ultimate decision to relocate operations to Mexico is set for three months
from now.
USA Today reported on September 14, 2016, that (Gardner & Snavely, 2016), “"Over the
next two to three years, we will have migrated all our small car production to Mexico and out of
the United States, (Ford CEO Mark) Fields told a meeting in Dearborn, Mich., where the
company is based.” Despite the United States’ current political climate and publicly voiced
opinions about Ford’s decision from presidential nominees, there are several aspects and factors
that need to be addressed and taken into consideration before Ford makes a strategic decision
that could significantly impact the company’s bottom line and its appeal to institutional
investors.

Basic Issue(s) or Associated Issue(s)
Maintaining neutrality is a necessity before a stance can be taken or an opinion is formed.
We have gathered and studied information and reports from reputable sources that will act as a
baseline for this decision to be made. Furthermore, there are several factors and reasons why, in
general, a company will entertain the idea or make the decision to relocate operations or sub-
divisions to another country, such as Mexico. There have been a plethora of articles written on
this topic, as well as studies conducted throughout the world. However, correlations should be
made and trends should be examined, to determine why Ford is considering this strategic
decision.
Factors for Consideration
(Birkinshaw, Braunerhjelm, Holm, & Terjesen, 2006) stated, “there are also issues of
economic stability, a supportive political environment, and quality of life for employees. For
example, it is widely reported in the Swedish context that companies are moving HQs out
because of high personal taxes. While this is undoubtedly important, it is just one element in a
complex bundle of factors that must be considered in aggregate. We argue that the overall
attractiveness of the potential host country’s business climate (in comparison to the home
country) will be a significant predictor of the movement of business unit HQ overseas.” The
world has become more complex since the passing of the North American Free Trade Agreement
(NAFTA) and the push of globalization that has had dramatic effects on many countries’ Gross
Domestic Product (GDP). With the above statements taken into consideration and given the
complexities of this decision and scenario, we have selected a few contributing factors that
should be examined from a high-level viewpoint that may impact Ford’s bottom line for strategic

growth. Some of the factors we will examine include environmental impacts, trade relations,
labor, taxes and supply chain management.
A for-profit company like Ford operates to deliver profits and increase stockholder share
value through long-term initiatives that increase their stock’s intrinsic value. Therefore, share
values and earnings matter in a business environment. However, the arguments and opinions
should be tempered by other contributing factors such as: the appeal of American-made
automobiles to a patriotic U.S. buyer’s market, cheaper Mexican labor, NAFTA (free-trade),
lower vs. higher taxes, the political climate and the benefits of operating in a country with fewer
environmental regulations. These are all factors that play an important role in making this
strategic decision. It’s not just a matter of whether these factors will influence our
recommendation but by how much each of these factors will be given precedence over one
another, all while understanding that the decision that needs to be made in a business context
versus a political context.

Issue(s) Analysis of Information Summary
High-Level Economic Dialogue
The United States and Mexico have a very strategic political relationship but share a very
diverse set of issues which have impacted several areas of advancement in economics,
humanitarian efforts, poverty, workforce development, global trade policy and supply chain
management efficiencies as it pertains to importers and exporters. These are just a few of the
issues worth mentioning, as they all would affect a multi-national company like the Ford Motor
Company. The United States Trade Department stated on their Fact Sheet, High Level Economic
Dialogue, (America, High Level Economic Dialoque, n.d.)“We share not only a 2,000-mile
border but a dynamic commercial relationship that generates more than $500 million in two-way
trade and supports millions of jobs in both countries. Together with Canada, Mexico and the
United States comprise one of the most competitive and successful regional economic platforms
in the world.” According to (America, High Level Economic Dialoque, n.d.), President Obama
and President Nieto agreed to establish a “High Level Economic Dialogue” that focuses on three
areas that promote strategic priorities: mutual economic growth, job creation, and global
competitiveness. The dialogue produced advancements in “promoting competitiveness and
connectivity, fostering economic growth, productivity and innovation and partnering for regional
and global leadership (America, High Level Economic Dialoque, n.d.).” The interpretation of
this dialogue between the United States and Mexico can be read as a social economic
advancement that pushes equality for both the United States and Mexico, since their interests
align with one another.
Since this announcement was made, the Department of Commerce published a progress
report, (America, U.S.-Mexico High Level Economic Dialogue Progress Report, n.d.) that

addressed several updates but what stood out to the authors of this paper were the statements
made in the regulatory section, i.e., “In order to minimize costs and reduce burdens for bilateral
trade, the focus on regulatory cooperation has intensified, which led to important advances in
areas such as electronic certificates for import and export of plants and vegetable products;
harmonization of safety standards for cargo trucking; nanotechnology-related guidelines and
safety standards for exploration and exploitation of hydrocarbons in the Gulf of Mexico, among
others”, (America, U.S.-Mexico High Level Economic Dialogue Progress Report, n.d.). The
progress report goes on to talk about lessons learned and how these will help impact further
cooperation. Advanced agriculture and safety standards are not minor advancements, in our
opinion. These are serious steps that will lead the way for advancement within other industries
and could possibly affect foreign policy.
The statements made in this “High Level Economic Dialogue” present important facts about
U.S./Mexico relations and political agendas that are being advanced between two
administrations.
U.S. and Mexico Relations
The “High Level Economic Dialogue” discussed previously outlined agendas and
political advancements but failed to mention some important data and trade facts. Therefore, we
continued our research via the State Department’s websites and came across several facts that
were published by the Bureau of Western Hemisphere Affairs on July, 12, 2016. (Affairs, 2016)
stated, “Mexico is the United States’ second-largest export market (after Canada) and third-
largest trading partner (after Canada and China). Mexico’s exports rely heavily on supplying the
U.S. market, but the country has also sought to diversify its export destinations.” Other facts
(Affairs, 2016) stated were: Mexico was the third largest exporter to the U.S. in 2013 for crude

oil and U.S. company stock investments into Mexico is $101billion and Mexico reciprocated
with only $17.6 billion but has grown over 35% during a five-year interim, propelling Mexico to
become the seventh fastest growing investor in the United States.
Automotive Exports
After examining these facts and statements from the State Department and Department of
Commerce, we decided to look more closely into the automotive export markets to explore
country rankings and trends within the automotive parts industry as it pertains to original
equipment (OE) and aftermarket parts. The evidence we found was startling. See table 1 that
shows country rankings for OE and table 2 for after-market parts pertaining to country exports.
The interpretation of these tables show that Mexico is ranked second in the world with
automotive exports but that the United States is not ranked in the top ten. Furthermore,
(Government, Automotive Parts Opportunities for U.S. Exporters in Mexico Automotive Parts
Opportunities for U.S. Exporters in Mexico, 2016) revealed that the Mexico Association of
Automotive Industry experienced sales growth from 2010 of 820,406 units to 2013 of 1,063,363
units while the United States experienced a much lower growth of 129,128 units in 2010 to
153,742 in 2013.
Other factors that need to be considered include the fact that there are currently ten auto
manufactures in Mexico that produce 500 models across 42 brands in 21 different manufacturing
plants (Government, Automotive Parts Opportunities for U.S. Exporters in Mexico Automotive
Parts Opportunities for U.S. Exporters in Mexico, 2016). Other auto-makers that are planning
operational expansion and manufacturing relocation to Mexico include BMW, Audi, Mercedes
Benz and Infiniti (Government, Automotive Parts Opportunities for U.S. Exporters in Mexico
Automotive Parts Opportunities for U.S. Exporters in Mexico, 2016). For list of current auto-

makers see table 3. The table will show that there are currently three major U.S. auto-makers
currently manufacturing in Mexico with other Asian and European manufacturers in operation in
the country or in transition to relocate more manufacturing to Mexico. On the contrary, The Wall
Street Journal reported that the U.S. is currently ranked third but will increase their ranking to
second in year 2020; Mexico currently ranked ninth, will increase their ranking to sixth by year
2020 (Althaus & Boston, 2015). Both the Wall Street Journal (WSJ) and Export.gov
acknowledge that Mexico has been increasing their automotive manufacturing and is poised to
be a serious competitor, not just in the present but in the several decades to come.
Correlating and using root-cause analysis must be applied to explore this phenomenon on
why other auto-makers besides Ford are increasing their manufacturing in Mexico and relocating
their operations to Mexico. To examine this, we decided to examine trade relations as this is a
crucial component in globalization and long-term strategic decision making that has
consequences in a business context, a political context and a country’s GDP.
Host Country’s Trade Relations
Trade relations are a critical component to a country’s GDP and industry diversity. It is
the responsibility of a country’s leaders to negotiate the most beneficial trade agreements that
protect their long-term economic plans through sound policy adoption in a democracy. On the
contrary, this is a very arguable statement because in this industry, U.S. elected officials have not
been negotiating the most beneficial trade agreements since they passed NAFTA. We believe the
following information and facts will outline our position but also show several reasons auto-
makers are setting up shop in Mexico.
Since NAFTA was passed in the 1990’s, Mexico has secured free-trade agreements with
dozens of countries in North America, South America, Europe and Asia (Government,

Automotive Parts Challenges for U.S. Exporters in Mexico, 2016). Furthermore, Export.gov
suggests that an auto-parts manufacture can save 13% in Mexico compared to the U.S.
(Government, Automotive Parts Challenges for U.S. Exporters in Mexico, 2016). To put this into
perspective, Mexico has roughly 2,559 auto-parts companies comprised of 70% foreign-owned
companies and of that 70%, 26% are U.S. companies, 31% are Japanese companies and 23% are
German (Government, Automotive Parts Challenges for U.S. Exporters in Mexico, 2016). These
numbers and factual statements made by the U.S. government seem impressive from Ford’s
position and yet, are very enticing. With a 13% savings in operational cost and the ability to still
maintain free-trade with the U.S. and Canada, everything seems to be positive and in Ford’s best
interest to relocate. However, it gets better for Ford. We didn’t want to just take what the U.S.
government published and solely use that as the only supportive evidence. Instead we decided to
confirm our findings with a second source that performed their due diligence based on credibility
and multiple sources. According to the Wall Street Journal, the United States has secured free-
trade agreements with 20 countries across the world with the majority of them with small
countries and economies, i.e., Chile, Japan and Panama; while Mexico has secured 10 free-trade
agreements encompassing 45 countries across the (EU) European Union, Latin America and
Asian countries (Althaus & Boston, 2015).
These facts are empirical evidence that can be considered shocking. Mexico has 50%
more free-trade agreements than the U.S. and with stronger economies that have export taxes
with the U.S. but not Mexico. To put this into perspective, a German auto-maker such as
Mercedes, who manufactures in Germany, pays an export tax when shipping their vehicles from
Germany to the U.S. but when Mercedes manufactures in Mexico, they pay no export taxes to
the U.S. or any of the 45 countries that Mexico has free-trade agreements with. On a global scale

and considering economies of scale, an auto-maker can relocate production to Mexico to increase
their profits while decreasing their expenses and liabilities. This strategic decision allows for
centralized manufacturing and centralized supply chain management which increases efficiencies
across the board. Another example would be for a U.S. auto-maker to relocate production to
Mexico so they can export to a country without paying export taxes because of Mexico’s free-
trade agreements.
NAFTA
The passing of the North American Free Trade Agreement was one of the most intense
debates and intimate trade-agreements signed during the 1990’s. It set the stage for a more
complex global economy and future trade relations that have impacted manufacturing in the U.S.
However, one of the most intimate debates was not just the business impact but the
environmental impact of post-NAFTA. There have been very few resources and studies
conducted to examine the environmental impact. The most relevant study we found was
published in 2007 in The Policy Studies Journal.
(Stern, 2007, pp. 314-315) stated, “The results of this study show that regarding air
pollution and energy efficiency, none of the more extreme predictions of the outcomes of
NAFTA have come to fruition to date. Rather, trends that were already present before NAFTA
continue, in some cases, improve post-NAFTA, but not yet in a dramatic way. There is strong
evidence of convergence for all four intensity indicators across the three countries toward a
lower intensity level. Although intensity is rising initially, in some cases in Mexico, it eventually
begins to fall post-NAFTA.” The study that (Stern, 2007, pp. 291-292) conducted was to
examine the relationship between economic development and its’ impact and/or increase in
carbon, sulfur and nitrogen oxide emissions.

In simple terms, (Stern, 2007) wanted to see if there was a correlation between Mexico’s
increasing economic development and if any, increased atmospheric pollutants. The study
proved that there has been a downward but not dramatic decline in atmospheric pollutants as
Mexico’s economic development increased in the 1990’s into the early 2000’s.
These sources and interpretations show us that labor is not the number one motivator for
an auto-maker to relocate. The technological advances in manufacturing over the past several
decades have eliminated jobs. A job 20 years ago on a production line has been replaced with a
machine. Labor is still a factor but it is not as pressing as a country’s trade relations. Of course, a
U.S. auto-maker can save money in Mexico with the lack of regulation and labor unions.
However, gaining free-trade in Mexico, by far, surpasses the savings in labor and regulation. To
support these statements, per (www.tradingeconomics.com & Servicio de Administración
Tributaria, SHCP, n.d.), the Mexico corporate tax rate is 30% and the United States corporate tax
rate is 38.9%, the fourth highest tax rate in the world. (www.tradingeconomics.com & Servicio
de Administración Tributaria, SHCP, n.d.) also, reported that Mexico’s average hourly wage in
manufacturing from 2007-2016 is $2.59 USD where the United States’ average is $20.59 USD.
That margin of difference is wide however the cost of living in Mexico is significantly lower
than the United States.
Mexico is more competitive than the U.S. on labor and corporate tax rates. This is a
contributing factor for Ford and other auto-makers but free-trade agreements compounded on
lower taxes and lower labor rates translates into the perfect recipe and remedy for Ford and the
entire automotive industry.

Financial Impact
Our analyses for all the facts that we know now do impact the long-term decision Ford
needs to make as it pertains to their financial health. Per (Sarmiento, 2012), Ford was exporting
450,000 vehicles from Mexico in 2012. For mathematical purposes: if Ford’s average vehicle
sales cost is $30,000 multiplied by 450,000 vehicles, that equates to a total revenue stream from
Mexican operations to roughly $13.5 billion USD. If we apply Mexico’s tax rate, (30% of net
profit) and multiply that by Ford’s current net profit margin of 5.45% per (MSN Money, 2016)
which translates to $735,750,000 net profit multiplied by Mexico’s tax rate of 30%, this leaves
Ford with a total tax bill of $220,725,000. Compare this to what their bill would in the United
States at a rate of 38.9% which would be $286,206,750. That is a savings of $65,481,750 that
Ford benefited from by manufacturing 450,000 vehicles in Mexico in 2012.
In terms of labor, (Sarmiento, 2012) stated that Ford’s decision in 2012 to add additional
manufacturing lines would produce 1,000 new jobs in Mexico. If we assume that 1,000 workers
in Mexico working 40 hours per week making the hourly rate of $2.59 per hour cited by
(www.tradingeconomics.com & Servicio de Administración Tributaria, SHCP, n.d.), that equates
to a payroll amount of $103,600 per week (1,000 workers multiplied by 40 hours multiplied by
$2.59 hourly rate). Compare this to the United States rate of $20.59 per hour which equates to a
weekly payroll amount of $823,600.
The numbers speak for themselves which leads us into presenting three different
alternatives Ford could implement by comparing the advantages and disadvantages of each
possible alternative.

Alternative Solutions
Upon review of this information, we will now examine the various courses of action that
Ford can choose to take. We will analyze and interpret the potential advantages and
disadvantages from the evidence and information presented earlier. From there, we will form our
recommendation on the best course of action for Ford in this situation.
Alternative 1
The first course of action that we will examine is Ford moving all their small automobile
manufacturing to Mexico. Per our calculations, by manufacturing 450,000 thousand vehicles in
Mexico in 2012, Ford saved alone from the discounts in labor costs, $4,563,600 ($823,600 -
$103,600 = $720,000/week x 52 weeks = $4,563,600). Although this is a considerable savings,
most of the benefit derives from taking advantage of Mexico’s 45 free trade agreements (Klier &
Rubenstein, 2013). According to the U.S. Department of Commerce, Ford Motor Co. is set to
produce 380,000 vehicles in their new facility in Mexico (Commerce, 2015). Currently, 63% of
Mexican auto exports are destined for North America (Klier & Rubenstein, 2013) and per
NAFTA, there are no export tariffs for these exports. If we take the remaining 37% and apply the
average $2,500 export tax that Ford would be saving by exporting through Mexico vs. the United
States (.37 x 380,000 = 140,600 exported units multiplied by the average export cost of $2,500),
we come up with approximately $351,500,000 alone in trade export savings. This is considerably
higher than the $70 million that they saved in 2012 on labor and taxes while producing more
vehicles. These figures clearly illustrate that it would be advantageous for Ford to make this
strategic move, not only to reduce operating expenses, but to compete with their competition,
which has already executed and implemented the same decision and is benefiting from these cost
reductions.

Another advantage to consider is the logistical efficiencies Mexico can offer. Christopher
Ludwig of Automotive Logistics stated, “San Luis Potosi provided two essential elements,” he
says. “It is close to the center of gravity of the Mexican supply base [and] it has railway access
already established close to the plant so that we can ship out directly to ports or into the U.S.”,
(Ludwig, 2016). With its proximity to its largest consumer, the United States, as well as ports on
both the Pacific and Atlantic Oceans, Mexico proves itself to be an attractive location for imports
and exports.
A possible disadvantage of deciding to move small automobile manufacturing to Mexico
is the negative association, by some, that the Ford brand will suffer from this move. Republican
Presidential nominee, Donald Trump, has publicly scorned Ford Motor Co. for considering this
move. Trump claims that Ford is moving American jobs out of the country (DeBord, 2016). This
may resonate with his followers which could result in a minor decrease in sales from a loss in a
small percentage of loyal customers. The truth of the matter is that Ford is not actually cutting
any U.S. jobs. The small vehicles they are considering manufacturing in Mexico are the Focus
and C-Max (DeBord, 2016). These vehicles are currently being manufactured in their Wayne,
Michigan plant. The reason they are moving these vehicles is because the demand for these
vehicles has changed over the years. When gas prices surpassed $4 per gallon, these vehicles
were in high demand in the United States. However, with gas prices stabilized at around $2 per
gallon, U.S. consumers are gravitating towards larger SUVs and pickup trucks (Vlasic, 2016).
Currently, three in five vehicles in the U.S. are classified as SUVs, crossovers and pickup trucks
(Vlasic, 2016). With this increase in demand for larger vehicles, Ford wants to increase
production of those models in their Wayne plant to better serve their customers in America,
where 17.5 million of their vehicles are sold (Specter, Bennett, & Stoll, 2016). They have plans

to design four new SUVs and crossover vehicles, increasing production of their current SUV and
pickup truck models. They will retain the 3,700 Wayne plant employees to accomplish this. Ford
can better justify employing people to manufacture higher profit margin vehicles of $10,000 per
unit, than they would smaller ones, that generate $2,000 profit per unit, with declining sales
(Ramsey, 2013). So, while these employees will not be manufacturing small automobiles, their
focus will be on large vehicle manufacturing, resulting in no job losses or elimination (DeBord,
2016).
Alternative 2
A second alternative that Ford may wish to consider, is keeping their small vehicle
production in the United States. In this situation, we must again examine the financial
implications of this decision. In contrast to alternative 1, an advantage to this decision would
possibly create a more loyal customer base. Ford may keep the small percentage of customers
who would have otherwise left if they moved to Mexico. However, the retaining or acquisition
expense of this customer base doesn’t seem to make up for the drastic decrease in production
related to the expenses outlined earlier. From our previous calculations, we found that Ford can
save roughly $400 million in production expenses due to lower tax rates, lower labor costs and
most notably, a decrease in export expenses due to Mexico’s 45 free trade agreements. When
examining this dynamic, we can rationally deduce that financially this does not seem viable.
Another factor to consider is that if there is instability in oil production causing gas prices
to return to their previous $4 per gallon price levels, the demand for these smaller and more fuel-
efficient passenger vehicles may return in the United States making it cost-prohibitive to
transport vehicles back to the U.S. Again, the drastic decrease in tax, labor and export expenses
seem to outweigh the advantages of this option.

A potential possibility is for Ford to streamline their operations. When researching
American companies that succeeded in this endeavor, we examined Kodak and Black and
Decker. The Harvard Business Review (Markides, 1988) reported, “Consider some of the steps
Kodak has taken or plans to take: reduce overhead by trimming employment, especially in
middle management; revise the wage dividend plan; cut operating and expense budgets;
eliminate inefficient operations and marginal product lines; reorganize internally; increase R&D
expenditures; move into new technologies; introduce new products; and improve quality and cost
efficiency. The effect of these changes was immediate: in 1986, sales grew by 9% to $11.5
billion, while earnings from operations climbed 24% to $724 million. Earnings per share were
$3.52 in 1987, versus only $1.10 in 1986.”
Furthermore, Black and Decker followed similar procedures. “It reduced its work force
by 40%, consolidated operations to achieve economies of scale, eliminated hundreds of
administrative positions at corporate headquarters, modernized plants, introduced new
manufacturing methods, standardized models, expanded and upgraded marketing and
engineering capabilities, and moved aggressively into the low end of the professional power-tool
market. The results: for fiscal year 1986 the company reported net earnings of $6.3 million—that
compares with a net loss of $158.4 million the previous year. EPS went from 49¢ to 95¢ between
1986 and 1987” (Markides, 1988).
Interpretation and analysis of these statistics demonstrate both organizations were
successful in their streamlining of operations at home rather than move manufacturing offshore.
However, in each of these cases, the company’s workforce was drastically reduced to accomplish
this. When we consider Ford’s situation, we find that they are not cutting any American jobs and

if they went with this strategy, they would have to cut their labor force drastically to achieve the
necessary profit margins to stay competitive within the industry.
Another method to achieve more efficiency in manufacturing is to examine successes of
the manufacturing processes of Japan and try to implement them into their own operation.
According to (Markides, 1988), Japan’s successes rely on their management philosophy. Japan’s
strategies include (Markides, 1988) “superior product designs, high quality, minimum
inventories, waste elimination, and worker participation”. This is how Japanese manufacturers
can compete with their competitors, and in some cases, on their own soil. However, when we
refer to the savings that Ford is incurring in manufacturing costs, we find this is not the biggest
enticement for them. Mexico’s favorable trade agreements are saving them more than three times
as their savings in tax and labor expenses. Retaining manufacturing in the United States, they
would have to streamline operations enough to decrease manufacturing costs equal to or greater
than the savings they would achieve by moving to Mexico, in addition to the money they would
save by taking advantage of Mexico’s free trade agreements, which would be nearly impossible
without reducing the labor force.
Alternative 3
The third alternative that Ford may want to consider is to relocate their entire automobile
manufacturing operations to Mexico. A major advantage of this would be the compounded
financial savings in terms of labor, taxes and export costs. As we outlined earlier, Ford’s
potential savings totaled approximately $400 million. This calculation was based on projections
for 380,000 vehicles being manufactured in Mexico. In 2014, Ford sold almost 2.5 million units.
If you apply the same percentages to this larger number, Ford could potentially save $2.6 billion
by relocating all production to Mexico. This alternative would create massive decreases in

production costs, however, it contains hidden costs of its own (Mourdoukoutas, 2011). For
instance, Ford currently employs about 50,700 workers in the United States (Bunkley, 2015) and
Ford would end up paying out severance packages to some of these employees. Another hidden
cost would be travel and living expenses for workers traveling to and from Mexico to conduct
business. Also, they would need high-level executives to live in Mexico and it may be difficult to
find talent to live there. Another expense would be the loss of revenue from useless assets
located in the United States such as plants and equipment. Liquidation could be very difficult.
Finally, training foreign employees and quality control costs would need to be considered
(Markides, 1988).
A major disadvantage that Ford would have to deal with regarding this decision is the
devastating impact that it could potentially have on their brand image. There is no doubt that a
percentage of consumers cherish American made products and services. A survey of bank
customers responded concluded that 33% of people would switch their financial institution if
they moved their operations offshore. However, only 4% did so (Treanor, 2004). According to an
article in USA Today, the average vehicle price in the United States is $33,560 (Healy, 2015). If
Ford were to relocate the production of approximately 2.5 million vehicles to Mexico and we
apply the 4% from the survey to Fords sales numbers ($33,560 x 2,500,000 units = $89.9 billion,
then 8.9 billion x 4% = $356 million) $356 million, potentially, could be lost based on
consumers choosing other brands. This number is considerably more than the savings they would
gain in terms of labor, taxes and trade; not to mention the other hidden costs as mentioned
earlier. When analyzing these calculations, we can see that this would not be a viable option for
Ford.

Recommendation and Implementation
After outlining the most likely alternative solutions and scenarios for Ford, we evaluated
the long-term company objectives laid out on Ford’s website by their CEO, Mark Shields, to
gain a better perspective on the most beneficial decision. He stated that Ford’s five major long-
term objectives are:
“1. Becoming among the top five automakers in global sales and growing revenue at a
rate of more than double the global GDP growth rate,
2. Achieving more balanced profitability,
3. Achieving operating margins of 8-plus percent and a return on invested capital that is
greater than our cost of capital,
4. Achieving top-quartile total shareholder return, and
5. Being highly regarded by all stakeholders” (Fields, 2016).
When we address each of these objectives individually, we recommend that Ford should
relocate all small car manufacturing to Mexico because it would have the most favorable impact
on their bottom line and increase their earnings. In Objective #2, the decision would allow a
more balanced profitability because they would be increasing their profit margins on their
smaller vehicles while being able to sell more of them. Additionally, they would produce higher
profit margins with their SUV’s and pickup trucks in their existing plant where their current
small car manufacturing is located, better serving American demand for them. In Objective # 3, a
move to Mexico would provide higher profit margins due to the reduction in labor costs and
taxes making the goal of 8% plus profit margins achievable and the same can be said about
Objective # 4. Finally, when we address Objective #5, this recommendation would aid Ford in
putting their stakeholders’ interest first. The main objective of a business executive is to increase
the intrinsic value of their shares. This decision would drastically reduce operating expenses,

therefore, increasing profit margins for the stakeholders. Furthermore, no American jobs are
being lost so there isn’t any real boycott risk or question of a lack of corporate morality or social
responsibility on their part. This decision seems to be a balanced one. One, in the sense that Ford
will become more profitable and at the same time will not eliminate American jobs, and
secondly, allowing them to achieve their organizational long-term goals.

Monitor and Control
Our analysis of Ford’s current position in the automotive industry and recommendation is
well noted in the previous section. There are multiple ways to examine the strategic decision
Ford faces but the most underlying context we applied to this strategic decision is from a
financial point of view. Many will disagree and have various opinions but the empirical facts are
based on financial evidence and free-trade agreements. Therefore, such a strategic decision and
implementation of our recommendation must be monitored and controlled to measure
effectiveness. Implementing such a complex recommendation must use certain methods
established by a narrow focus of processes, procedures, KPIs (key performance indicators),
quantitative analysis, qualitative analysis and many more. We have chosen to keep this simple.
Oversight
An oversight committee needs to be established with the input of all department heads at
the executive level. This committee will be comprised of top leaders within the company who
have a narrow expertise in their field and function. Their purpose is to ensure not only a smooth
transition but also to establish key metrics and milestones that must be monitored from an
operational level to a financial level. The implementation will be the most transitional decision
Ford will have experienced in its history. Since Ford already has a presence in Mexico, this is not
foreign to them. Therefore, they will simply scale their existing operations to economies of scale
that will accommodate new production lines and future manufacturing facilities that transition
U.S. production into Mexico. Ford will experience challenges along the way but they will be in
the form of training new labor forces and increasing human capital within their supply chain
division. They will immediately eliminate headaches with the U.S. labor unions but increase
their corporate responsibility within Mexico. Ford has the footprint and operations to implement

this recommendation. They will simply manufacture more vehicles in another country where
they are already manufacturing in.
General Guidelines
The oversight committee will implement standard business practices and existing
management tools and resources to monitor the progress. Some of these practices, tools and
resources will include: weekly meetings, quarterly filings and continuous financial oversight.
Though the implementation is the most demanding aspect of this recommendation, once all small
car production is relocated, everything should fall smoothly into place from there. Ford will see
an immediate impact to their bottom line and generate the profits and earnings that will keep
them competitive with business rivals throughout the world. In conclusion, they will experience
savings and an increase in their share price, earnings per share and operating profit margin.

Hindsight
We have learned critical thinking skills and gained business insight by conducting this
research. Our research has opened our eyes and minds to a larger picture that becomes more
complex when examined in a global economy. Saving face - in the Chinese context - is what we
believe Ford is doing now to achieve their overall strategy, by relocating all of Ford’s
manufacturing to Mexico, one vehicle model at a time. We make this assumption because
financially, the most profitable decision to make in the long-run is relocating all their
manufacturing to Mexico. Even though our recommendation aligns with Ford’s decision to
relocate all small car production to Mexico, reading between the lines, this is a precursor to
achieve their overall strategy.
This transitioning phase is a step in achieving their goals and Ford’s history proves this.
Over the past several decades they have transitioned manufacturing to Mexico and now Mexican
operations will account for roughly half of Ford’s overall manufacturing footprint. Some will
ask, why not recommend Ford moving all manufacturing immediately? We believe that this
transition acts as a protective barrier. The more sales and market share Ford gains internationally
outside the U.S., the more enticing it will be to relocate all manufacturing to Mexico. More
international sales while maintaining U.S. customer base is critical but Ford is poised for
international sales outside the U.S. to surpass U.S. sales. Their revenue stream will not be solely
dependent on the U.S. market in years to come.
We must ask ourselves, where do you draw line between politics and business? We
believe that one should examine the information beyond its readability and facts; as a company’s
actions are an intimate factor when predicting their strategy and direction. We end this research
paper by asking: What are the consequences of free-trade agreements and the responsibilities of

our elected officials to promote a competitive business climate? As we witnessed last night,
Donald Trump is the newly elected President of the United States. Many will analyze the issues
that propelled Donald Trump to win. Furthermore, we examined numerous media outlets and the
data well into the early hours of November 9, 2016. Some of those media outlets: Fox News,
CNN, MSNBC, Bloomberg, CNBC, FBN and a few others seemed to present that the American
voters cared about the future of the American economy. All of them went into detail about trade
agreements, especially NAFTA and the impacts it has had on the economy. Democracy was on
display to the entire world and volatility in the markets surged in after-hours trading but now
there will be new trends to analyze after Donald Trump implements his agenda for the United
States.

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Tables
Table 1
(OE) Original Equipment – Top 10 Auto parts Export Market Rankings (2015-2020)
Source: (Government, Automotive Parts Country Rankings, 2016)
Country Ranking
Canada 1
Mexico 2
China 3
Germany 4
Belgium 5
Japan 6
Netherlands 7
Chile 8
United Kingdom 9
Sweden 10
Note: The United States is not ranked in the top ten and Mexico is ranked second.

Table 2
After-Market – Top 10 Auto Parts Export Market Rankings (2015-2020)
Source: (Government, Automotive Parts Country Rankings, 2016)
Country Ranking
Canada 1
Mexico 2
China 3
Singapore 4
Chile 5
Peru 6
Belgium 7
Australia 8
Netherlands 9
Germany 10
Note: The United States is not ranked and Mexico is ranked second again.

Table 3
Current and Potential Auto-Makers in Mexico
Source: (Government, Automotive Parts Opportunities for U.S. Exporters in Mexico Automotive
Parts Opportunities for U.S. Exporters in Mexico, 2016)
Current Auto-Makers Potential Auto-Makers
General Motors BMW
Chrysler Audi
Ford Mercedes
Nissan
Fiat
Renault
Honda
Toyota
VW
Mazda
Note: There are three major U.S. brands currently manufacturing in Mexico.

Should Ford Motor Co. Relocate Its Small Vehicle Manufacturing Operations to Mexico?

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