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​Ford’s Promise to Maintain Kentucky Production A Small Concession

Earlier this week, Ford announced that its Lincoln sport-utility production would not move south of the border in an ostensible concession made to the incoming presidential administration. President-elect Trump has repeatedly singled out Ford as a well-known company outsourcing its production to foreign countries and costing the US jobs.

Nonetheless, Ford’s construction of a $1.6 billion factory in Mexico is still moving forward. On top of that, the ostensible decision to keep a small fraction of its initially Mexico-bound production in the US is a relatively minor “concession” considering that it never planned on moving in the first place. It merely represents some form of a tactic to work with the Trump administration in terms of reconciling the president-elect’s policy inclinations with Ford’s business necessities.

While some companies make small cars directly within the US, Ford’s margins have increasingly become tight over the years as a result of legacy costs, with its large number of pensioned employees. If Ford does not move its production to low-cost jurisdictions on its lower-margin vehicles, it will be almost impossible for the company to produce the vehicles profitably. The company’s conciliatory tactic – although meaning essentially nothing – is one way to get the ball rolling with respect to productive discussions with the Trump administration.