{"id":23531,"date":"2017-11-15T12:41:48","date_gmt":"2017-11-15T17:41:48","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/ford-motor-company-supply-chain-uncertainty-in-a-post-nafta-world\/"},"modified":"2017-11-15T12:41:48","modified_gmt":"2017-11-15T17:41:48","slug":"ford-motor-company-supply-chain-uncertainty-in-a-post-nafta-world","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/ford-motor-company-supply-chain-uncertainty-in-a-post-nafta-world\/","title":{"rendered":"Ford Motor Company: supply chain uncertainty in a post-NAFTA world"},"content":{"rendered":"<p>The political climate of 2016-2017 made it clear that liberalism\u2014and by extension, globalism\u2014is on its heels.\u00a0 Challenged on both ends of the political spectrum, economic growth has been cast as a zero-sum game, leading to protectionist policy proposals and an outcry against the free trade policies that defined the 20<sup>th<\/sup> century.\u00a0 In the United States, this has led to the ongoing renegotiation of NAFTA, a trilateral trade agreement between the US, Canada, and Mexico that has been criticized for outsourcing US jobs while spurring trade across North America [1].<\/p>\n<p>Ford Motor Company is a Michigan-based automotive company that manufactures and sells automobiles globally.\u00a0 With $94 billion in US sales (63% of global sales), but only half of its 200,000-person workforce located in North America, Ford depends on an integrated global supply chain to source and manufacture vehicles [2].\u00a0 Despite advances in automation, vehicle manufacturing remains a labor-intensive process, with labor driving significant variable costs in manufacturing.\u00a0 As a result, Ford has increasingly moved its low-margin production of cars to Mexico, where labor costs are significantly less than the US and NAFTA ensures tariff-free cross-border trade [3,4].\u00a0 The US government has recently begun the long process of renegotiating NAFTA to increase import restrictions and return jobs to the US, creating two significant concerns:<\/p>\n<ul>\n<li>If the cost of importing finished goods from Mexico increases due to new tariffs, where should Ford manufacture goods destined for the US market?<\/li>\n<li>If the US institutes higher tariffs on imports, will other nations respond in kind, resulting in increased costs for imports to all target markets?<\/li>\n<\/ul>\n<p>In the short-term, Ford has adopted a strategy that strengthens its core profitable unit, the \u201clight truck\u201d segment, and ensures that it is 100% manufactured in its target market\u2014the US.\u00a0 Due to its relatively high margins and local sourcing of raw materials, Ford has been able to maintain light truck manufacturing in the US despite higher labor costs. This guarantees that Ford\u2019s most profitable unit will be largely unaffected by an increase in import tariffs [5].\u00a0 Conversely, Ford has moved production of its low-margin cars to Mexico, where labor costs are low and trade agreements allow them to export to South America and Asia at low cost [1,5,6].\u00a0 To further offset the risk of eroding margins, Ford has expanded its business in Asia, where demand has continued to grow [5].<\/p>\n<p>In the medium term, Ford has adopted a strategy of modernization and diversification.\u00a0 Focused on the future, Ford has planned an aggressive push to increase factory automation and upgrade design technology to support cost reduction [7,8].\u00a0 While it is unclear what effect NAFTA negotiations have had on its modernization process, it is likely that a revised NAFTA could increase labor costs, accelerating this process and enabling Ford to reduce the size of its labor force.\u00a0 Ford is also focused on diversifying its business model, transitioning from automobile manufacturing to \u201cmobility services\u201d [7,8].\u00a0 With the development of autonomous cars, and the proliferation of ride-sharing and connected devices, Ford envisions its future as the creator of an ecosystem of mobility and transportation services that would be entirely unaffected by import tariffs [7,8].<\/p>\n<p>With NAFTA changes on the horizon, and potential cascading implications for all US trade partners, Ford should be focused on establishing local infrastructure in its highest growth global markets.\u00a0 With significant opportunity for reduced production costs via vertical integration in China, and the looming loss of free trade between the US and Mexico, Ford should examine costs across its ASEAN supply chain and prepare for the possibility of transitioning a greater portion of its production to China [4].\u00a0 This transition would have an outsized effect on the US labor force, which currently has a substantial supporting market that provides the raw materials and produces partially finished goods for Ford production lines in Mexico [4,6].<\/p>\n<p>The final form of NAFTA will impact the decisions Ford must make in 2018.\u00a0 In the case of a drastic NAFTA revision, Ford may need to shift its global supply chain, necessitating an increase in prices among historically low-priced cars.\u00a0 How will this effect price-sensitive customers in the US? Even if NAFTA remains largely intact, Ford will have to continue to choose whether to move factories to Mexico while being under intense political pressure from both Washington and powerful unions. \u00a0Beyond the short-term renegotiation of NAFTA, if isolationist movements succeed at achieving stated objectives\u2014effectively reducing the competitive advantage of manufacturing in Mexico\u2014auto manufacturers like Ford Motor Company will be forced to reevaluate the efficacy of Mexico-based production, resulting in higher prices for consumers and reduced domestic employment along the entire supply chain.<\/p>\n<p>Word Count: 789<\/p>\n<p>&nbsp;<\/p>\n<p>[1] Luke Sharrett, \u201cTrump&#8217;s NAFTA autos goals to collide with industry as talks start,\u201d <em>Reuters, <\/em>August 14, 2017, <a href=\"https:\/\/www.cnbc.com\/2017\/08\/14\/trumps-nafta-autos-goals-to-collide-with-industry-as-talks-start.html\">https:\/\/www.cnbc.com\/2017\/08\/14\/trumps-nafta-autos-goals-to-collide-with-industry-as-talks-start.html<\/a>.<\/p>\n<p>[2] \u201c10K Annual Report,\u201d <em>Ford Motor Company<\/em>, 2016, <a href=\"http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/annual-report\/2016-annual-report.pdf\">http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/annual-report\/2016-annual-report.pdf<\/a>.<\/p>\n<p>[3] Michael Martinez, \u201cFord&#8217;s Hinrichs on how to improve NAFTA\u201d, <em>Automotive News<\/em>, May 1, 2017, <a href=\"http:\/\/www.autonews.com\/article\/20170501\/OEM11\/305019958\/fords-hinrichs-on-how-to-improve-nafta\">http:\/\/www.autonews.com\/article\/20170501\/OEM11\/305019958\/fords-hinrichs-on-how-to-improve-nafta<\/a>.<\/p>\n<p>[4] Shannon O\u2019Neil, \u201cIf NAFTA Ends, Ford&#8217;s Move to China Will Be Just the Start,\u201d June 22, 2017, <em>Americas Quarterly<\/em>, \u00a0<a href=\"http:\/\/americasquarterly.org\/content\/if-nafta-ends-fords-move-china-will-be-just-start\">http:\/\/americasquarterly.org\/content\/if-nafta-ends-fords-move-china-will-be-just-start<\/a>.<\/p>\n<p>[5] Bob Shanks, \u201cCFO Let\u2019s Chat,\u201d<em> Ford Motor Company<\/em>, March 23, 2017, <a href=\"http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/03-23-2017\/lets-chat-march-2017.pdf\">http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/03-23-2017\/lets-chat-march-2017.pdf<\/a>.<\/p>\n<p>[6] John Rosevear, \u201cWhy Donald Trump&#8217;s NAFTA Plan Will Cost Ford and General Motors Billions,\u201d <em>Fox Business<\/em>, November 13, 2016, <a href=\"http:\/\/www.foxbusiness.com\/markets\/2016\/11\/13\/why-donald-trump-nafta-plan-will-cost-ford-and-general-motors-billions.html\">http:\/\/www.foxbusiness.com\/markets\/2016\/11\/13\/why-donald-trump-nafta-plan-will-cost-ford-and-general-motors-billions.html<\/a>.<\/p>\n<p>[7] \u201cCEO Strategic Update [Transcript]\u201d, <em>Ford Motor <\/em>Company, October 3, 2017, <a href=\"http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/10-03-2017\/ceo-strtegic-update-transcript.pdf\">http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/10-03-2017\/ceo-strtegic-update-transcript.pdf<\/a>.<\/p>\n<p>[8] \u201cCEO Strategic Update [Presentation]\u201d, <em>Ford Motor <\/em>Company, October 3, 2017, <a href=\"http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/10-03-2017\/Ford-CEO-Strategic-Update-presentation.pdf\">http:\/\/shareholder.ford.com\/~\/media\/Files\/F\/Ford-IR-V2\/events-and-presentations\/2017\/10-03-2017\/Ford-CEO-Strategic-Update-presentation.pdf<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The US auto industry is bracing for changes in trade policy that will ripple through North-American supply chains, affecting both the wallets of domestic consumers and the future of company employees. \u00a0<\/p>\n","protected":false},"author":9793,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[217,2271,1572,2863,154,1601,1571,3549,2515,3239,341,3219],"class_list":["post-23531","hck-submission","type-hck-submission","status-publish","hentry","category-auto","category-auto-industry","category-automanufacturer","category-autonomous-vehicle","category-china","category-donald-trump","category-ford-motor-company","category-free-trade","category-international-trade","category-isolationism","category-mexico","category-nafta","hck-taxonomy-organization-ford-motor","hck-taxonomy-industry-auto","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - 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