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Ford (F) to Continue With Plans for Production Shift to Mexico

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Ford Motor Co. (F - Free Report) intends to continue with its international plans, including shifting the production of small cars to Mexico, despite the election results. Further, CEO Mark Fields stated that two other vehicles will be produced at the company’s Michigan plant from which production of the aforementioned small cars will be shifted by 2018. He also assured that no jobs would be impacted by this decision.

President-elect Donald Trump has criticized the decision of some companies to shift production to Mexico. With regard to Ford’s decision to complete the shift by 2018, Trump stated that he would consider levying tariffs on the Mexican produced vehicles. Moreover, Trump stated his wish to remove the NAFTA agreement that includes Canada in addition to building a wall along the U.S.-Mexico border to prevent undocumented immigration.

However, Ford has stood by its decision to shift the production that was announced in Sep 2016. The move is being undertaken to take advantage of lower costs in the country and in turn, boost profitability. The company’s chairman has also stated that they have increased jobs in the U.S. over the last few years apart from producing the largest number of cars and trucks in the country compared to other automakers.

Fields further stated that with the decline in gasoline prices, it is difficult for the company to generate profits from the small cars produced in the U.S. as increasing their prices would lower sales. A group representing major automakers, including Ford, has approached the President-elect’s team to consider revision of the Obama administration's fuel economy standards. The standard calls on auto manufacturers to more than double the vehicles’ fuel efficiency to 54.5 miles per gallon by 2025.

Ford further plans to ship a small utility vehicle, EcoSport, from India. The company said that it already has plants and investments globally, and can now concentrate on investments in the U.S., including the debut of its new SuperDuty pickup from a Kentucky-based plant. Fields stated that Trump’s decision to impose a 35% tariff on cars made in Mexico will affect the entire industry, which already operates in a competitive pricing environment.

Automakers are not alone in taking advantage of low production costs in Mexico. In Sep 2016, Cisco Systems (CSCO - Free Report) , an IP-based networking company, also announced its decision to invest about $4 billion in Mexico to boost production of products such as routers, switches, servers and wireless access points.

Ford’s shares closed 0.2% lower at $12.04 on Nov 15.

Zacks Rank

Ford currently carries a Zacks Rank #3 (Hold).

Some better-ranked automobile stocks include Allison Transmission Holdings, Inc. (ALSN - Free Report) and Fox Factory Holding Corp (FOXF - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory Holding has a long-term growth rate of 15.83%.

Allison Transmission has a long-term expected growth rate of 11%.

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