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Ford is investing rapidly in the US and will have the 'freshest showrooms in the industry by 2020,' an exec says (F)

 

Last month, Ford decided to abandon a strategy of importing a new small vehicle, the Focus Active, to the US from China because Trump administration tariffs would have undermined the car's profitability.

Trump celebrated the decision on Twitter by suggesting that Ford could now build the Focus Active in the US, but the carmaker quickly pointed out that domestic manufacturing of a vehicle that was expected to sell just 50,000 units a year didn't make sense.

"It was going to have a marginal impact on our volume," said Kumar Galhotra, Ford's North American President, in an interview with Business Insider. "In the in the present tariff structure, it just didn’t make sense."

Still, Galhotra added that "it would have been nice to have the vehicle here — it's always disappointing to lose a vehicle we had at that price point."

Ford is revamping its lineup of vehicles in the US, effectively ending new investments in sedans and going all-in with the SUVs, crossover, and pickup trucks that consumers are demanding (the iconic Mustang muscle car will also remain in the portfolio). 

Tariffs undermined the Focus Active's niche, but Ford isn't pulling back on US investment

The Focus Active was intended to fill a small niche: a compact vehicle lifted up on its suspension to function as a sort of hatchback-SUV hybrid — a 21st-century station wagon, with the only real US competition coming mainly from Subaru's Crosstrek. Pricing would likely have been in the $25,000 ballpark or slightly below.

Ford had planned to shift small-car production to a new $1.6-billion Mexico plant, but the automaker nixed that in 2017 in favor of moving production to China. 

With that strategy now apparently off the agenda, the company will concentrate on continued US investment, which according to Galhotra is considerable.

"We have a lot of new product coming over next couple of years," he said. "We expect to have the freshest showrooms in the industry by 2020, and a lot of the investment is in the US. We're not pulling back, and we're investing rapidly."

Ford will ultimately replace 75 percent of its lineup and engage in a comprehensive effort to engineer hybrid gas-electric versions of its cars and trucks that have high sales and generate big profits.

Galhotra noted that the new Ranger pickup truck will arrive next year, and the new Bronco SUV will follow. He said that Ford both employs more hourly workers in the US than any other automaker — and exports more vehicles from the US annually than anybody else.

"If you look at overall volume in the US, a very large portion is designed here and built here. The F-Series [pickup] is designed built here. The Explorer [SUV] is designed and built here. At a much broader level, that translates into a lot of jobs in the US."

The new Lincoln Navigator full-size SUV is also in such high demand that Galhotra said Ford can't keep the vehicle on dealers' lots. 

Although Ford is spending plenty of money to remain competitive in the US, its biggest market and world's toughest, the company doesn't intend to build new factories. 

"I believe we have the right footprint in US right now," Galhotra said. "Our products are successful where our capacity utilization is good."

Auto execs don't like uncertainty, but Ford isn't in conflict with the Trump administration

From the outside, it might appear as though Ford is at odds with the administration, but Galhotra said that is not the case. 

When it comes to the renegotiation of the North American Free Trade Agreement, Galhotra said that as far as the Mexico aspect is concerned, he was looking forward to the result.

"For as much as we know about the details of the agreement, based on what the administration has shared with us, I'm very encouraged. It's a good deal for the industry and for us."

For the Canadian piece of NAFTA, he added that Ford is hoping for a similar resolution and should find out what a deal looks like relatively soon as an end-of-September deadline approaches, but that the next two weeks could bring some uncertainty.

Because auto executives operate in a capital-intensive business and have to make major investment decisions on long timelines, uncertainty is never good. But although the Trump administration has been anything but consistent and has periodically put carmakers in an awkward position, Galhotra didn't suggest that it was inordinately putting the multinational in a stressful position.

"It’s part of doing business," he said. "We work with all administrations, all around the globe. We try to be nimble, and we provide our point of view. Actually, we have very cordial discussions."

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