Ford Motor Co said Tuesday it will move some production of its Focus small car to China and import the vehicles to the United States in a long-term bet on low oil prices and stable US-China trade relations despite recent tensions.
The move suggests China could play a much larger role in future vehicle production for North America, perhaps eclipsing Mexico as a low-cost manufacturing source.
Ford painted the production shift from Mexico to China, slated in mid-2019, as a purely financial move that will save the company $500 million in reduced tooling costs.
But Ford also expects to ship about 80,000 vehicles to China this year, including the redesigned Lincoln Navigator that goes into production this fall at Ford's Kentucky truck plant.
Ford's decision to import its first vehicles from China is also the first major manufacturing investment decision made by new Chief Executive Jim Hackett, who succeeded Mark Fields in May. Discussion about the small-car production shift from Mexico to China began "a couple months ago" under Fields, said Joe Hinrichs, president of global operations.
The decision also signals a shift in strategy at Ford, which is responding to dwindling U.S. consumer demand for small cars in favor of more expensive and more profitable trucks and SUVs.
Ford on Tuesday said it would invest $900 million at the Kentucky truck plant to build the redesigned Navigator and Ford Expedition. It has contingency plans to build more of the big SUVs at an Ohio plant if demand grows.
In January, after President Donald Trump criticized Ford for shipping small-car manufacturing to Mexico, Ford said it would kill plans to build a $1.8-billion Focus plant in San Luis Potosi and instead produce the new Focus at an existing plant in Hermosillo.
"The Ford decision shows how flexible multinational companies are in terms of geography," Commerce Secretary Wilbur Ross said in a statement.
Although it is cheaper to build and ship cars to the United States from Mexico than China, "this was not a variable cost decision," Hinrichs said in a Tuesday morning briefing. "It allows us to free up a lot of capital" because Ford now has to retool only one plant - the existing Focus factory in Chongqing - rather than two to supply North America.
The current Focus will be phased out of production in Wayne, Michigan in mid-2018, according to Hinrichs. The Wayne plant will begin building a new Ranger midsize truck in late 2018 and a Bronco midsize SUV in 2020.
Ford executives told Trump last year that moving production to Michigan of bigger vehicles that were more profitable would secure the Wayne plant's future - a decision later praised by Trump.
No US jobs will be affected by shifting Focus production to China, Ford said, adding that it employs more U.S. hourly workers and builds more vehicles in the United States than any other automaker.
The United Auto Workers declined to comment.
Hinrichs said "the capital saving outweighs the risk" of having to pay a potential border tax on the Chinese-built Focus.
Ford US Focus sales have fallen 22 percent this year, as low gas prices have helped spur more buyers into larger vehicles. Ford's full-size F-series pick-up remains the best-selling US vehicle by a wide margin.
General Motors has been exporting Buick and Cadillac cars from China to the United States, as has Volvo Cars, a unit of Chinese automaker Geely <0175.HK>.
Ford shares were down 0.8 percent at $11.15 in late trading.
Reporting by Paul Lienert; additional reporting by Steve Holland.