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September 28, 2016

Ford Building Cars in Mexico

IPI expert referenced: Merrill Matthews | In The News | Media Hit
  Point of View
By Kerby Anderson
Politicians complaining about Ford’s decision to build small cars in Mexico might want to look at the government’s policies that forced this decision. Merrill Matthews in a recent column points to two issues that explain why Ford will be moving its small car production south of the border.

First there are the CAFE standards. These are the Corporate Average Fuel Economy standards that all car manufacturers must meet. U.S. automobile manufacturers sell many more light duty trucks and SUVs but must keep these small, light cars with better fuel economy in order to offset trucks and SUVs with lower fuel economy.

These cars (and electric cars) are the best way to keep within the required CAFE standards.

As you might expect, there is little or no profit in producing these small cars. Moving small car production to Mexico makes sense. There is less overhead and cheaper labor. This is the best way for Ford to break even or even make a profit on these small cars.

The U.S. corporate income tax is a second reason for the move to Mexico. As I have mentioned in previous commentaries, this country has one of the highest corporate tax rates in the world. When you add state taxes on top of the federal tax, the tax rate is in the 40 percent range. By contrast, Mexico has a lower tax rate and probably provided some additional incentives to Ford Motor Company.

There is a solution: fix the corporate tax system. The plans put forward by House Speaker Paul Ryan, and the current plan put forward by presidential candidate Donald Trump, would do just that.

Politicians can continue to complain about automobile companies and other manufacturers moving operations out of America, or they can do something about it. Other companies will follow Ford to Mexico or other places where they can break even or make a profit. Congress and the next president needs to make changes before other companies decide to turn out the lights and head south.

 

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