Ford’s decision is likely to adversely impact the Mexican community, as it would lead to a dramatic decline in expected job creation in 2017
On Friday, January 6, Ford Motor Company (NYSE:F) expressed its sudden plan to cancel a planned car plant opening in Central Mexico, worth $1.6 billion. The move highlights the rising risk President-elect Donald Trump’s agenda presents to the broader US economy. It also frightens all the suppliers who had bet on the company’s growing customer base with the establishment of the plant. Consequently, Ford shares closed in the red yesterday, declining 0.08% from their last close.
Reuters further cited Julian Eaves – managing director of a Mexican rubber components maker – as stating that several auto parts makers had extended their operations in Mexico in anticipation of the automaker’s expansion. This is because the region’s industry is 70% dependent on the auto sector.
Consequently, Mr. Eaves believes that Trump’s criticism and cancellation of Ford’s plant will affect the local community quite adversely. The loss could go as high as billions of dollars during the next five years, owing to lower-than-expected job creation. The automaker’s move marks the beginning of Mexico’s pain under the new administration, which promises to bring back jobs to the US.
According to Reuters, the $49.16 billion company had earlier moved production to Mexico due to drastic decline for small car demand in the US. However, the company had been Trump’s target, months before his victory in November. He now threatens to impose heavy border taxes on companies producing outside the US. This decision will not only impact Ford but also other major automakers in the country, such as General Motors.
FactSet data suggests that out of 26 analysts reviewing the stock, six recommended it as a Buy, two advocate an Overweight, 15 rated it a Hold, whereas three analysts suggested Sell. Ford’s consensus price target also stands at $12.93, with 1.33% upside potential over the last close.