Ford Motor Company, S.A. de C.V.
Ford Motor Company, S.A. de C.V.
Paseo de la Reforma 333
06500 Mexico, D.F.
Fax: (525) 326-6274
Wholly Owned Subsidiary of Ford Motor Company
Sales: 9.21 billion pesos (US$2.63 billion) (1994)
SICs: 3711 Motor Vehicles and Passenger Car Bodies
Ford Motor Company, S.A. de C.V. is the Mexican subsidiary of the Detroit-based parent corporation. This subsidiary was the first automaker to establish production in Mexico, in 1925, and it remained the only automaker in Mexico until 1938. Although the Mexican market has remained relatively small, Ford Mexico’s production of motor vehicles increased greatly in the 1980s, when it began turning out vehicles for export to the United States.
Ford Mexico to 1960
Ford Motor Company, S.A. was incorporated in 1925 with capital of 500,000 pesos ($250,000). Adrian Rene Lajous, a Mexican of aristocratic parentage who was appointed managing director of the firm, knew President Plutarco Elias Calles personally and negotiated customs, tax, and railway freight-rate concessions from the government. Ford obtained a 50 percent rebate on duties for materials imported into Mexico. The company also was promised by the government that there would be no problems with the unions; however, a union was formed at the Ford factory as early as 1932. With regard to wages, Lajous suggested to Ford that it pay workers no more than $3 a day—a substantial sum at the time, since wages averaged only $1.25 a day.
Ford’s first plant was located in a rented warehouse in the San Lázaro neighborhood of Mexico City. It had a total of 250 employees but assembled only 50 vehicles, using U.S.-made parts. Many of these were Model As, which replaced the Model T in 1928. In 1932 the company built a new assembly plant in the La Villa neighborhood. This factory had the capacity to turn out 100 autos a day—far beyond the realities of the Mexican market, even though Ford established a credit company to finance sales. The factory operated only two to three days a week, and a second daily shift was not added until nearly the end of the decade. Ford was the only auto manufacturer in Mexico until 1938, when General Motors opened a plant.
World War II was a prosperous period for Mexico, and Ford’s Mexican subsidiary made a profit in each war year, ranging from $112,000 in 1939 to $851,000 in 1945. The La Villa plant was expanded in 1949. The postwar period, however, ushered in a mood of economic nationalism. In 1947, when there were seven automobile producers in Mexico, the government reduced customs duties on the import of auto parts and components but for the first time imposed quotas on the amount of material to be used for assembly that could be imported. In 1951 it introduced price controls on automobiles and trucks, and these, in one form or another, continued until 1977.
Even with price controls, an automobile bought in Mexico was 50 to 100 percent more expensive than in the United States, mainly because of the lack of automation in Mexican factories and the cost of importing parts. This confined sales to the well-to-do. The government, considering auto purchases a dangerous drain on the nation’s dollar reserves, held the industry’s production to about 15,000 cars in the mid-1950s. Since each company could easily sell every car it was allowed to produce, the quota set for each producer in the industry was the object of impassioned lobbying campaigns. In 1955 General Motors was allotted 33 percent of the market, Ford 28 percent, and Chrysler 20 percent, with American independents and European automakers holding the remainder.
Within each production quota at this time was a subquota. Of total production, 70 percent was mandated for low-priced cars, 25 percent for medium-priced ones, and not more than 5 percent for high-priced vehicles. There was also a requirement that the industry as a whole produce 55 trucks for every 45 passenger cars. Since price increases required government permission, an automobile company that earned more than 5 percent on sales before taxes, or more than 2 percent after taxes, was beating the industry average, according to a Fortune article.
Widening Its Scope in the 1960s and 1970s
In 1962 Ford purchased the Studebaker Packard plant at Tlalnepantla in the state of Mexico and made it a foundry for chassis and tools. The company was receiving parts from U.S., West German, and British Ford plants for assembly into nine different models. But instead of Detroit-style tooling for each car model, Ford Mexico had developed tools that could be used for several models, and also for use in several other Ford plants around the world. One observer told Business Week, “Mexican production technicians—born and raised in Mexico—have invented something that Detroit engineers might never have thought of. This is because Detroiters haven’t had to live with the problems of low-volume, hand-to-mouth production the way the Mexicans have.”
This form of production essentially came to an end after the Mexican government decreed, in 1962, that by September 1, 1964, 60 percent of the production cost of each Mexican-made automobile must consist of Mexican-made parts. All drive-train components—engine, transmission, and rear axle—had to be made in Mexico.
The measure was intended to close the $80-million-a-year deficit in trade because of imports of automobile components. The government also used production quotas to weed out some of the 11 companies that were manufacturing 34 models, and it even created its own firm. Of the 19 factories in Mexico engaged in auto assembly, 11 closed their doors.
Ford responded by finding local sources for 1,200 of the 1,800 new parts it needed and brought eight U.S. auto-parts manufacturers together with a Mexican refrigerator manufacturer to build a complex window regulator. It dropped its Lincoln, Mercury, Taurus, Anglia, and Consul models, retaining the Galaxie, Mustang, and Falcon. Most importantly, it opened a plant in 1964 at Cuautitlán in the state of Mexico for auto assembly and the manufacture of V8 engines. The company’s employment rose from 1,209 in 1960 to 3,291 in 1965. Sales increased to 21,207 in 1969, when Ford had 29 percent of the market. It also sold 9,821 trucks and utility vehicles, 21 percent of the total. In 1970 Ford Mexico turned out its 500,000th vehicle.
Sales of Mexican-produced automobiles were barely exceeding 100,000 a year at this time, mainly because cars were still selling for up to twice as much as in the United States. The Mexican government contended that exporting was the only way the industry could break out of its low-volume, high-cost operations, and so it decreed that the automakers must increase exports to get higher production quotas, or to retain existing ones. Although already exporting parts to 23 countries, including the United States, Ford Mexico was unwilling to compete with its Detroit counterpart by exporting fully assembled vehicles.
The 1976 devaluation of the peso sharply increased the price of imported auto parts, raising Ford’s costs. Anti-inflationary measures then made car loans more difficult to obtain, and Ford claimed that as a result of declining sales its profit margins were falling. Nevertheless, automobile sales continued to rise because Mexicans turned to cheaper compacts. In 1977 Ford was the ninth-largest company in Mexico, with sales of 7.88 billion pesos (about $358 million). Some 350,000 cars and trucks were sold in Mexico in 1978, of which 19 percent were Fords.
During this period Ford established a joint venture with Grupo Alfa to produce aluminum cylinder heads for its engines, with Grupo Vitro to make glass for its vehicles, and with Grupo Visa to make plastic components. The millionth Ford was produced in 1980. This was the last LTD assembled at La Villa, which ceased to be a production facility in 1984. Its assembly operations were transferred to Cuautitlán. An engine-manufacturing factory was opened in Chihuahua in 1983.
Turning to Exporting in the 1980s and 1990s
Mexico’s 1982 economic crisis was much more severe than that of 1976, and the peso was devalued by a much greater amount. Mexico Ford’s auto sales slumped from 78,947 to 62,821, and the company’s president said its gross profit margin had been reduced by 50 to 75 percent. Ford now turned its attention to manufacturing cars in Mexico for export to the United States. In 1984 it announced that it would invest $500 million to build subcompacts at a new plant in Hermosillo, 150 miles south of the Texas border.
When the Hermosillo plant opened in November 1986, it had capacity to produce 130,000 cars a year and began turning out the new, Japanese-designed Mercury Tracer for the U.S. and Canadian markets. The factory featured a “just-in-time” system for this model’s 2,400 components and 96 Kawasaki robots to do 95 percent of the welding. Another $300 million in funds raised the number of robots to 128, introduced personal computers, increased the plant’s capacity to 170,000 autos a year, and retooled it to produce the Ford Escort. In 1990 the plant turned out 47,702 Tracers and 40,902 Ford Escorts.
A six-week strike by about 800 workers in Hermosillo ended in April 1987, when they received an average wage increase of 34.5 percent, plus a 20-percent inflation adjustment mandated by the government. They had been averaging $1.09 an hour for a 45-hour week. In September of that year Ford dismissed 3,200 workers at the Cuautitlán plant as part of a settlement ending a nine-week strike there. The company’s Mexican sales had fallen 45 percent the previous year.
Ford Motor Company is a worldwide leader in automotive and automotive-related products and services as well as in newer industries such as aerospace, communications, and financial services. Our mission is to improve continually our products and services to meet our customers’ needs, allowing us to prosper as a business and to provide a reasonable return for our stockholders, the owners of our business.
Labor trouble erupted again at Cuautitlán in 1990, when members of the Mexican Workers’ Confederation (CTM) stormed into the plant, wearing company uniforms. They killed one and seriously wounded seven dissidents. A work stoppage of nearly a month ensued. About 1,300 returned to work, but Ford sent dismissal notices to another 2,400 and asked the CTM to provide replacements. The following year Ford announced it would invest more than $700 million to modernize the Chihuahua plant to manufacture a new four-cylinder passenger-car engine, the Zetec. Production of this engine began in 1993. The Ford Contour and Mystique automobiles were introduced in 1994.
Ford’s Mexican sales reached a record 126,000 in 1992 but fell by one-fourth in 1993. Sales stabilized in 1994 but dropped another two-thirds, to only 32,000 in 1995, in the wake of the December 1994 peso devaluation, the ensuing recession, and the imposition of a tax on new autos to raise income for the government. Because of the export of vehicles to the United States, overall sales performance was better. Ford Mexico produced 235,000 vehicles in 1996 and sold 66,000 cars and trucks in Mexico, 20 percent of the total.
Ford had three plants in Mexico in 1997. Cuautitlán, which began turning out pickup trucks in 1996 for export for the first time, had capacity to produce 159,000 vehicles and produced 85,000 in 1996. Besides the Lobo pickup it produced the Contour and Mystique. Its foundry produced 36 tons daily of auto parts, and it was gearing up to produce as many as 120,000 engines a year. Hermosillo, which turned out its millionth vehicle in 1996, had capacity to produce 168,000 vehicles and produced 110,000 in 1996. These were Mercury Tracers and Ford Escorts. Chihuahua had the capacity to produce 435,000 engines and produced 215,000 Zetec engines in 1996.
Other facilities of Ford in Mexico in 1997 included Carplastics, a wholly owned subsidiary, and four maquiladora plants at Ciudad Juarez, just south of the Texas border, for export assembly. These were Coclisa (radiators, heaters, and air-conditioning components), Altec (radios and electronic components), Autovidrio (automotive glass), and Lamosa (catalytic converters). Additionally, Ford Mexico held a minority interest in three joint-venture companies: Nemak (aluminum casting), Vitroflex (glass), and Climate Systems Mexicana (air conditioning, refrigerant lines, and couplings).
Ford invested more than $250 million in its Mexican subsidiary in 1995-96 and pledged to invest $1 billion before the year 2000. On the sales side, Ford Mexico had a network of 123 dealers selling not only vehicles made by Ford in Mexico but also in North American plants. During this period Ford became the first Mexican auto company to establish satellite communications with all its dealers. The Mystique was named 1995 car of the year and the Lobo pickup 1997 car of the year by the magazine Motor y Volante. Exclusive production of the new Escort coupe ZXR, for the U.S. and Canadian markets, began at Hermosillo in 1997 with an investment of $125 million.
Carillo Viveras, Jorge, “La Ford en Mexico: Restructuración Industrial y Cambio en las Relaciones Sociales.” Ph. D. dissertation, El Colegio de México, 1993.
Cook, Carol, “Mexico Takes Action to Aid Auto Industry,” Journal of Commerce, July 23, 1976, p. 3.
“Ford Sacks 2,400 Workers in Mexico,” Financial Times, February 8, 1990, p. 6.
González López, Sergio, Proceso de Configuración Territorial de la Industria Automotriz Terminal en México, 1964-1989. México City: Universidad Autónoma del Estado de México, 1992.
“Hasta el 2000 Se Recuperará el Mercado Automotor: Philippe Mellier,” El Financiero, January 27, 1997, p. 24.
“Mexico’s Auto Makers Switch to Home Brew,” Business Week, July 31, 1965, pp. 68, 70.
Nag, Amal, and Frazier, Steve, “Despite Ford Venture, Mexico Faces Struggle to Be Competitive,” Wall Street Journal, January 11, 1984, pp. 1, 25.
Seligman, Daniel, “The Maddening, Promising Mexican Market,” Fortune, January 1956, pp. 106-08.
Tanner, James C., “Mexican Officials Prod Local Auto Companies to Export to the U.S.,” Wall Street Journal, April 12, 1968, p. 1.
“Versatile Tooling Aids Overseas Car Assembly,” Business Week, July 22, 1961, pp. 48-50.
Wilkins, Mira, and Hill, Frank Ernest, American Business Abroad: Ford on Six Continents. Detroit: Wayne State University Press, 1964.