Next US Escape will be spun off from Fords European Kuga but exports are now in doubt

Next US Escape will be spun off from Ford's European Kuga but exports are now in doubt

 

Ford reportedly has cancelled plans to move production of the Kuga sport-utility vehicle from Europe to Kentucky as currency exchange rates no longer favour US production.

Ford had planned to shift the Kuga model next year to Louisville from Saarlouis, Germany, to take advantage of lower labour costs and the weaker dollar, sources told Bloomberg News. With the euro falling, Ford now plans to continue producing the SUV in Germany, the sources said.

The report noted that the reversal demonstrated the difficulty of lowering Ford’s US labour costs to globally competitive levels. The automaker had intended to export as many as 80,000 Kugas a year to Europe, the people said. That plan was tied in part to exchange rates and labour concessions Ford sought last year, and that United Auto Workers members rejected.

 

Ford nonetheless still will build the [new] Escape in Louisville, replacing Explorer production the automaker is moving to Chicago, the sources said. The Escape - replacing the current model shared with Mazda - and Kuga models are code-named C520 and based on Ford’s chassis for compact cars.

“We are on track to begin production next year of a new vehicle from our global C-car platform at the Louisville assembly plant,” Ford spokesman Mark Truby told Bloomberg. “Though we are not providing product details, we intend to fully utilise capacity at the transformed facility.”

Earlier reports had said the new Escape would be a spin-off of the Kuga adapted for the US. That variant will still be made in the US.

“This raises issues of how the 2011 [UAW-Detroit Three] contract negotiations will go,” Brian Johnson, an analyst at Barclays Capital in Chicago, told Bloomberg. “If the UAW is going to try to extract givebacks, Ford is showing that with its global production footprint, it can build wherever it wants.”

 

The report noted that the euro had fallen 14% against the dollar since Ford reached a tentative deal with the UAW in October to build the Kuga in Louisville alongside its mechanically identical twin, the Escape. At the time, the dollar had declined against the euro, lowering the cost of US-made goods. Since then, the euro had dropped amid concerns Europe’s debt crisis might trigger another recession.

Bloomberg noted that the promise of Kuga production in Louisville began to fall apart in November when UAW members rejected Ford’s request to match givebacks it gave General Motors and Chrysler Group which each reorganised in bankruptcy last year and were granted a six-year freeze on wages for new hires and a ban on some strikes until 2015. The UAW agreed to a first round of concessions in March 2009 that Ford said cut its annual labour costs by US$500m.

Michele Martin, a UAW spokeswoman, didn’t immediately respond to a message seeking comment.

A year ago, Ford was paying its German workers about US$62 an hour to build the Kuga, more than $10 an hour over US workers’ wages and benefits, Johnson estimated. The automaker's hourly labour costs at Saarlouis now are $50 because of the weaker euro, about the same as in the US, he added.

Ford’s four-year contract with the UAW expires in September 2011. “This is a reminder to the UAW that Ford’s US cars don’t have to be produced in the US,” Johnson told the news agency. “Ford’s global architecture allows them to build anywhere. That’s good news if the US has competitive labour costs. It’s bad news if they don’t.”

The decision highlights how flexible the automaker has become, Michael Robinet, an analyst for IHS Automotive in Northville, Michigan, said. “Ford’s production flexibility allows for these decisions to be made much closer to production than ever before,” Robinet said. “Decisions can be made now almost in real time.”