Ford to build Fiesta subcompact in Mexico

MEXICO CITY (Reuters) - Ford Motor Co will build its new subcompact Fiesta model in Mexico and revamp two plants in the country in a $3 billion investment as the struggling U.S. automaker tries to return to profitability.

The launch of the Fiesta subcompact is crucial to Ford's attempt to shift toward the faster-growing market for smaller and more fuel-efficient cars and crossovers and to reduce its reliance on higher-margin but slower-selling trucks.

Chief Executive Alan Mulally said on Friday Ford (F.N) and its suppliers will sink the money into Ford's Mexican plants. The Cuautitlan plant, near Mexico City, will start building the Fiesta in early 2010 for export to the United States.

The investment also includes a joint venture with Getrag JV for a transmission plant in the central state of Guanajuato.

"Ford is investing $2.4 billion and $600 million is from our suppliers," Mulally said at a news conference at Mexico's presidential residence, where images of the new car were displayed.

Ford has indicated it is looking to shift other assembly plants from a focus on trucks to smaller cars just as it is doing in the Mexican state of Chihuahua, where it plans to build diesel engines for small and medium trucks for export.

The Fiesta is scheduled for launch in the U.S. market in 2010. Ford, like other U.S. automakers, have said higher labor costs make the production of small cars unprofitable for U.S. factories even after a cost-saving labor deal with the United Auto Workers union.

The Fiesta will debut in Europe and Asia later in 2008.

JOB CREATION

Ford discussed its plans for Fiesta production privately with UAW leaders well in advance, providing the business case for producing the car in Mexico, Joe Hinrichs, Ford's head of global manufacturing, told reporters in Detroit on Friday.

Mulally told reporters last week that the sharp jump in gas prices had led to a permanent shift in demand toward cars and crossovers and away from the large trucks and Ford would need to adjust its production accordingly.

Sales of Ford's F-Series pickup trucks have fallen 15 percent through April, hit by slower U.S. housing construction and record gas prices.

The Ford trucks have been the best-selling vehicles in the U.S. market for over 20 years, and the light truck segment had been Ford's most lucrative before the most recent slump.

Ford said the investments will create 4,500 jobs at its Mexican plants, where auto workers earn substantially less than their American counterparts.

Mexican President Felipe Calderon, who spoke alongside Mulally, said it would be the biggest investment ever in Mexico's manufacturing sector.

The decision to build the Fiesta in Mexico comes as the No. 2 U.S. automaker struggles with a slumping U.S. auto market and rising gasoline prices that are leading drivers to sour on big gas-guzzling trucks and SUVs.

Ford said it will convert its Cuautitlan plant just outside Mexico City, which produces F-Series pickup trucks, to begin assembling the Fiesta.

The company, which has lost more than $15 billion over the past two years, last week abandoned its goal of returning to profitability by 2009.

It has also bought out more than 38,000 union-represented U.S. workers, slashed cut-rate sales to car rental agencies and pushed to unify its global vehicle development in an effort to reduce costs and boost margins.

(Additional reporting by Kevin Krolicki, Jason Lange, Richard Chang)