Ford cancels plans to make SUV in Kentucky

Ford Motor Co. has canceled plans to move production of a small sport-utility vehicle from Europe to Kentucky as currency exchange rates no longer favor U.S. production, according to two people familiar with the decision.

Ford had planned to shift the Kuga model next year to Louisville from Saarlouis, Germany, to take advantage of lower labor costs and the weaker dollar, according to the people, who asked not to be identified because the plan is private. With the euro falling, Ford plans to continue producing the Kuga in Germany, the people said.

The reversal demonstrates the difficulty of lowering Ford’s U.S. labor costs to globally competitive levels. The automaker 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 labor concessions Dearborn, Michigan-based Ford sought last year that United Auto Workers members rejected.

“This raises issues of how the 2011 contract negotiations will go,” said Brian Johnson, an analyst at Barclays Capital in Chicago. He rates Ford “equal weight.” “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 euro has fallen 14 percent against the dollar since Ford reached a tentative deal with the UAW in October to build the Kuga in Louisville alongside its mechanical twin, the Escape. At the time, the dollar had declined against the euro, lowering the cost of U.S.-made goods. Since then, the euro has dropped amid concerns Europe’s debt crisis may trigger another recession.

Deal Voided

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 Co. and Chrysler Group LLC. Ford’s U.S. rivals, which each reorganized in bankruptcy last year, 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 labor costs by $500 million.

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