Ford has said it will cancel a $1.6bn (£1.3bn) plant it planned to build in Mexico and instead extend operations at its factory in Michigan.

The US car giant will spend $700m on expanding the plant at Flat Rock.

Ford said it needed to re-organise to use existing facilities more efficiently amid falling sales of its smaller cars.

The President-elect has criticised both Ford and its rival General Motors over production of models in Mexico.

Earlier, Donald Trump tweeted his disapproval of GM’s production of the Chevy Cruze in Mexico.

Electric cars

Ford’s chief executive, Mark Fields, said the decision to cancel was in part related to the need to “fully utilize capacity at existing facilities” as sales of small and medium sized cars, such as the Focus and Fusion, fall – but he also said the decision was a vote of confidence in the business environment Donald Trump was creating.

However, Ford is not abandoning production completely in Mexico, but is switching production of its Focus model to its existing plant in Hermosillo there to improve profitability.

It makes the current version at its plant in Wayne in Michigan. Production at that facility will switch to two new models, which it says will safeguard 3,500 US jobs.

The planned $1.6bn plant in Mexico was to be built in San Luis Potosi, but Ford said it would now invest some of that sum in Flat Rock, creating 700 jobs building a range of electric cars.

Earlier on Tuesday, Mr Trump criticised General Motors on Twitter for making cars built in Mexico and made available tax-free in the US.

“General Motors is sending Mexican made model of Chevy Cruze to US car dealers-tax free across border. Make in U.S.A. or pay big border tax!” he tweeted.

However, GM said most of its Chevy Cruze cars were made in the US.

A spokesman said only the hatchback model, which forms a small percentage of sales, was made in Mexico.

He added that the car was built there for global production and said that although some Cruze sedans were made in Mexico for a while last year, all the ones now sold in the US were manufactured in Ohio.

Glenn Johnson, president of a union at the Lordstown factory in Ohio, said there had been no protest about the move of sedan production across the border.

And responding to Mr Trump’s tweet, he said: “It makes for news, that’s all.”

Mr Trump has criticised other US industry titans since his election win and has vowed to make good on campaign promises to bring jobs back to America by, as he puts it, levelling the playing field.

However, some commentators have expressed concern that restricting imports could damage the US economy.

In November, GM said it would lay off around 1,250 workers at Lordstown and around 800 at its plant in Michigan from the middle of January, although some may find work at other factories.