Ford said it had scrapped a planned Mexican car factory and added 700 jobs in Michigan following criticism by Donald Trump.
The move comes as the US president-elect turned his attention toward rival General Motors with the threat of a "big border tax" over compact cars made in Mexico.
Ford CEO Mark Fields called the move "a vote of confidence" in Trump, but primarily a response to a decline in North American demand for small cars like those that would have been made at the Mexican plant.
He said Ford would have made the same decision even if Trump had not been elected.
Ford will cancel plans unveiled in April to spend $1.6 billion to build the new plant in San Luis Potosi, Mexico, a project Trump urged the company to abandon and called an "absolute disgrace" during the election campaign.
The second biggest US car maker also said it would invest $700m to expand the Flat Rock, Michigan factory and would make new electric, hybrid and autonomous vehicles there.
Trump's efforts to browbeat the US car industry show he may go further than other modern presidents to try to influence corporate decisions, especially those related to trade and investment.
Mexico's government said it regretted Ford's decision and has ensured that the company will reimburse San Luis Potosi state for any costs associated with the investment.
"Obviously, this isn't a good decision for us," said Mexico's economy minister, Ildefonso Guajardo.
Ford said it still will shift production from Michigan of its Focus compact car to an existing plant in Hermosillo, Mexico. Fields said he expects Michigan to give incentives for Ford's investment in Flat Rock.
Ford spokeswoman Jennifer Flake said the car maker will save $500m by not opening the new plant in the near term, but will have some undisclosed costs to retool the other Mexican plant to build the Focus.
Trump said during the presidential campaign that if elected he would not allow Ford to open the new plant in Mexico and would slap hefty tariffs on imported Ford vehicles.
Trump also accused Mexico of sending criminals and rapists into the US and vowed to build a border wall to combat illegal immigration.
Since winning the November 8 election, Trump has targeted a wide range of American companies, including United Technologies, Boeing and Lockheed Martin.
He also has touted decisions by companies to keep some production in the US, including United's Carrier unit in Indiana.
Trump previously vowed to hit companies that shift production from America to other countries with a 35% tax on their exports into the US.
He also has denounced the North American Free Trade Agreement between the United States, Mexico and Canada.
Fields said there were no negotiations between Ford and the incoming president over canceling the Mexico plant or investing in Michigan.
