Carmakers are flocking to Mexico

Monday, 03 March 2014 00:10 
BY BRENT SNAVELY
Detroit Free Press/MCT


Mexico is winning thousands of new automotive jobs by offering a compelling combination of lower labor costs, a mature supply base and access to transportation that makes it easy to export vehicles to the U.S., South America and Europe.

Twenty years after U.S. President Bill Clinton signed the North American Free Trade Agreement, Honda and Mazda opened two assembly plants in Mexico in less than a week.

The factories, in the cities of Celaya and Salamanca, both in the state of Guanajuato, represent an investment of more than $2 billion. Between 2013 and 2015, Honda, Mazda, Nissan, Chrysler and Volkswagen automakers will invest $6.8 billion in Mexico, according to Free Press research.

In addition to NAFTA, Mexico has 10 other free trade agreements covering 43 countries, according to ProMexico, an economic development arm of the Mexican government.

“It’s a masterpiece of economic development,” said Sean McAlinden, senior economist for the Center for Automotive Research.

So far the newest surge of growth in Mexico hasn’t hurt Michigan’s prospects. The Center for Automotive Research estimates that automakers announced investments of $19.2 billion between 2010 and 2012 in seven Great Lakes states.

But in today’s fluid, global economy, manufacturers are more willing to expand in low-cost regions. To the degree that subtracts from the rest of North America, the Midwest will be somewhat protected.

“You have two regions that are big losers: Canada and the southern U.S. I just don’t see it affecting Michigan,” said McAlinden.

In Canada, Fiat Chrysler Automobiles CEO Sergio Marchionne has threatened to move the company’s next generation minivan out of Windsor where it has assembled vans since they were introduced in 1983.

Canada is “a guppy in shark-infested waters,” Marchionne said earlier this month, citing higher wages and a reluctance to offer incentives such as tax abatements.

Marchionne has said Chrysler wants to invest as much as $2 billion for the next minivan, but the company will only commit to Windsor if the Canadian Auto Workers and the provincial government help reduce the company’s costs. Marchionne warned that other states are interested.

Japanese automakers are opting to build plants in Mexico to mitigate swings in the value of the Japanese yen.

A weaker yen has improved the profitability of cars built in Japan and sold in the U.S., but Toyota, Honda and Nissan continue to shift more production from Japan to North America.

For smaller vehicles in particular, the lower cost base of Mexico is attractive.

“Mexico is the largest non-indigenous auto industry in the world, it will be twice the size of Canada in vehicle production by 2016,” McAlinden said.

Mike Jackson, director of IHS Automotive’s North American vehicle production forecasting, said the quality of cars and trucks produced in Mexico has improved since the 1980s and 1990s.

He estimates that Mexican auto production will jump from 2.9 million vehicles last year to 4.5 million a year by 2020. In that same period, output from Canadian assembly plants is expected to drop from 2.4 million to 1.8 million.

IHS predicts that U.S. production will rise from 10.9 million last year to 11.9 million in 2020.