Mexico continues to be viewed favorably by automakers. It also seems that status is even on the rise. Indeed, in recent weeks, several automakers have announced plans for significant expansion in Mexico.
For example, Ford Motor Co. recently announced a $2.5 billion plan to expand and build new engine and transmission plants in Mexico. Joseph Hinrichs, the company’s president for the Americas, says the projects in the states of Chihuahua and Guanajuato will create 3,800 direct jobs. The facilities are expected to boost engine exports to the U.S., Canada, South America and the Asia-Pacific region.
Toyota also recently announced plans for a $1 billion plant in Guanajuato to begin production of the Corolla sedan in 2019, creating about 2,000 jobs. Toyota will shift Corolla production away from a Canadian plant to the new facility in Mexico.
It isn’t just automakers expanding in Mexico, however. U.S. tire maker Goodyear recently announced it too will build a factory in central Mexico to produce six million tires a year for customers across the Americas. The plant will be built in the state of San Luis Potosi, and will begin production in mid-2017. The investment is expected to cost between $500 million and $550 million and will employ roughly 1,000 people.
Two critical reasons behind companies expanding or relocating operations to Mexico are low labor costs and fewer tariffs. A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits, according to a recent Associated Press article. That wage compares with $58 per hour in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, the article explains. Both wages can be contrasted with that of German autoworkers, who are paid roughly $52 an hour.
Mexico also beats the U.S. when it comes to free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. That, along with low labor costs, convinced Audi to build an SUV factory in the state of Puebla. The German automaker will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe, compared with building the same vehicle in the U.S., says Sean McAlinden, chief economist at CAR, in the AP article.
It’s worth noting that such cost savings also potentially enable automakers to add expensive fuel-saving features to meet stricter U.S. government gas mileage requirements. Consequently, automakers could develop such vehicle capabilities while also keeping costs down, and therefore meet customers’ expectations for increased fuel economy without increasing overall vehicle cost.
Automakers now have 18 factories in Mexico, and many of those have been built within the past 10 years. In four years, five more will be built, moving the country from the world’s seventh-largest auto producer to fifth. Furthermore, Mexican auto production more than doubled in the past 10 years, and consulting firm IHS Automotive expects it to rise another 50 percent by 2022. At the same time, U.S. production is expected to increase only three percent over the next seven years.
What are your thoughts on automotive manufacturing in Mexico? Will even more plants and facilities be built there? Also, what will happen if workers begin to demand higher wages?