Mexico is the seventh largest car manufacturer in the world—and the second largest automotive exporter to the U.S. That position is expected to grow as well. Some estimates note that by 2020, one in four cars in the U.S. will have been manufactured in Mexico. That’s possible because U.S. auto production continues to shift to Mexico.
Indeed, by 2019, the Big Three U.S. automakers will have added an estimated 320,000 vehicles worth of production in Mexico and cut U.S. output by a collective 120,000 vehicles, according to a forecast from research firm IHS Automotive. Ford will add the most production, according to IHS research.
Ford already has plans to accelerate its vehicle production in Mexico by 2018, an article in the Wall Street Journal reports. In April 2015, Ford expanded production in Mexico, investing $2.5 billion in new engine and transmission plants to create 3,800 jobs. According to the WSJ story, which cited unnamed insiders, Ford plans to add 500,000 units of capacity in Mexico by expanding an existing plant near Mexico City and building a new plant in San Luis Potosi.
Those plans call for an investment of slightly more than $1.5 billion in the San Luis Potosi plant, which should produce around 350,000 cars annually, two government officials familiar with company plans told Reuters. Ford announced in November that it will stop building Focus compact cars at a factory in Wayne, Mich., in 2018. Additionally, officials at the UAW have said the replacement for the current Focus will be made in Mexico, the Reuters article notes.
Much of the growth in Mexican auto production over the past 20 years stems in part from the North American Free Trade Agreement and the elimination of tariffs. Today, Mexico has favorable trade agreements with 45 countries, which rivals that of almost any Western nation.
Another attractive advantage for Mexico is that its middle class is growing. Today, Mexican consumers who previously purchased used American vehicles—or didn’t even consider buying a car at all—now buy new cars made in Mexico, Daniel Miranda, segment manager for the automotive industry at UPS Mexico, writes in a UPS blog. Auto companies such as Audi, Ford, General Motors and others looking to expand markets have been quick to seize on this, and, consequently, many of Mexico’s fastest-growing cities have become learning laboratories for companies boosting their Mexican presence, Miranda writes.
All of that said, the low cost of labor in Mexico clearly is appealing to some U.S. manufacturers. The combination of low wages and close proximity to U.S. borders—and in some cases, other plants or supply chain partners—is advantageous for some organizations.
For example, Cardone, a supplier of automotive replacement parts that calls itself Philadelphia’s largest remaining manufacturing company, will move its brake caliper production from plants in Philadelphia to a plant in Matamoros, Mexico, just south of Cardone’s warehouses in Brownsville, Texas, over the next two years. Kevin Feeley, a spokesman for the company, says the company is moving the work to Mexico because the “entry level” manufacturing work is “particularly sensitive” to cheap foreign competition.
Secondly, while not an automotive company, Carrier, an Indianapolis-based heating, ventilation and air conditioning company owned by United Technologies, recently made news when it announced that its Indianapolis plant would undergo a three-year relocation to Monterrey, Mexico, starting in 2017. As WIBC radio Indianapolis and other news outlets reported, the announcement was met with jeering from the plant’s employees. It’s worth noting that union workers at Carrier’s Indianapolis plant make about $34 per hour while workers in Mexico make an average of $6 an hour, which illustrates just how significant the wage difference is.
Considering Mexico’s free trade agreements, growing consumer demand for U.S. autos and workers’ significantly lower wages than that of U.S. workers, it certainly seems U.S. auto production will continue shifting to Mexico. Furthermore, the government in Mexico is committed to improving infrastructure, which also is appealing to U.S. auto manufactures.
What are your thoughts? Do you agree U.S. auto production will continue shifting to Mexico?