Mexico set to overtake Japan as second-largest car exporter to US

Low wages, proximity to the US and free-trade deals with more than three dozen nations have made Mexico a favorite among global automakers

By Adriana Gomez Licon  /  AP, CELAYA, Mexico

Sun, Feb 23, 2014 - Page 14

Sayonara, Japan. Mexico is on track to replace the Asian automotive giant as the second-largest exporter of cars to the US by the end of the year.

An US$800 million Honda plant that opened on Friday in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the US to 1.7 million this year, about 200,000 more than Japan, consulting firm IHS Automotive says. And, with another big plant starting next week, Mexico is expected to surpass Canada for the top spot by the end of next year.

“It’s a safe bet,” Mexican Automotive Industry Association president Eduardo Solis said. “Mexico is now one of the major global players in car manufacturing.”

Experts say Mexico’s relatively low wages, closeness to the US and free-trade deals with more than three dozen nations have made it one of the favorite locations for international automakers to invest since the 2008 global recession and rising energy and shipping prices forced companies to find ways to cut costs.

Despite Mexico’s surge, the vast majority of the cars and trucks made in North America, are still produced in the US for domestic consumption and export to other countries. And many of the vehicles built in Mexico are assembled with parts that are produced in the US and Canada and cross the border without tariffs under the North American Free Trade Agreement (NAFTA).

“There was a realization that there were some structural issues that had to be resolved in the auto industry to make it more competitive again. Moving parts, not all of the production, to Mexico was a good way to deal with that,” said Christopher Wilson, an expert in US-Mexico economic relations for the Woodrow Wilson International Center for Scholars.

When NAFTA was signed two decades ago, Mexico produced 6 percent of the cars built in North America. It now provides 19 percent. Total Mexican car production has risen 39 percent from 2007 to nearly 3 million cars a year. The total value of Mexico’s car exports surged from US$40 billion to US$70.6 billion over that span.

Mexico’s government and the car industry say the automotive industry has become the primary source of foreign currency for the nation, surpassing oil exports and remittances from immigrants in the US.

Each plant opening is lauded by businesspeople and government officials eager to promote international investment in Mexico, which is struggling with stagnant economic growth and widespread, persistent poverty. Mexican President Enrique Pena Nieto attended the opening of the plant in the town of Celaya along with Mexican Economy Secretary Ildefonso Guajuardo and top Honda executives.

Some people in Mexico worry that the boost in car production is coming on the back of unfair conditions for the country’s about 580,000 auto workers, whose numbers have risen by 100,000 since 2008. They are paid about US$16 a day, which is about one-fifth of what US autoworkers receive. More than half of all Mexican workers earn less than US$15 a day, according to Mexico’s census agency.

Car factories in Mexico operate with pro-company captive unions and many workers have fought without success to form independent unions that could bargain for higher pay and better pensions, like the United Automobile Workers (UAW) union that represents employees at US factories owned by US automakers. Foreign-owned car plants in the US are largely non-union, including a Volkswagen factory in Tennessee where the workers last week narrowly voted against representation by the UAW.

“It’s one of the most modern industries that is generating the most money for the country,” said Huberto Juarez, an auto industry expert at the Autonomous University of Puebla. “It’s not right that these workers are making so little.”

Solis says wages are low compared with the US and Canada, but says the boom is creating a new generation of young engineers and funding automotive research in Mexico.

“It’s not only about lower salaries. That’s short-sighted. It is a component of a larger equation that has to do with the expertise we are developing,” Solis said.

Much of the new production is by Japanese firms drawn by the ability to move parts into Mexico without tariffs. Local governments have been competing for new plants by offering tax exemptions, employee training and improved highways connecting the plants to the US border and Mexican ports.

Just 40km from the new Honda plant, Mazda is set to open a factory next week to produce 230,000 cars a year. Nissan is expected to turn out 175,000 cars annually at a US$2 billion plant it opened late last year in the nearby state of Aguascalientes, and Audi will be producing luxury models at a plant in the state of Puebla that is scheduled to open in 2016.

“We have gained momentum throughout the years,” Guajuardo said.

“Now Mexico is attracting international attention because it has proven to have quality of production and a friendly investment climate,” he said.