Auto Manufacturing: Free Trade Keeps Mexico in the Headlines
Commentary by JP McDaris
Some 17 million cars were built in North America last year and Mexico produced one out of every five of them, according to WardsAuto, which tracks production data. That rate is expected to increase to 1 in 4 by 2020.
“The US South and Mexico are winning the battle,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants near Toronto. “Over half the capacity and 80 percent to 90 percent of investment dollars are going to the US South or Mexico.”
>>Read More: Why Mexico is considered a “Rising Global Star”
Of course, one advantage that Mexico has as a manufacturing location above the US South (beyond lower-priced hourly labor) is its liberal trading policies. Mexico has more free trade agreements, 44, than any other country on earth. This makes it the ideal production location for not just North America, but also South America, Europe and even Asia. Complementing this free-trade strength is the fact that Mexico’s transport and logistics infrastructure are outstanding. Freight can be sent by rail or road to the US border from Mexico’s interior Bajio states in less than one day. Freight destined for more distant shores are served by ports in Veracruz, for shipments bound for Europe, or out of Lazero Cardenas, for shipments to Asia.
“Mexico bested us on trade agreements,” said Sandra Pupatello, a former Canadian politician who now oversees business development for PwC Canada in Toronto. “They quietly have been negotiating trade agreements with the world.” The US, by contrast, has about 20 trade agreements and Canada has a fraction of Mexico’s pacts.
Some Perspective How does this open trading policy translate to investment? Last year, global automakers announced $18.25 billion in additional investments in North America. Of that, almost $10.5 billion went to the US, $7 billion in new projects was for Mexico and a single $750 million project was earmarked for Canada, according to the Center for Automotive Research in Ann Arbor, Michigan. That investment is on top of the 18 plants already in Mexico, and there are at least five more planned or under construction at this writing.
While Mexico’s supply base has improved markedly over the past five years or so, there is still a need for tier 2 and tier 3 suppliers, as we pointed out in a recent blog post. But the base is in good enough shape to encourage the OEMs to continue expanding their Mexico footprint. Without that base, the FDI money would stay away. “The litmus test was when Toyota said it would build there,” said Haig Stoddard, industry analyst for WardsAuto. And the suppliers that are already in Mexico or able to transition there most swiftly will be the ones that are rewarded the most.
Source: Seattle Times