Mexican Manufacturing: First-World Quality at Third World Prices

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(Commentary by Doug Donahue)

An insightful article in the Washington Post points out that, traditionally, the major US OEMs have built their most profitable models and lines in the US, saving their Mexican plants for the production of cheaper cars with slimmer profit margins.

But this model is fast changing, as Mexico is producing cars in record numbers and attracting foreign investment that begets future expansion and productivity gains.

One viewpoint posits that this changing model threatens the long-term prospects of the US auto industry and, more directly, American jobs. After all, 80% of the vehicles made in Mexico are produced for export, mostly to the US.

Furthermore, there is a growing trend of OEMs outsourcing production of parts to third parties, many of whom have also made the move to Mexican manufacturing. All of this spells doom for the US auto sector, right?

Mexican Manufacturing Benefits US Too
Not so fast, says the other viewpoint, disciples of which point to projections that jobs will continue to grow in both countries. “Mexico is not siphoning off jobs from the US,” George Magliano, senior economist at IHS Automotive, an industry research firm, is quoted as saying in the Washington Post article. “North America is becoming a new hub for export production, and the bulk of it is occurring in Mexico,” he said. “But some of it is happening in the US.”

According to IHS Automotive statistics, over 10 million vehicles were built in the US in 2012, while Mexico produced about 3 million and Canada 2.5 million, for a grand total of 15.5 million. By 2020, according IHS Automotive estimates, North America on the whole will build 17.8 million vehicles annually: 11.7 million in the US, 4.1 million in Mexico and 1.9 million in Canada.

Source: Washington Post

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