Feature Story

Automakers and Suppliers Find More than Lower Labor Costs in Mexico

Mexican vehicle production capacity expected to more than double in this decade

Mexican auto assembly capacity is projected to more than double in size between 2010 and 2020. The major reason for this rapid growth is the infusion of $13.3 billion in investment to move 3.3 million units of vehicle capacity from Japan, Germany, and S. Korea to Mexico—and not the movement of U.S. and Canadian capacity.

A new CAR report, titled The Growing Role of Mexico in the North American Automotive Industry - Trends, Drivers and Forecasts, highlights North American vehicle production trends, and demonstrates that while automakers and suppliers are attracted by Mexico’s low labor rates, there are many other factors behind Mexico’s growing role in the North American automotive industry.

With easy access to both the Atlantic and Pacific oceans, Mexico’s access to global automotive markets has been a powerful tool in attracting automotive investment, as have the country’s free trade agreements with 40 countries that account for 47 percent of the world’s automotive market. Mexico has cemented its place as the prime automotive export base within the NAFTA region; no other country in the world possesses an equivalent tariff-free automotive export environment. Mexico avoided $1.2 billion in tariffs on their vehicle and part exports to their trading partners in 2014.

Mexico’s free trade position provides a significant competitive edge to attract automotive investment that the United States and Canada do not have. In fact, Mexico has won 9 of the 11 North American vehicle assembly plant commitments that have been announced since 2011. In order to compete with Mexico and to achieve the same levels of costs, the Detroit automakers have also announced several major new investments in the Mexican automotive sector—including one of the nine new assembly plants and several expansions and reinvestments in existing assembly, engine, transmission, and stamping facilities.

Just over 80 percent of the 3.2 million vehicles Mexico produced in 2014 were exported to other countries. Mexico’s automotive exports can be good news for automotive supplier jobs in the United States. Due to well-integrated North American supply chains, vehicles produced in Mexico may be comprised of up to 40 percent U.S. content. U.S. exports of parts and components to Mexico more than doubled between 2005 and 2014 to a level of $18.4 billion, while Mexico exported $39.9 billion in automotive parts to the United States. According to Dave Andrea, CAR’s Executive Vice President of Research, “Assembly capacity growth is expected to slow while powertrain and sub-tier supplier capacities are expected to continue to grow close to their customer base.” The CAR report compiles forecasts that show Mexican automotive production will level out beginning in 2020, and details the constraints on the Mexican industry’s growth including: energy availability/reliability, material capacity, port capacity, and logistics.

Automotive suppliers may see Mexico as a nearly inevitable location for their next North American facility based on their customers’ location decisions, not every operation is optimally suited for the country. CAR’s analysis of trends, drivers, and patterns behind the growth of the automotive industry in Mexico will inform various stakeholders of what these developments mean for them. It is important also to recognize there can also be substantial employment costs of free trade if the increase in production capacity in lower-cost countries outpaces market growth. “The growth of the automotive industry in Mexico carries different implications for different stakeholders in the automotive value chain” says Bernard Swiecki, Senior Automotive Analyst and Director, Automotive Communities Program. “Economic developers often see Mexico as a competitive threat, fearing the loss of potential new investments and worrying about their community’s existing automotive endowment slowly shifting south of the border.” 

The full report can be downloaded HERE.


Newsletters

Join the CAR Mailing List

Keep up to date with CAR’s latest research, events and news.