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Automakers ramp up Mexican production

David Shepardson
Detroit News Washington Bureau

Mexico is fast becoming the country of choice for the world's automakers to expand production — thanks to low-wage rates and free trade agreements with most of the world's largest economies — and is poised to become one of the largest producers of vehicles in the world.

Toyota Motor Corp. said Wednesday it will build a $1 billion plant in Mexico, while Ford plans to announce $2.5 billion in investments there on Friday. . This follows major new investments announced by General Motors Co. in December with nearly all of the vehicles destined for American and Canadian buyers.

Automakers are bypassing the U.S. for new plants in part because Mexico has dozens of free trade agreements around the world, low wages, free or nearly free land on which to build and fewer regulatory hurdles. The investments also put pressure on the United Auto Workers upcoming contract talks with Detroit's Big Three automakers, since U.S. automakers will emphasize competitive pressures in talks.

BMW AG, Volkswagen AG and its Audi unit, Nissan Motor Co., Kia Motors, and Fiat Chrysler Automobiles NV are among the automakers that have built or announced new plants or plant expanions — part of more than $20 billion in investments made or planned for Mexico since 2010. IHS Automotive predicts Mexican production will rise from 3.2 million last year to 5.1 million vehicles in 2020.

Last year Mexico surpassed Brazil to rank seventh in auto production.

Toyota said it will invest $1 billion to build its newest North American plant in the state of Guanajuato in Central Mexico to produce the Corolla. It will employ 2,000 and be able to produce 200,000 vehicles a year. This will be Toyota's largest investment in Mexico and its 15th plant in North America.

Once Corolla production begins in Mexico in 2019, Toyota will halt Corolla production at its Cambridge, Ontario North Plant to switch to mid-sized, more expensive vehicles. Toyota plans to make significant investments in its assembly plants in Cambridge and Woodstock, Ontario.

"This strategic re-thinking of how and where we build our products will create new opportunities for our company, our business partners and our team members across the region," said Jim Lentz, CEO of Toyota North America. "Our next-generation production facility in Mexico will be a model for the future of global manufacturing and set a new standard for innovation and excellence."

Karl Brauer, senior analyst at Kelley Blue Book, said Toyota needs the new plant to keep up with rivals.

"After a four-year freeze on manufacturing expansion Toyota is ramping up its global production capacity to keep pace with rivals like General Motors and Volkswagen. All three are in a race to be the world's largest automaker, and Toyota's lead is shrinking. It's not surprising to see Toyota's first big investment going to Mexico, as the country's combination of low-cost labor and free trade agreements make Mexico one of the most cost-effective locations for automotive assembly," Brauer said. "It's frustrating to see the U.S. missing out on these investment opportunities, but the government's inability to update and finalize trade agreements puts the U.S. at a distinct disadvantage."

Meanwhile, Ford is expected to announce an investment for a new transmission plant, and an expansion of its plant in the northern Chihuahua state, where it will build two new diesel engines.

Ford currently builds 4.4-liter and 6.7-liter diesel engines at its 727,000-square-foot Chihuahua Engine Plant. Its Mexico operations also include Cuautitlan and Hermosillo Stamping and Assembly plants, and a joint-venture with Getrag to build six-speed transmissions. Ford product chief Raj Nair said last November the automaker could add a diesel engine option on the F-150 pickup.

In December, GM said it is investing $5 billion in Mexico over six years, dating from 2013 through 2018, and will add 5,600 new jobs in Mexico. GM Mexico currently employs about 15,000 people. GM employees annually build an average of 890,000 engines in Mexico, nearly 1.2 million transmissions and 647,000 vehicles, of which about 80 percent are exported.

The Detroit based automaker said the investment includes $1.4 billion announced or implemented in 2013 and 2014 — $3.6 billion will come over the next four years.

"These investments will fund plant improvements to modernize and expand our manufacturing facilities at our four major complexes in Mexico," GM spokesman Bill Grotz said.

The Center for Automotive Research said in November automakers' investment in Mexico rather than southern U.S. states, where the most recent auto plants have been built, is not just factory work.

"In addition to manufacturing, both automakers and suppliers report increasing reliance on Mexico for engineering, as well. Mexico is therefore emerging as a key competitor not just for manufacturing jobs but also for the high-paying white collar jobs provided by R&D operations," the report said.

Mexico has Free Trade Agreements with over 40 countries, and roughly 70 percent of the world's Gross Domestic Product can be accessed tariff-free from Mexico. "No other country in the world boasts an equivalent export environment. With easy access to both the Atlantic and Pacific Oceans, Mexico's access to global markets has been a powerful tool in attracting automotive investment. This is particularly true for automakers such as BMW and Audi, which are specifically planning for their Mexico operations to be global export hubs for the vehicles they will produce," the report said.

Mexico's low wages are certain to become an issue in labor talks between the United Auto Workers and Detroit's Big Three automakers this summer. In the 2011 contract talks, the UAW won agreements from Detroit's Big Three to return some jobs to the U.S. from Mexico.

UAW President Dennis Williams said last month that free trade agreements with Mexico have hurt on both sides of the border.

"Mexico is a problem in this sense: The United States negotiated a terrible trade agreement. It's flawed. During that trade agreement, not only was the auto industry harmed, it caused compression of the American people and it caused compression of the Mexican farmer. 83 percent of their products are exported, which causes a huge problem for a country that pays so low and treats their people so poorly," Williams said. "It's a problem not just for the United Auto Workers, it's a problem for the American worker and it ought to be a problem for those who have a conscience in the United States."

dshepardson@detroitnews.com

Detroit News Staff Reporter Michael Martinez contributed