By Adina Moloman
Sources: Washington Post, Chicago Daily Herald
Mexico is becoming a global hub for vehicle manufacturing and export, where the major players are the US and Japanese automakers, followed by European automakers that are investing billions of dollars in manufacturing in Mexico within the Mexican Maquiladora business model. The Mexico automotive sector is dedicated to manufacture and assembly cars and auto components.
Mexico has reported in the last seven years an increase in production capacity and exports due to a continued flow of foreign direct investment into the automotive sector, mostly from the United States, but also from Japan and Germany.
The Japanese OEM assemblers are shifting more of their auto-manufacturing units from US to Mexico.
On the other hand US automakers are doing the same thing. The US transnational corporations decision to invest in Mexico is basically based on costs and efficiency: wages in Mexico are six or seven times lower than in US, productivity and workers skills are similar. The European automakers decision to invest in Mexico is not only due to lower labor but also because of Mexico’s free-trade agreements with the EU.
The recent GM announcements of increasing its investment in Mexico is worrying to U.S. autoworkers and unions of maintaining, long-term, the auto manufacturing jobs in the United States.
The US Federal government used $80 billion government bailout fund in 2009 to rescue of GM and Chrysler. In return, the companies promised to consolidate operations in US and to save jobs especially at GM. So, there is still the political pressure to keep jobs in the auto industry in the United States because of the federal bailout.
North America was producing 15.5 million vehicles this last year; over 10 million were built in the United States, while Mexico was producing about 3 million (3 time less than US) and Canada 2.5 million.
The automotive manufacturing in Mexico creates every year more opportunities not only for the OEM assemblers but also for the OEM suppliers of electronic components, molded parts, air-conditioning and steering system components, suspension systems, steel products and a wide variety of other products required by the biggest OEMs assemblers with a manufacturing presence in Mexico such as GM, Audi, Honda, Nissan, Mazda, VW, etc. The expectation for Mexico is to produce more than 4 million cars each year.
At the same time there are positive expectations also for the US -to produce more than 11 million cars each years.
Analysts are saying that Both US and Mexico stand to gain from output increase in the auto industry.
The fact that US car production contains over 40 percent Mexican content will only make both of them more competitive globally especially against East Asia and Europe, with a positive impact for the US and Mexico economy.