US carmakers are ramping up production in Mexico to take advantage of lower wages.
Bloomberg News said Mexico’s share of North American vehicle production may rise at a quicker pace as General Motors, Ford and Chrysler seek out workers making less than 10% of what their US counterparts earn.
Go deeper with GlobalData
Analysts say the lower labour costs may help the manufacturers build smaller cars profitably as demand rises for fuel-efficient vehicles in the wake of last year’s recession.
Ford is building its new European-designed Fiesta in Mexico.
But analysts warned that the country’s gains will come at the expense of workers in the US and Canada.
Michael Robinet, vice president of global forecasting for CSM Worldwide, told Bloomberg that moves to Mexico may speed up after Chrysler and GM lessen some of the political pressure they face by paying back government bailout money.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataIn addition to labour costs, automakers are attracted to Mexico because of the North American Free Trade Agreement and its proximity to the US. Other benefits include Mexico’s more than 30 free-trade accords with European Union members, Japan, Brazil, Colombia and other countries, and quality that matches the US and Canada.
Mexico’s share of North American auto production is projected to rise to 19% over the next decade from an average 12% in 2000 to 2009. Over the same period, the US will lose 7 percentage points to 65% and Canada’s share will hold steady at 16%.
Bloomberg noted that GM workers in Mexico earn wages and benefits of US$26.40 a day on average, or less than US$4 an hour. Ford workers in the US earn about US$55 an hour with benefits, compared with US$50 an hour for Toyota’s US workers.
Politicians, however, say that US carmakers that received government assistance should work to preserve US jobs, but investments have already begun.
Chrysler announced in February that it will spend US$550m to retool its factory in Toluca to assemble the Fiat 500 model and last month, Ford reopened an assembly plant in Cuautitlan to build that 2011 Fiesta.
The factory will generate 2,000 jobs and is part of US$3bn of investments announced since 2008. Meanwhile, in the US, Ford has closed four assembly plants since 2006 and plans to close four more facilities by the end of next year.
Mexico was responsible for 14.2% of Ford’s US car production last year, and 16% in 2008, compared with 11.8% in 2006, according to company data.
GM has planned investments of US$3.67bn in Mexico since 2007, including a new assembly plant in San Luis Potosi.
The company has closed five US-based assembly plants and put three more on standby since June 2005.
According to Ward’s Automotive Yearbook, US car and light truck production declined to 8.45m in 2008 from 11.5m in 2005 while output in Mexico rose to 2.08m in 2008 from 1.61m three years earlier.
Production fell in both countries last year, by 28% to 1.5m units in Mexico and 34% to 5.56m in the US.
