A US automaker with long-established production facilities in Mexico has become the first to suggest rising crime could force it out of the country.
Dan Ustian, chairman and chief executive of truck maker Navistar, told analysts on a conference call the firm could shift production from Mexico because of escalating political instability, with drug-related violence moving into parts of the country once deemed as safe.
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According to a Dow Jones report, the company has made trucks and buses at a plant near Monterrey for over 10 years but the northern industrial hub has become a hot spot for violence – over 50 people were killed last month when armed men set fire to a local casino in an attack related to extortion.
Ustian said Mexico had become “unsettling,” despite the quality of production aimed at booming markets in Latin America.
“The political environment there worries us, so we have the ability to move production around,” said Ustian, who did not say where production might be relocated if such a decision were made. His comments are among the first public expressions of concern from US manufacturers, notably automakers, who have shifted production to Mexico, Dow Jones noted.
Analysts have remained sanguine about the potential impact of the violence that has claimed an estimated 43,000 lives over the past five years. Bank of AmericaMerrill Lynch said in a report this week that it sees only a modest impact of higher insecurity on economic activity, with consequences concentrated in the domestic market.
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By GlobalData“In our view, the economic impact of the rise in insecurity could eventually be more significant through delayed investment and consumption, if tragic events similar to those in Monterrey become more prevalent,” said analysts at the bank.
Navistar forecast a continued surge in orders for large trucks next year, though it cut its 2011 profit guidance as parts shortages reduced margins.
It expects retail sales of 275,000 to 310,000 Class 8 trucks next year, driven by replacement demand and expected GDP growth of 2.4% in the US. Industry orders are expected to rise somewhere between 240,000 and 260,000 in 2011.
Navistar reported a surge in third-quarter earnings, lifted by a big tax credit, though underlying profit fell short of analysts’ expectations and the company cut its full-year guidance as parts shortages hit margins.
For the quarter ended 31 July, Navistar reported a profit of US$1.4bn, or $18.24 a share, up from $117m/$1.56, a year earlier. Excluding such items as restructuring and engineering integration costs, earnings fell to 79 cents from $1.44. The most recent quarter also included a $1.46bn income tax benefit while the year-earlier included a $19 million income tax expense. Revenue jumped 9.8% to $3.54 billion, Dow Jones said.
