Friday, February 21, 2014

México: Auto Makers Poised to Surpass Japan in Exports to the US

According to The Associated Press, México is expected to replace Japan as the second-largest exporter of cars to the United States by the end of the year.
An $800 million Honda plant opening Friday (February 21) in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the US to 1.7 million in 2014, roughly 200,000 more than Japan, consulting firm IHS Automotive reports. And, with another big plant starting next week, México is expected to surpass Canada for the top spot by the end of 2015.
Experts say México's relatively low wages, closeness to the US and free-trade deals with more than three dozen nations have made it one of the favorite locations for international automakers to invest since the 2008 global recession and rising energy and shipping prices forced companies to find new approaches to reducing costs.
The vast majority of the cars and trucks made in North America, are still produced in the US for domestic consumption and export to other countries. Many of the vehicles built in México are assembled with parts that are produced in the US and Canada and cross the border without tariffs under the North American Free Trade Agreement (NAFTA).
When NAFTA was signed two decades ago, México produced 6% of the cars built in North America. It now provides 19%. Total Mexican car production has risen 39% since 2007, to nearly 3 million cars a year. The total value of México's car exports surged from $40 billion to $70.6 billion in that time.
México's government and the car industry say the automotive industry has become the primary source of foreign currency for México, surpassing oil exports and remittances from immigrants in the US.
COMMENT: President Enrique Peña Nieto plans to attend the opening of the plant in the town of Celaya along with the economy minister and top Honda executives.
Some observers contend that the boost in car production is coming on the back of unfair conditions for the country's roughly 580,000 auto workers, whose numbers have risen by 100,000 since 2008. They are paid roughly $16 a day, which is about one-fifth of what US autoworkers receive. More than half of all Mexican workers earn less than $15 a day, according to México's census agency.
Car factories in México operate with pro-company captive unions and many workers have fought without success to form independent unions that could bargain for higher pay and better pensions, such as the UAW that represents employees at US factories owned by  American automakers. 
Foreign-owned car plants in the US are largely non-union, including a Volkswagen factory in Tennessee where the workers last week narrowly voted against representation by the UAW.
Much of the new production is by Japanese companies drawn by the ability to move parts into México without tariffs. Local governments have been competing for new plants by offering tax exemptions, employee training and improved highways connecting the plants to the US border and Mexican ports.
Just 25 miles from the new Honda plant, Mazda is set to open a factory next week to produce 230,000 cars a year. Nissan is expected to turn out 175,000 cars annually at a $2 billion plant it opened late last year in the nearby state of Aguascalientes. And Audi will be producing luxury models at a plant in the state of Puebla that is slated to open in 2016.
It is my prediction that as time passes, México, despite low wages, will seize a much larger share of the the US auto market, largely because US auto makers, controlled heavily by the UAW, will be unable to compete.