Automakers grow factory investments in Mexico thanks to low wages, trade deals

Apr. 27, 2015 – In the past two years, eight automakers have opened or announced new plants or expansions in Mexico. Just this month, Toyota moved its Canadian production of the Corolla to a new plant in Guanajuato, while Ford unveiled plans for Mexican engine and transmission factories.

Mexico has become the most attractive place in North America to build new automobile factories, a shift that has siphoned jobs from Canada and the U.S., yet helped keep car and truck prices in check for consumers. Automakers now have 18 factories in Mexico, many built in the past 10 years. In four years, five more will be built, moving the country from the world’s seventh-biggest auto producer to fifth.

Low labour costs and fewer tariffs are the swing factors. A worker in Mexico costs car companies an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, an industry think-tank in Ann Arbor, Mich.

Mexico also trumps on free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally. The cost savings also should allow automakers to add expensive fuel-saving features to meet stricter U.S. government gas mileage requirements without raising car prices. Two-thirds of cars made in Mexico are shipped to the U.S.

Mexican auto production more than doubled in the past 10 years. The consulting firm IHS Automotive expects it to rise another 50 per cent to just under 5 million by 2022.

Initially, automakers with Mexican factories faced quality problems due to an unskilled work force. But companies with longtime factories in Mexico, such as Ford and Nissan, have resolved those issues, according to Sean McAlinden, chief economist at CAR.

For Mexican workers, the plants “originally appear like marvellous places because you can earn a salary in exchange for good work,” said Huberto Juarez, a professor at the Center for the Study of Economic and Social Development at the Autonomous University of Puebla.

— With files from Tom Krisher, Christopher Sherman, David McHugh, The Associated Press