Vehicles are imported into the United States from all over the world, even by American manufacturers. With cheaper labor and no tariffs, Mexico has caught the eye of the Detroit Three as they expand production in our neighbor to the south.
"In North America, it's all about utilizing our existing footprint," James Tetreault, Ford's vice president of manufacturing, told Bloomberg. "It's not like we're building greenfield plants and moving production to Mexico."
Ford did, however, recently reopen an assembly plant in Cuautitlan, Mexico, to build the new 2011 Fiesta, generating 2,000 jobs. Meanwhile, the company has closed four assembly plants in the U.S. since 2006 and plans to close four more by 2011. Mexico's contribution to Ford's North American production has increased steadily since 2006 and now accounts for 14.2 percent of North American production, up from 11.8 percent four years ago. Tetreault notes that Ford's two Mexican assembly plants have been in operation for over 30 years and that the company spends $7 in the U.S. for every $1 it spends in Mexico, where Ford has spent $3 billion since 2008.
Cross-town rival GM is going even further. The company has $3.67 billion in investments in Mexico since 2007 that includes a new assembly plant in San Luis Potosi built in 2008. Meanwhile in the U.S., the company has closed five plants since 2005 and put three more on standby.
Over at Chrysler, the plan is a bit broader. Now partnered with Fiat, the company sees Mexico as the perfect location to build models that will be exported to both the North and South American markets, starting with the Fiat 500. According to spokeswoman Jodi Tinson, a large portion of the Fiat 500s built in Mexico will go straight to South America, where Fiat holds a significant share of the market. Chrysler spent $500 million on the plant to retool it for 500 production.
"Mexico is in an ideal position as a bridge between Nafta and Latin America because of the country's free-trade agreements with its neighbors to both the north and south," Tinson told Bloomberg in an email.
According to Tereso Medina, head of a GM workers union in Mexico, the average pay for a GM Mexico factory worker including benefits is about 340 pesos per day, or about $26.50 per day at current exchange rates. That's $3.31 per hour, benefits included. U.S.-based workers, meanwhile, are estimated to earn roughly 17 times that amount, in the range of $45 to $65 per hour including benefits. As a point of comparison, according to Ford's CFO Lewis Booth, Ford workers in the U.S. make about $55 per hour on average including benefits.
Just as importantly, Mexico is part of the North American Free Trade Agreement, meaning companies outsourcing production south of the border won't have to worry about paying tariffs to import products built there. Mexico also holds free trade agreements with more than two dozen other countries, making it easier to export Mexican-built products worldwide.
"I understand the economic argument for the off-shoring of production, but I think the practice is reprehensible," Michigan Representative John Dingell told Bloomberg via e-mail. "U.S. automakers have benefited greatly from federal largesse and should feel morally compelled to retain and create as many domestic jobs as possible."
Though outsourcing is politically unpopular and a thorn in the side for partially government-owned GM and Chrysler, some analysts believe that once free of the U.S. Treasury, the two companies will expand their Mexican operations. One analyst speaking with Bloomberg predicted that while the U.S. could lose up to 7 percent of North American production in the next 10 years, Mexico's share could increase by 50 percent or more. The U.S. would still produce 65 percent of total North American production, but the downward trend could spell trouble for U.S.-based workers.