Investment in the Mexican auto industry is soaring as automakers take advantage of low labor rates, an increasingly sophisticated workforce and a plethora of free trade agreements.
Ford Motor Co. said Friday that it will spend $2.5 billion to build and expand engine and transmission factories in the Mexican states of Chihuahua and Guanajuato, creating 3,800 jobs.
Ford’s investment follows Toyota Motor Corp.’s announcement earlier this week that it will spend $1 billion to construct a new factory in central Mexico, where it will build Corolla compact cars.
“The Mexican auto industry is coming of age,” said Mike Jackson, an analyst at IHS Automotive, an industry research firm.
To be sure, wages top the list of Mexico’s auto manufacturing advantages. Workers at the auto assembly plants south of the border earn an average $5.64 an hour compared to $27.78 for their U.S. counterparts, according to the Center for Automotive Research, an industry think tank in Ann Arbor, Mich. Those at the parts suppliers earn just $2.47 an hour. Workers at U.S. auto suppliers average $19.65.
But that’s just one factor, Jackson said. The Mexican auto industry is turning out more sophisticated vehicles than it could a decade ago. That’s why luxury automaker BMW also revealed plans for a $1-billion plant in San Luis Potosi last July. Mercedes-Benz and Nissan are building a joint, $1.4-billion plant in Aguascalientes. Audi is constructing a $1.3-billion factory near Puebla.
Altogether, auto companies and suppliers have announced almost $5.5 billion in factory expansion and construction so far this year, according to the Center for Automotive Research.
Ford aims “to make our vehicles even more fuel-efficient with a new generation of engines and transmissions our team in Mexico will build,” said Joe Hinrichs, Ford’s president of the Americas.
Already, Ford manufactures engines and assembles the Fiesta, Fusion and Lincoln MKZ in Mexico. The transmission plant to be built in Guanajuato will be Ford’s first in Mexico.
The Mexican auto industry has grown to the point at which it generate jobs beyond the assembly lines.
Automakers and suppliers report increasing reliance on Mexico for engineering, according to Jay Baron, chief executive of the Center for Automotive Research. That is turning the nation into a “key competitor” for high-paying white collar jobs provided by automotive research and development operations, he wrote in an industry report.
Baron and other analysts said Mexico’s auto industry growth is accelerated by a web of free trade agreements. The country has pacts with more than 40 nations that, combined, represent 70% of the world’s gross domestic product, according to the Center for Automotive Research.
The number of vehicles Mexico produces annually is expected to rise 54% from last year's level to nearly 5 million in 2022, according to IHS Automotive. U.S. production will rise 7% to a little more than 12 million during the same period.
Mexico's geography -- easy access to both the Atlantic and Pacific oceans -- bolsters its position as an automotive export hub.
“No other country in the world boasts an equivalent export environment,” Baron said.
Already large numbers of Mexican-assembled Volkswagen and Nissan vehicles are going to Europe, South America and other global markets, Jackson said.
Much of what gets built in Mexico will be exported north to the United States and Canada.
“The lion’s share of what we will export from Mexico will be for the rest of North America,” said Jim Lentz, chief executive of Toyota North America.
But the trade is not completely one-sided. The United States is feeding the Mexican auto industry with billions of dollars of materials. In 2013, the United States had a trade surplus with Mexico of nearly $7 billion exporting plastics, according to the Center for Automotive Research. It also has big surpluses in other raw materials, including steel and aluminum.
Even as the Mexican auto industry grows, automakers continue to invest in the United States. The car companies announced $10.5 billion in U.S. plant investment, according to the Center for Automotive Research. That compares to $7 billion in Mexico and just $800 million in Canada.
Virtually all of the U.S. spending is on retooling, reconfigurations and expansions of existing factories. That’s far different from Mexico, where much of the spending is on new factories.
Auto companies have announced no new assembly plant plans in the United States since 2009. (The Tesla Motors factory in Fremont, Calif., is considered a reopening since it is on the site of a former joint Toyota-GM plant.) During that same time, six new auto factories were announced in Mexico, representing a combined investment of more than $8 billion, according to the Center for Automotive Research.
Toyota’s new factory in Mexico will be its first anywhere for years. The automaker stopped building factories in 2013, saying that it needed to get more cars out of its existing plant network before investing in new facilities.
The pause also has given the automaker time to rethink how it will construct new plants. Toyota said the cost of manufacturing a vehicle at the new factories will be approximately 40% less than what it spent to produce a car in 2008.
The factory will employ 2,000 workers and will be built in the state of Guanajuato. It will be the first to employ the use of what the automaker is calling “Toyota New Global Architecture.”
“This will be adding our newest technologies to build the best vehicles for customers around the world,” Lentz said. “This is not just about low labor cost.”