Just as we predicted, Audi has chosen Mexico as the site of their newest manufacturing plant. A specific site for the plant will be selected later in the year, with production of an unnamed SUV (said to be the Q5) starting in 2016.

While rivals such as Mercedes-Benz and BMW, Audi chose Mexico to capitalize on South America’s growing market (specifically Brazil) and to avoid a 10 percent duty levied against American built cars imported to Europe. Volkswagen was apparently pushing for their Chattanooga, Tennesse plant to stay close to suppliers and for marketing reasons (how about a “Made in America” Audi?).

Rumors of Audi starting U.S. production have been floating around for a while. Tennesseans in Chattanooga had hoped  Audi would move in with Volkswagen. These hopes have been dashed over the weekend. Germany’s Spiegel reports that Audi will get its own plant in Mexico.

A plan to produce a new generation of Audi’s Q5 sport-utility vehicle from 2015 in Mexico will be presented to Volkswagen’s supervisory board at its next scheduled meeting on April 18, says Der Spiegel. If approved (which is very likely,) production could start in 2015, the magazine said.

Blaming an (unlikely) UAWification for Audi’s decision to build in Mexico is cute spin, but it is spin nonetheless. Until recently, top brass in Wolfsburg had argued to go Chattanooga. Ingolstadt brass was against it. Volkswagen insiders know that “Audianer” try to do their own thing whenever possible. And it looks like it has been made possible again.

Honda will build its Fit compact at the new Honda factory in Mexico, from where it will be exported to the U.S. and other markets. This is what the company told Hans Greimel, Automotive News [sub] rezident in Tokyo.

We have had this rumor a year ago, but this is the first time that Honda officially confirms what it will be building in its Celaya, Guanajuato, plant. On Wednesday, Honda laid the cornerstone for the new factory. It is scheduled to open for business in 2014 with a capacity of 200,000 vehicles a year.

According to Honda, the plant will increase Honda’s production capacity in North America to 1.87 million units from 1.63 million today, Honda said in a statement.

In January, Honda announced it would also build the next generation Acura NSX sports car in Ohio.

“Honda will soon produce everything from subcompacts to super cars in North America,” said Rick Schostek, senior vice president of Honda of America Manufacturing Inc.

Nissan and Mazda are building new plants in Mexico, which has free trade agreements with more than 40 countries.

Volkswagen wants to raise its capacity in Mexico by 20 percent to 615,000 units per year, says Automobilwoche [sub].

While Honda and Mazda are just getting their respective footholds in Mexico (the two automakers are opening up respective assembly plants in Mexico), Nissan has had a long presence south of the border, building cars at its Augascalientes, Mexico plant for decades.

Nissan is set to build an all-new plant in Augascalientes, with a total investment of $2 billion. The plant will produce B-segment cars (such as the Versa). Nissan CEO Carlos Ghosn is on a major push to avoid exporting Japanese-built vehicles due to a strong yen. The Mexican plant will help shore up North American vehicle production, as Nissan’s Smyrna, Tennessee plant will add a range of new vehicles shortly, including the Infiniti JX, the Nissan Rogue and the Nissan Leaf. Greater expansion of the new plant, as well as facilities for suppliers were also in the cards.

With the goal of becoming Latin America’s top Japanese OEM, as well as outselling Honda in the United States, the new plant is crucial to Nissan’s plans. Nissan is hoping to have the factory producing cars in less than 24 months.

The Mastretta MXT is not very well-known outside of Top Gear buffs who recall Jeremy Clarkson giving the MXT an incredibly hard time for its Mexican heritage. Of course we all know Jeremy is a shock jock more than a motor head these days, so his opinion aside the MXT slots in right behind the Doking as one the more interesting cars on display in Los Angeles. The MXT is the first sports car designed and built-in Mexico, but rather than trying to dethrone Corvette or Mustang, Mastretta is going for the niche market of small, light kit cars. Yes, kit cars. At least north of the border…

You see, the company doesn’t have the funds to make the MXT pass all the safety standards in the USA and we don’t have the legal exemptions available on our side of the pond to allow them to sell low volume specialty cars like they do in Europe. So, if you want one, the fibreglass shell and extruded aluminum chassis will arrive fully assembled with two seats and a radio, all you have to do is un-crate the Ford-sourced engine and transmission, drop them in the rear and crank a few bolts. Of course, I’d take the extra step of removing the fibreglass body and driving down the highway Ariel Atom style, but that’s just me. Shoppers wanting this hot tamale don’t have long to wait with production supposedly underway with shipments starting in the first quarter 2012. Pricing? A moving target that started at $55,000 USD and now is in the $60,000-$65,000 ballpark. Not pocket change, but neither is that Lotus. (But at least the Lotus will at least arrive fully assembled.)

Around the time of the founding of the United States, the Mexican state of Guanajuato became home to of the one of the biggest silver mines in the world, which produced as much as 2/3rds of the world’s supply of silver at its peak. Today it’s not precious metal that’s driving Guanajuato’s booming economy, but cars, as the world’s automakers flock to Central Mexico. Between 2005 and 2008, GM, Ford and Michelin dumped $1.8b into production in the state, and the expansion is still picking up steam. In the last year, Volkswagen invested $800m in engine production capacity in Silao, Pirelli built a $210m facility and Mazda just revealed it would build a new compact car plant there in June. Toyota is said to be the next to set up shop in Guanajuato, but for the moment Honda is the latest automaker to announce new operations in Guanajuato, as Automotive News [sub] reports the Japanese automaker will spend $800m on an assembly plant there. Honda, which is fleeing a strong yen which has battered Japanese exports, will start building 200k subcompacts per year in 2014. Clearly Guanajuato’s got it’s automotive mojo flowing… but are the days of new Japanese transplant factories in the US over? Is it only a matter of time before the coyotes start smuggling Detroiters into Silao, Celaya, and the Puerto Interior??

Japanese carmakers are watching the rising yen and falling dollar with great trepidation. Most have the yen at 80 or above in their plans. Today, the greenback buys just 77 yen. “The soaring yen is forcing major Japanese companies to rethink their assumed exchange rates for the current fiscal year,” writes The Nikkei [sub] today, and adds: “Reviews of assumed rates could also accelerate the transfer of production bases overseas.” Honda does just that.

Honda will produce its Fit subcompact in Mexico when a new car plant is finished in 2014, writes The Nikkei [sub]. The car is currently being made in Honda’s Suzuka factory in Mie Prefecture, Japan. At current exchange rates, Honda makes next to no money on the car.

The plant will have an initial annual capacity of 100,000 units. This comes in addition to an existing plant with an annual capacity of 50,000 units. The capacity can be increased down the road.

It was quite a coincidence when, just last week, Audi restated its interest in US production facilities on the same day that the UAW announced it was in talks to possibly organize VW’s new Chattanooga plant. At the time we noted that

With Audi execs insisting on the need for more US production capacity, a UAW win in a Volkswagen vote could have serious implications for the firm’s future expansion.

Turns out, it didn’t even have to come to a vote. Just over a week after CEO Rupert Stadler insisted that “It is totally clear that we need new production capacity in the U.S,” Audi has suddenly decided that things look nicer in union-free Mexico. Automotive News [sub] reports that Stadler wants a new Mexican plant to build the Q5 SUV, but notes that

it was still unclear if Stadler would have his way in the face of opposition from some of Volkswagen’s top managers, who wanted Audi to make use of the new VW plant in Chattanooga, Tennessee.

Did the UAW’s sudden announcement that it was in talks with VW’s global works council about organizing Chattanooga have anything to do with the decision? AN [sub] won’t say, but the timing can’t be ignored. Audi’s US production may just have been the first victim of the UAW’s transplant organization campaign.

Mazda has confirmed [to Reuters via Automotive News [sub]] what has been rumored for a while (especially in the Mexican media): open a new plant in Guanajuato, Mexico, near VW and GM’s Silao facilities. Production starts this fall and the line starts rolling in 2013, according to “people familiar with the matter.” In the meantime, Mazda6 production at the Flat Rock, MI joint venture plant continues until mid-2012, at which point Mazda will make a decision that it’s still “studying,” but it won’t be building the Mazda6. Interestingly, Mazda’s new Mexican plant is only being built for “at least” 50k units of

compact cars, initially for sale in Mexico and South America, and eventually export to North America.

Could the next-generation of Mazda midsizers be hecho en Mexico as well? It’s possible, but we won’t know until Mazda announces more details about the new factory. Meanwhile, nobody’s expecting Mazda to hang around Flat Rock… least of all Ford.

A separate AN [sub] piece gives J.D. Power analyst Jeff Schuster a chance to sum up the Mustang’s “misery,” and he spells out the situation in Flat Rock succinctly:

The Mustang on its current sales pace isn’t enough to sustain Flat Rock. The Camaro has a more modern feel and seems to draw more attention from a younger age group. Even with a boost from a redesign, because of what Camaro has achieved, you’re still looking at sales volume for the Mustang below 100,000 a year. The bottom line is something at Flat Rock will have to change.

The math goes something like this: Flat Rock can build 240k units. Last year the Mustang sold 73,716 units and the Mazda6 sold 35,662. This is why Mazda is (likely) going to leave, and it’s why Ford needs to completely re-think the plant. The Mustang isn’t getting a redesign until 2014, and if the Camaro doesn’t crash out (and it’s shown few signs of faltering this year) it will likely lose volume every year until then. Throw some rejuvenated competition from Hyundai’s Genesis Coupe, and Mustang’s chances of ever sustaining much better than 100k units seems unlikely.

The plant’s flexibility is cited as a key benefit, but unless Mazda is incredibly confident in its next-gen “Mazda-rati” midsizer, it’s hard to see the plucky automaker committing to over 100k annual units at a UAW plant any time soon. I’m guessing that this new Mexican plant site includes plenty of room to grow… and since Ford’s made big profits thanks in large part to its Mexican manufacturing footprint, they might not be far behind.

With new compact and subcompact models from Ford and GM enjoying respectable sales, the mainstream media has been indulging in some “feel-good” headlines, like the New York Times’s Detroit’s Rebound Is Built on Smaller Cars, or CBS’s more equivocal Can small cars rebound U.S. auto industry? It’s an understandable instinct, as the media has long battered Detroit’s inability to build competitive compact and subcompact cars, and in the post-bailout atmosphere of redemption, these headlines definitely help reassure Americans about the value of their “investment.” Unfortunately (if unsurprisingly), however, these pieces gloss over the full truth of the situation. Yes, Ford and GM are enjoying improved sales success with small cars. The “U.S. auto industry,” on the other hand, isn’t actually getting all that much out of the situation, beyond some fluffily positive press. Here’s why:

Final assembly, as many know, is just one way in which to measure the impact of a given car on the thousands of firms that make up the U.S. auto industry. Some cars which the MSM are highlighting as perception changers for “Detroit” and “the US auto industry,” like the Ford Fiesta (or the Cadillac SRX compact crossover), are not built in the US at all. But even those that do are hardly any more American than strong-selling nameplates that have been built in America for years. To understand how this can be, it’s important to understand “content mix,” or the percentage of US/Canadian origin in each vehicle. Luckily Car & Driver publicized 2010′s NAFTA-area domestic content mix by model, in a PDF that you can download here.

What that data shows is that most of the cars that are being most closely associated with the “American Small Car Rebound” are not, well, all that American. Fiesta and Chevrolet’s Cruze are perhaps the most widely-referenced “perception-changing” Detroit small car, and yet both are average or worse when it comes to US/Canadian content mix for their segment. A Honda Civic made in Indiana, for example, uses considerably more North American-sourced parts than either the Cruze or its even-more-lauded Volt platform-mate. Nissan’s Mexican-made Versa has more North American parts content than any other NAFTA-made subcompact. In short, the Detroit firms may be selling more domestically-branded small cars, but they’re hardly breaking new ground in terms of selling high-domestic-content compact and subcompact cars… yet.

The good news is that this situation should improve in some cases. GM’s 2% North American Aveo will be replaced later this year by the Sonic, a 65% NA content subcompact, built in Michigan. Ford’s new 2012 Focus appears to keep its high domestic parts content mix, apparently improving over its predecessor by one percent for a segment-leading 85% North American content. On the other hand, Dodge is getting a new Fiat-based replacement for Caliber soon, and a relatively rapid homologation could mean much lower domestic content there.

In any case, though Ford and GM’s sales numbers show improvement in the small car arena, America still has a long way to go before it’s a small car manufacturing hub. Furthermore, the improvements in Ford and GM’s small car sales still aren’t having as much of an impact on the “real US auto industry,” the thousands of parts suppliers and related firms across the US, as the mainstream media’s narrative implies. And the most-hyped cars, in particular, still don’t match the North American parts content mixes that transplants have been achieving for some time.

Under the terms of its contract with the US Treasury, Fiat will get an additional five percent of Chrysler Group’s equity when it builds a 40 MPG (CAFE, not EPA, so actually about 30 MPG) vehicle in the US. But it turns out that Dodge already sells a car that might qualify… unfortunately, Dodge doesn’t actually build it, offer it in the US, or, starting with the 2012 model year, even bother to rebadge the thing. That’s right, you’re looking at a 2012 Hyundai Dodge Attitude… the only non-red, and one of the only non-Dodge-branded car in the brand’s Mexican lineup [the Hyundai Atos and H100 "Ram Van" are also badged with the Korean brand's "H."

Sajeev Mehta has reviewed the previous Dodge Attitude, which Chrysler went to the trouble of creating new badges for, but based on the look of things at dodge.mx, the 2012 Hyundai Accent is clearly something of an odd man out in the lineup.  And with Fiat doubtless looking for sales in Mexico, it's not clear how the Chrysler-Hyundai partnership will last in Mexico... but for the moment it appears Chrysler is pursuing a renewal of its deal with the Koreans. After all, rebadged Hyundais constitute over a quarter of Chrysler's Mexican sales. And maybe they'll do even better now that they're not rebadging them.

Ford sold 8,834 Transit Connects in 2009, with sales of the small, Euro-style panel and passenger vans hitting 27,405 units last year. With 9,852 already sold in the first third of 2011, it seems the original German delivery van-slingers in the US market, Mercedes, are taking notice of the segment. The Dodge-branded Sprinter, a larger vehicle, saw peak sales of 21,961 back in 2006 has seen sales fall dramatically in recent years, and in 2010 Mercedes wrestled the vans back to its brand, only to sell a meager 8,599 (a nearly 1,500 unit improvement over Dodge’s last year with the product). In other words, the lesson of recent US-market Euro-style delivery vans seems to be that bigger (i.e. more direct competition with American BOF offerings) is not better.

In any case, that’s the lesson Mercedes seems to have moved, as Autoblog‘s Chris Paukert hears that Mercedes is studying the possibility of bringing its smaller Vito van to the US. And they won’t have to bring it far, as the Vito is built in Mexico (among other parts globalized). And if a $35k base-price Sprinter costs about $50k in Mexico, the $30k-ish base-price Vito (with 150 HP diesel, the only option in Mexico) could end up priced fairly close the Transit’s $22k+ range.

Will more space, a three-pointed star on the hood (did we mention the RWD?), possible diesel engines (a 3.5 liter, 250 HP gas V6 is also a likely candidate) and (Daimler willing) a sane price tempt the unexpectedly-strong smaller Euro-van market away from Ford dealers? Would you be ready to look at a Vito?

After Argentina and Brazil some weekends ago, our whirlwind tour around the globe takes us back to the American continent this weekend, further up north, on a visit to Mexico.

Now if Mexican cars don’t excite you as much as a plate of nachos, that’s ok! There are 153 other países to explore in my blog. You will enjoy it mucho mucho, te lo prometo!

After a peak at 1.140 million units in 2006, the Mexican new car market had been slipping down, accelerating its fall to minus 26 percent in 2009. The drop was halted in 2010 when the market grew 9 percent at 820,406 registrations. So far, 2011 is looking pretty good too, with a 12 percent increase over the first quarter.

If you have never been to Mexico, this will surprise you: Mexico is the country in the world where Nissan is the most successful! Yep, it’s not Japan, and it’s not even an Asian country. Celebrating its 50^th anniversary in the country this year, Nissan is by far the best selling brand in Mexico with a 24 percent market share during the first quarter of 2011.

Nissan is so popular in Mexico that partner Renault launched some of its models under the Nissan brand, just there. In 2002, the Renault Symbol was released as the Nissan Platina, to some success: the model was number 2 in 2005 and 2006.

In 2007, Renault launched the popular (and on paper perfect for Mexico) Dacia Logan as the Nissan Aprio, but it flopped.

Instead, it is the Nissan Tsuru, a 1991 Nissan Sentra, that has been dominating the Mexican market for the last six years.

Particularly popular with taxi companies, the Nissan Tsuru is a no-frill, robust and affordable sedan ($US9,000) that fits the bill perfectly for the Mexican consumer and, 20 years after its original launch, it seems to never want to end its reign. It still holds the pole position over the first quarter of 2011 with 15,804 sales and 7.5 percent market share.

Actually, there is one car that could start to threaten the Tsuru’s domination, and it is also an old generation model that has been kept in production as a low cost offer.

Volkswagen has not managed to lead the models ranking since 2003 when the Pointer (the Mexican Gol) was all the rage. In late 2010, the 6th generation Jetta was launched, and the existing generation (in fact a restyled 4th generation dating back to 1999) was renamed ‘Clasico’.

And the VW Clasico led the Mexican car market in February 2011 just above the Tsuru. It is up 65 percent year-on-year over the first quarter of 2011…

Confirming the hold it has on the country, Nissan places a second model on the podium: the Nissan Tiida sedan, known as Versa across the border. At 5.6 percent market share over Q1 2011, it is up an astounding (given the model is about to be face lifted) 65 percent year-on-year. Mexico is one of the Tiida’s top 3 performing countries in the world.

Did I mention Nissan kicked ass in Mexico?

But wait there’s more: a total of 4 Nissans in the Top 7! The Sentra is number 6 and the Chasis Largo is number 7 and best selling commercial vehicle.

General Motors is the number 2 brand in the country and it shows in the models Top 10: the Aveo is number 4, the Spark number 8 and the Chevy tres puertas (a 1993 Opel Corsa) number 9…

One last development you absolutely need to be aware of if you want to show off your knowledge of the Mexican car market is the constant progression of Spanish manufacturer Seat since its introduction in the country in 2001, and especially since the launch of the last generation Ibiza in 2009. Seat is now the tenth most successful brand in the country, with sales up 55 percent year-on-year in Q1 2011.

The Seat Ibiza lodged its best ever month in Mexico in March 2011, ranking 9th with 1,365 sales and 1.8 percent share.

Now that I’ve gone through it in a certain amount of detail I thought you’d like to see the Top 10 best selling cars in Mexico during Q1 2011:

Top 10 Mexico Q1 2011:

And the same ranking for the whole of 2010 …

Top 10 Mexico Full Year 2010:

Now if you want to know the Mexican market in more detail month by month for the last 6 months and year by year up to 2003, you can always check my blog here.

That’s all for today!

Source of Mexican sales figures: Asociacion Mexicana de Distribuidores de Automotores, A.C.

Matt Gasnier, based in Sydney, Australia, runs a blog named Best Selling Cars, dedicated to counting cars all over the world.

The WSJ reports that Mexico is emerging as one of the big winners the the automotive sector recovery, as Edward Solis, President of the Mexican Automobile Industry Association crows

We have a number that historically we’ve never had before. Fourteen of every 100 vehicles sold in the U.S. are Mexican-made in the month of January. Obviously, we can’t say that it marks a trend, that it’s going to continue like that, but it is very interesting that in our principal market we are growing in such a dynamic way.

Full-year US market share for Mexican-assembled vehicles was 11 percent for 2010, but with Hecho-en-Mexico cars like the Fiesta and new Jetta coming on strong, expect that to keep growing. Just don’t tell the hosts of Top Gear!

Bailing out the U.S. auto industry was all in the name of jobs, jobs, jobs, and the recent sales increases in new cars should have made a decent dent into the jobless rate. It just didn’t work out quite as expected. By the end of the year, J.D. Power expects that 11.8 million units will have been made in North America, up 38 percent from 8.5 million units in 2009. And where did the jobs go? They went mostly south.

According to J.D. Power, “Mexico is expected to post the strongest year-over-year increase, with production up nearly 50 percent to 2.2 million units.” Ironically, it is the American idol, the truck, that accounts for most of the Mexican increases. But aren’t Americans supposed to downsize? “The addition of the Ford Fiesta” also did light a fire under Mexican production, says J.D.Power.

Next in line for production increases: The Great White North. “Canadian production is expected to be up 39 percent to 2.1 million units,” says J.D.Power. Canada gained disproportionally from the return of the trucks.

According to latest available data, (courtesy of Automotive News [sub],) N.A. truck production is up 51 percent. That translates into 66 percent more trucks made in Mexico, 71 percent more trucks made in Canada, and only 44 percent more in the U.S.

Overall, the U.S. gains the least. “Volume in the U.S. is projected to be up 35 percent,” says Power. Be glad that the U.S. still leads in absolute numbers: 7.6 million units will have been produced in the U.S. by the end of the year, assuming a properly functioning crystal ball at J.D. Power. (The ball appears to be in good working order, the numbers cross-check with those provided by Automotive News [sub].)

By the end of November, North American production stood as follows (data brought to you by Automotive News [sub]: )

For those who still don’t believe the numbers, Automotive News [sub] provides a breakdown of production by North American plant. The list reminds us that that there is a CAMI truck pant in Ingersol, Ontario, a Ram truck plant in Saltillo, Mexico, a Dodge truck plant in Zoluca, Mexico, a Chrysler truck plant in Windsor, Ontario, a Ford F series truck plant in Cuautitlan, Mexico, a Ford Econoline production in Oakville, Ontario, a Chevy truck production in Silao, Mexico, and so forth. Those who have doubts whether some of these should be counted as real trucks should express their anger to the DOT or the EPA.

Were you curious why sales go up, and GM continues to cut down its ranks of skilled trade workers, of which it has “several thousand” too many? Now you know at least a part of the story.

Mazda has barely thrown off the shackles of Ford, but the Japanese already make their new freedom felt. In a way that won’t make Ford happy.

Mazda and their new largest shareholder Sumitomo will spend anywhere between $350m and $475m, and will open a plant in Mexico that will start making lots of little Mazdas as early as 2013. According to The Nikkei [sub], Mazda will build its bread & butter Mazda2 and Mazda3 models in Mexico. They will not be shipped north. The cars are destined for the Mexican, Brazilian, and other Central and South American markets. Mazda will initially make some 100,000 units there, later more. An engine plant is also in the cards.

This marks a series of firsts for Mazda.

• It is Mazda’s first new overseas production base since they opened a plant in Thailand in 1998.
• All previous plants, in the U.S., China and Thailand, had been run jointly with Ford.
• Mazda will hold a majority stake in the operating company — something it has never done before. Sumitomo will lend a hand in the management.

Mazda will also be treading on an in-house Monroe doctrine somewhere at Ford, and will be interfering with growth markets in the Southern Hemisphere. That will cause joy in Dearborn.

Mazda has big plans down south. They sold some 50,000 cars in the region last year, only 4.5 percent of global sales. The company wants to sell 1.7 million units worldwide in 2015, up 30 percent from now. A lot of this growth is expected from South America.

Why Mexico? Mexico has an economic partnership with Mercosur, a full customs union between Argentina, Brazil, Paraguay and Uruguay. Like its European counterpart, Mercosur is expanding. Bolivia, Chile, Colombia, Ecuador and Peru are associate members. Even Israel and Egypt joined. A plant in Mexico lowers customs barriers to these countries.

What’s more, tariffs on autoparts exported from Japan to Mexico will disappear in 2014 under a bilateral economic partnership agreement. Japanese manufacturers such as Toyota, Nissan, and Honda, which already are in Mexico, will be able to further lower their cost there.

Nissan wants to invest “the Americas” with three new low-cost subcompacts, made in Mexico by their Aguascalientes factory that can crank out 300,000 units a year. The cars are based on the Nissan’s V-platform. The Nissan March (known outside Asia as the Nissan Micra) is currently being made in Thailand and re-imported to Japan. It sells there for around $10,000.

According to The Nikkei [sub], Nissan will start making a March/Micra hatchback early next year in Mexico. A sedan and a MPV will follow by 2013. If demand exceeds the capacity of the Aguascalientes factory, Nissan’s Cuernavaca plant can lend a helping hand.

According to the Nikkei, Nissan will sell 20 percent of the three new cars in Mexico and the remainder “throughout the Americas.” Supposedly, they are looking south first, where “booming economic growth is expected to lift income levels in Central and South America,” and where “affordable subcompacts are wheeling into the spotlight as entry cars for first-time buyers.” A free trade agreement between the U.S., Chile and other neighboring nations, helps. Of course, Nissan also casts an eye further north, because “demand for gas-sipping subcompacts will grow in the U.S. as a result of tighter emissions standards.”

I understand the economic argument for the off-shoring of production, but I think the practice is reprehensible. U.S. automakers have benefitted greatly from federal largesse and should feel morally compelled to retain and create as many domestic jobs as possible.

As one of the strongest proponents of the Detroit Bailout, Rep John Dingell (D-MI) carries some weight when he makes statements like this. But how can Detroit rise again by ignoring the undeniably strong “economic argument” for outsourcing? In a Bloomberg BusinessWeek feature, Thomas Black shows why production numbers are on the rise in Mexico, and makes the case that the Detroit automakers will only increase their reliance on Mexican production when they are free from government ownership.

Why? The same reason illegal immigration is such a huge issue.

GM workers in Mexico earn wages and benefits of 340 pesos a day ($26.40) on average, or less than $4 an hour, said Tereso Medina, head of the union for GM’s 5,000 workers in Saltillo, a city that makes one in four Mexican autos.

GM’s average hourly worker salary in the US is $69,368. If a Mexican worker worked 365 work days a year at the cited rate, he would still make under $10,000. Average UAW concessions over the past decade range between $7k and $30k per year. It doesn’t exactly take a rocket-scientist to understand the “economic argument” at work here.

And the Mexican momentum is hard to ignore. Looking back at pre-crash production numbers, Black reports:

U.S. car and light truck production declined every year to 8.45 million in 2008 from 11.5 million in 2005, according to Ward’s Automotive Yearbook. In Mexico, output rose every year to 2.08 million in 2008 from 1.61 million in 2005, the data show…

Production fell in both countries last year, by 28 percent to 1.5 million units in Mexico and 34 percent to 5.56 million in the U.S., according to Ward’s.

This year, U.S. production in April rose 40 percent from a year earlier to an annualized rate of 7.05 million vehicles. Mexico’s output jumped 77 percent and is on pace to top 2008, according to the Mexican Automobile Industry Association.

Chrysler’s decision to build Fiat 500s in Toluca, GM’s new plant in St Luis Potosi and Ford’s re-opened Fiesta plant in Cuautitlan are all cited as evidence of a growing trend. And the analysts line up to be quoted as saying that politics alone are keeping Detroit from more aggressive Mexican investments.

Of course, the other way to look at it is that politics are the only reason GM and Chrysler still have the luxury of being torn between their bottom line and their moral obligation to Rep John Dingell the American people. Yet another perspective is that these weren’t truly “American” companies before the bailout anyway, and that rescuing multinationals and expecting loyalty in return is the height of naivete. In any case, it’s hard to imagine anything changing the fundamental imbalance between UAW/CAW and Mexican worker pay in the short term, so this is an issue we’re all stuck with for some time.

Ford is in-sourcing important parts of their hybrid-electric vehicles, and they are putting $135m behind the effort to bring the parts home and in-house. Currently, core parts are made abroad. Moving the making home to Michigan will create a whopping 170 jobs in Rawsonville and Van Dyke. But it’s a start. “I am proud of the tremendous success of the UAW and Ford in working together to keep good manufacturing jobs in the U.S.,” said Bob King, UAW vice president, National Ford Department.

The move will cost the jobs of workers in Mexico which currently assemble the battery packs. It will also affect a manufacturer in Japan that makes the transaxles of the transmission system.

Adding another 50 engineering jobs, Ford engineers in Dearborn will design the battery packs while engineers in Livonia will design electric-drive transaxles for the next-generation hybrids. Why? Sherif Marakby, Director of Electrification Programs and Engineering, explains that here in living audio.

There is another reason. Says the Ford press release: “The investment includes a grant received from the Department of Energy to help create green technology jobs in the U.S. This investment includes manufacturing capital equipment, launch and engineering costs and supplier tooling upgrades, all required to support the production launch of the HF35 transaxle.” If the investment comes out of the taxpayer’s pocket, some payback should be more than fair.

Ford plans to launch five new full electric or hybrid vehicles for the North American market by 2012 and European markets by 2013.

• The Transit Connect Electric light commercial vehicle in North America later this year and in Europe in 2011
• The Focus Electric in North America in 2011 and in Europe in 2012
• A Lincoln MKZ hybrid, available this fall in North America
• A next-generation hybrid electric and plug-in hybrid electric vehicle based on Ford’s global C-car platform in North America in 2012
• A C-MAX hybrid electric and plug-in hybrid electric model for Europe in 2013

I’ve long argued that if Detroit were to be nationalized (and it was, not that I’m arguing it was a good idea) the US government should make Detroit make it worth the taxpayers’ while and return production from low wage countries, such as Mexico, to the United States. This would have two effects: more US citizens would be hired and the government’s trade deficit would be reduced. Hey, if you’re going to make a private enterprise a government arm, then make that government arm contribute something positive to the country. Much of Detroit’s portfolio is made in Mexico: the Ford Fusion, the (yet to be released) Ford Fiesta, The Ford F-Series, the Chevrolet Silverado/GMC Sierra, the Chevrolet Aveo/Pontiac G3 and the Chevrolet HHR to name but a few. This has long been a practice of Detroit and some transplants (e.g., VW with the Jetta and Beetle; Toyota with the Tacoma). Exploit low wage countries for maximum profits in higher wage countries. Well, Honda didn’t get the message.

Columbus Business First reports that Honda’s Greensburg, Indiana, plant is gearing up production of Honda Civic saloons for export to Mexico and 22 other Caribbean and Latin countries. “Manufacturing products for export broadens the experiences of our associates, contributes positively to America’s and Indiana’s international trade, and shows our commitment to the continued growth and evolution of our business in Indiana,” Rick Schostek, vice president for Honda Manufacturing of Indiana.

Now, considering Honda are one of the few car companies in this downturn to still make a profit, I’m guessing they’ve calculated this move very carefully to make sure they’ll turn a profit. Which goes to show you that you CAN make a car (and this is a small car, one of the least profitable segments there is, according to Detroit) in a high wage country and still turn a profit in a low wage country. Kind of reminds me of when Detroit said they couldn’t meet 1970′s emission laws in the United States without the use of a catalytic convertor; until Honda proved them wrong about that, too.