By on February 24, 2014

2015 Honda Fit

Mexico’s auto industry is set to ship more product north to the United States than Japan and Canada by the end of 2015, in part due to the effects the North American Free Trade Agreement has had on the country since its signing two decades ago.

USA Today reports that with operations at Honda’s new $800 million plant in Guanajuato now online, the 200,000 Fits destined annually for the U.S. will push total Mexican exports to 1.7 million units this year, just 200,000 more than Japan’s exports from their home market. Mazda’s newest plant 25 miles away, when open this week, will add 230,000 units annually to the total, pushing Mexico past Canada by the end of 2015 to become the No. 1 exporter to the U.S.

At the time of NAFTA’s signing, the auto industry in Mexico produced 6 percent of the total output in North America. Twenty years later, that figure is now 19 percent, with 3 million units leaving the factory floor. Total valuation of the nation’s exports surged to $70.6 billion from $40 billion in 2007. The industry is now Mexico’s primary source of foreign currency, surpassing oil exports and remittances from migrant labor along the way.

This growth is driven by low wages — $16/day on average for Mexico’s 580,000 auto workers — which critics attribute to maintaining Mexico’s poverty rate between 40 percent and 50 percent two decades on. Meanwhile, the nation hasn’t fared any better as a whole, with overall economic growth at 1.1 percent in 2013, the worst rate of growth since the beginning of the Great Recession.

For Eduardo Solis, president of the Mexican Automotive Industry Association, the boom is about more than low wages, citing a new generation of local engineers and increases in automotive research as positive outcomes:

It’s not only about lower salaries. That’s short-sighted. It is a component of a larger equation that has to do with the expertise we are developing.

Aside from NAFTA opening the floodgates, the lack of tariffs has allowed Japanese manufacturers — the main driver behind new production in Mexico — to set up shop easily. Incentives from local governments, such as employee training, tax exemptions and infrastructure improvements, have helped to draw new factories to their cities.

Correction: an earlier iteration mistakenly quoted Mexican auto ages at $16 per hour.

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29 Comments on “Mexico Besting Japan, Canada In Auto Exports To The U.S....”

  • avatar

    I’m sure us outsiders will probably never likely know this, but I am curious at how the defect counts add up by country and manufacturer. I’m not entirely sold on the race to build in Mexico just yet (one of my cars is a 2013 Fusion).

    • 0 avatar

      Quality is a management decision – not a function of what country the plant is located in.

      • 0 avatar

        Can you clarify what level of management you mean? I remember that Toyota got itself in a bit of trouble a few years back for publicly comparing the quality of their US plants vs their Japanese ones. This was at least 10 years or so ago if I remember correctly and perhaps things have changed.

        • 0 avatar

          Management sets the standards, and its managements job to insure that the standards, are adhered to.

          This is true of every manufacturing facilty, of everthing in the world.

        • 0 avatar

          Quality comes from parts, engineering and the assembly process, which are all management functions. Those shouldn’t vary much from place, although some individual plants may be somewhat better managed than others.

          The processes dictate the results, and those come from the top.

    • 0 avatar
      Richard Chen

      IIRC the prior-gen Fusion was originally slated for Atlanta to replace the Taurus built there, but both price and quality were better at Hermosillo MX. The Atlanta plant was then shuttered.

      Some analyst last week said “Mexico is the new South”.

  • avatar

    This statistic is skewed because many of our Japanese cars are made in the USA.

    • 0 avatar

      The gist of the original AP release was that Mexico now ships more Mexican-made cars to the US (19%).

      Cars made in the US, regardless of who owns the company where in the world, do not count as shipments TO the US under NAFTA.

  • avatar

    Is $16/hour really responsible for “maintaining Mexico’s poverty rate”? I would have thought that kind of wage was pretty good for down there. It certainly goes farther in Mexico than it would in the US.

    • 0 avatar

      Well, when you have people claiming they’re paid only $16 a day, that’s pretty good. In fact, there are quite a few Americans who would settle for a full time job paying that much.

      One of the early stipulations of NAFTA was a clause that required cars sold in Mexico to be made in Mexico. That was supposed to be phased out eventually, but I’m not familiar enough with the agreement to say when. Does anybody know when?

      • 0 avatar
        schmitt trigger

        Most if not all, of the luxury cars sold in Mexico are foreign made.
        From BMWs to Cadillacs.

        There is also a significant share of vehicles imported from Brazil and Chile.

        “The industry is now Mexico’s primary source of foreign currency, surpassing oil exports and remittances from migrant labor along the way.”

        This will be the key to reduce the flow -to a large extent- of undocumented migrants.

        • 0 avatar

          you have you’r facts wrong, Chile doesn’t produce cars, and premium car manufacturers BMW, Audi and Mercedes are setting plants in Mexico to produce cars that where imported from europe

        • 0 avatar

          Hidden away as a big secret is the fact that BMW Mexico has been assembling CKD Bimmers for two decades. BMW don’t even acknowledge the existence of this plant on their global website, because it’s privately owned.

          Nobody seems to know why or even speculate. Perhaps because of German/Mexican linkups going back well over a century.

          From Wikipedia:

          ” BMW Mexico, full name: Bayerische Motoren Werke de México S.A. de C.V. also known as Lerma Motors is the independent Mexican owned subsidiary of German Bayerische Motoren Werke AG headquartered in Mexico City, Mexico. [1] It is a private Mexican owned branch of the German based BMW AG. [2]

          BMW de Mexico has two production facilities in Lerma, Toluca, Mexico State [3][4] in one the company manufactures BMW motorcycles and in the second the company manufactures the BMW 3 Series, 5 Series, 7 Series and X5.”

          So Mexicans drive local BMWs for the most part.

          BMW IS contemplating a real factory in Mexico though.

          • 0 avatar

            CKD is almost always a workaround for high tariffs (which Mexico has had.) CKD cars tend to stay local because they were motivated by that country’s tariff; the other markets with lower tariffs can be served by the traditional assembly plants.

    • 0 avatar

      jpolicke, the pay rate is $16 PER DAY in Mexico as per the original article. Not per hour.

      By comparison, the rate is ~$20 PER HOUR in the US, plus bennies.

      • 0 avatar

        I went by what the original TTAC article stated before it was corrected.

        • 0 avatar

          I read the original article in the El Paso Times last Sunday and was surprised that the rate was that high ($16 per day).

          Not too long ago, the Mexican auto plants were paying just shy of $8 per day, which means the cost of labor at Mexican auto plants has doubled since then.

  • avatar
    Jeff Waingrow

    Something’s wrong here. $16/hr in Mexico does not produce poverty. That’s absurd. If every worker there made that wage, Mexico would change overnight. Still, the larger point is that low wage countries have a way of becoming something else rather quickly, and so it is shortsighted for manufacturers to rely on that fact alone in choosing where to manufacture. In addition, a car’s components are often made in a multitude of countries so that it’s final assembly point may be somewhat beside the point.

  • avatar

    This growth is driven by low wages — $16/hour on average for Mexico’s 580,000 auto workers — which critics attribute to maintaining Mexico’s poverty rate between 40 percent and 50 percent two decades on.

    Hmmmmmm sorry to burst your bubble but $16/Hour is a very very very very good wage in Mexico, heck is even a good wage in some parts of the US.

    If we consider than in Mexico the work week is 48 hours instead of 40 like in the US, then someone who makes $16/hour*48 hours that is $768/week before taxes….not too bad Mexican auto worker not too bad.

  • avatar

    That quoted $16.00 USD an hour for Mexican assembly workers is pure bull excrement.

    Automotive plants assembling vehicles pay their workers between $4 and $5 an hour. Parts suppliers pay their workers a little less, about $3.20 an hour.

  • avatar

    It is amazing that domestic help is paid more than auto workers. Our maid is paid five dollars per hour. Gardeners are paid three dollars per hour in our area. Sixteen dollars per day sounds very low to me. The waiters in local restaurants are paid more than that. I do live in a resort area, but the people coming to the resort are Mexicanos, not US and Canadians like elsewhere in Mexico.

    • 0 avatar

      $16/day is an excellent income in the areas of Mexico where the auto plants are. Several members of my daughter-in-law’s family work there and they are very well off by Mexican standards.

      The maquiladoras just south of the border pay less than that and are instrumental in more illegal alien Mexicans going back to Mexico to find a job rather than stay in the US.

      And the auto makers save a ton of money making them in Mexico vs making them in the US.

      The biggest benefit of all? Making them in Mexico means no hassles from the UAW since Mexican unions are interested in working WITH the auto makers instead of driving them out of business and into bankruptcy like the UAW has so richly done to Detroit.

      Ahhh, but if the UAW could only have a do-over, eh? Hindsight is always 20/20.

  • avatar
    Big Al from Oz

    Well, was that not the idea of NAFTA?

    • 0 avatar

      It was!

      But many of the parts are still made in the US and Canada, with all the quality problems associated with suppliers taking shortcuts and not adhering to specs, and then transshipped to Mexico for assembly.

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