Mexico to trump Japan as No. 2 car exporter to US

Mexico car exports

CELAYA, Mexico (AP) – Mexico is on track to overtake Japan and Canada and become the United States’ No. 1 source of imported cars by the end of next year, part of a national manufacturing boom that has turned the auto industry into a bigger source of dollars than money sent home by migrants.

The multibillion-dollar wave of new factories is raising hopes that the North American Free Trade Agreement is fulfilling its promise of fueling growth and diminishing poverty south of the border, and it has turned a handful of central Mexican cities into bright spots of prosperity.

But critics note that a major attraction for car manufacturers are Mexico’s low and stagnant wages, which have helped kept the poverty rate between 40 and 50 percent since the passage of NAFTA two decades ago.

An $800 million Honda plant opening Friday in the central state of Guanajuato will produce about 200,000 Fit hatchbacks a year, helping push total Mexican car exports to the U.S. to 1.7 million in 2014, roughly 200,000 more than Japan, consulting firm IHS Automotive says. And, with another big plant starting next week, Mexico is expected to surpass Canada for the top spot by the end of 2015.

“It’s a safe bet,” said Eduardo Solis, president of the Mexican Automotive Industry Association. “Mexico is now one of the major global players in car manufacturing.”

Mexican President Enrique Pena Nieto plans to attend the opening of the plant in the town of Celaya along with the economy minister and top Honda executives.

When NAFTA was signed two decades ago, Mexico produced 6 percent of the cars built in North America. It now provides 19 percent. Total Mexican car production has risen 39 percent from 2007, to nearly 3 million cars a year. The total value of Mexico’s car exports surged from $40 billion to $70.6 billion over that span.

Manufacturing in Mexico is now cheaper than in many places in China, though the vast majority of the cars and trucks made in North America are still produced in the U.S. for domestic consumption and export to other countries.

And many of the vehicles built in Mexico are assembled with parts that are produced in the United States and Canada and cross the border without tariffs under NAFTA.

“There was a realization that there were some structural issues that had to be resolved in the auto industry to make it more competitive again. Moving parts, not all of the production, to Mexico was a good way to deal with that,” said Christopher Wilson, an expert in U.S.-Mexico economic relations for the Woodrow Wilson International Center for Scholars.

Mexico’s government and the car industry say the automotive industry has become the primary source of foreign currency for Mexico, surpassing oil exports and remittances from immigrants in the United States.

Migration to the U.S. has slowed dramatically in recent years, though experts attribute that mostly to tougher enforcement and a slower U.S. economy. Despite successes such as the car-making boom, Mexico still isn’t creating nearly enough formal jobs for the hundreds of thousands of people entering the workforce each year.

The Mexican government announced Friday that the economy grew a meager 1.1 percent in 2013, its worst performance since 2009.  The government is hoping to see 3.5 percent growth this year.

Mexico has roughly 580,000 auto workers, whose numbers have risen by 100,000 since 2008. They are paid about $16 a day, more than $4 less than what the average U.S. autoworker is paid every hour. More than half of all Mexican workers earn less than $15 a day, according to Mexico’s census agency.

Many car factories in Mexico operate with pro-company unions and some workers have fought without success to form independent unions that could bargain for higher pay and better pensions.

“It’s one of the most modern industries that is generating the most money for the country,” said Huberto Juarez, an auto industry expert at the Autonomous University of Puebla. “It’s not right that these workers are making so little.”

Solis, the president of the auto industry association, acknowledges wages are low compared to the U.S. and Canada, but says the boom is creating a new generation of young engineers and funding automotive research in Mexico. A handful of Mexican entrepreneurs have launched boutique car companies in recent years, although their production remains insignificant compared to that of foreign manufacturers in Mexico.

“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,” Solis said.

Much of the new production is by Japanese companies drawn by the ability to move parts into Mexico without tariffs. Local governments have been competing for new plants by offering tax exemptions, employee training and improved highways connecting the plants to the U.S. border and Mexican ports.

Just 25 miles from the new Honda plant, Mazda is set to open a factory next week to produce 230,000 cars a year. Nissan is expected to turn out 175,000 cars annually at a $2 billion plant it opened late last year in the nearby state of Aguascalientes. And Audi will be producing luxury models at a plant in the state of Puebla that is slated to open in 2016.

“We have gained momentum throughout the years,” Economy Secretary Ildefonso Guajuardo said. “Now Mexico is attracting international attention because it has proven to have quality of production and a friendly investment climate.”

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