“Seemingly overnight,” writes Forbes (Sept. 8, 2014), “Mexico’s automotive output has soared, bolstered by a flood of investment from foreign-based carmakers, including Nissan, Honda, VW and Mazda.” With $19 billion in new investment, production has doubled in the past 5 years to an estimated 3.2 million vehicles. The reason is simple: Mexico has some of the most liberal free trade arrangements in the world. It has agreements with 44 countries, making it an ideal export base for automakers from Europe, China, Japan and America. (The U.S. has agreements with only 20 countries.) The result: 80% of the cars built in Mexico are exported to other countries..
In recent weeks Infiniti, Mercedes and BMW have all detailed plans to build cars in Mexico, with Hyundai-Kia just around the corner. Audi is midway through construction of a $1.3 billion factory that will build luxury SUVs starting in 2016. Currently the world’s 8th-largest auto producer, Mexico is on pace to surpass Brazil this year. By 2020 Mexico should behind only China, the U.S., Japan, India and Germany, with an annual production of 4.7 million vehicles. Automakers like the young (average age: 24) and comparatively cheap (about $40 per day) Mexican workforce. But there are plenty of other reasons. European carmakers say Mexico’s dollar-dominated currency gives them a natural hedge against fluctuating exchange rates.
Nissan has led the way with its massive new 21-million-square-foot factory. It took just 19 months for the $2 billion plant, one of the largest industrial investments ever made in Mexico, to get up and running, a record for Nissan. Production of the Sentra began last November and was quickly ramped up to full capacity of 175,000 vehicles a year, operating 23 hours a day, 6 days a week. Some 3,000 jobs were created, and another 9,000 at supplier companies. The boom in Mexican production is already rattling the North American auto industry. Today 40% of all auto-sector jobs are in Mexico, up from 27% in 2000. Canada and the Midwest have taken the brunt of the job losses.
Classroom discussion questions:
1. Why Mexico?
2. What are the supply chain implications?