While the US has been heavily promoting manufacturing and trying to boost the manufacturing sector of the economy, it is our neighbor to the South that is making waves and building a strong economy from an industry that was born in Detroit, MI. Just six short years ago Mexico was 9th in the world in auto manufacturing and today they are the 4th largest manufacturer in the world only trailing Germany, Japan and South Korea. Now Mexico is forecasting that they will pass all of the countries ahead of them within the next few years because more and more automakers are building plants in Mexico. Volkswagen, GM and Daimler have all announced new plants in the past year putting Mexico on pace for their lofty goal.
The question becomes why is Mexico all of a sudden the most attractive place to build a car versus the traditional powerhouses like Germany,Japan and the US? The global shift towards smaller more fuel efficient cars has cut small margins even smaller in the auto industry. Car makers are attracted to Mexico because of the currency advantages, the ability to operate plants 20+ hours per day and the skilled labor force that already exists in Mexico. At first car makers were concerned quality would suffer in Mexico but they tested cars built in Mexico versus those built in Japan and cars being produced in Mexico are passing with similar scores to those automobiles that are produced in Japan.
Mexico is forecasting huge growth in the sub compact auto industry not only because of the slumping global economy but also because the US government continues to push efficiencies in mileage and fuel economy. The higher demand for these smaller cars has forced car makers to adjust how and where they produce their automobiles. In addition to the labor savings and higher demand for subcompact cars Mexico is extremely appealing because of its close proximity to the US. In addition to ease of delivery Mexico has a number of free trade agreements with over 40 countries. Mexico’s free trade policy is a stark contrast from other countries like Brazil who has mostly shut down free trade. Car companies can now make cars at a cheaper rate Mexico and have them delivered to the US in a number of days versus the weeks it takes to ship a car across oceans from Asia or Europe.
The fact that Mexico is rebuilding their economy around the auto industry and that early entrants such as Nissan have seen huge success off of their investment in Mexico, is a nice reminder that we truly live in a global economy. Every day companies are faced with tough decisions on where to manufacture their products in order to achieve the highest quality at the most efficient rate. When improving margins or developing a new product a major business strategies are made on where to manufacture and it is bringing new opportunities to countries all over the world. The US will have to continue to reinvent our economy and image on the world stage in order to compete with up and coming countries like Mexico.