In the space of six weeks, two new car factories have begun production in Mexico. An equal number of new assembly plants have opened in Canada in the past two decades.
Honda Motor Co. Ltd. began producing subcompact Fit cars Friday at a plant about four hours north of Mexico City. It follows closely on the heels of Japan-based rival Mazda Motor Co., which started building Mazda3 compact cars on Jan. 7 about half an hour drive away.
The new plants are the latest examples of the flood of automotive investment that is turning Mexico into one of the world’s auto making powerhouses.
Considered the junior partner when the North American Free Trade Agreement took effect two decades ago, Mexico has already eclipsed Canada as the second-largest producer of vehicles on the continent. Other plants now under construction or set to begin cranking out cars soon will boost production even further. By the middle of the decade, Mexico will threaten to overtake Canada as the largest exporter of vehicles to the United States.
As auto makers consider where to build new plants, a key issue is whether governments should give them money.
A Honda North America spokesman said the company expects to receive government support to establish the infrastructure needed to service the Mexico plant and for hiring and training of employees. There are no details yet on that assistance, the spokesman said.
The first cars rolled off the line at the $800-million (U.S.) Honda plant while in Canada the federal and Ontario governments consider a request from Chrysler Group LLC for a contribution of at least $700-million (Canadian) to the company’s planned $3.6-billion investment in its two Canadian plants and the vehicles it makes in them.
Global auto makers have invested a total of $12.5-billion (U.S.) in Mexico since 2010, compared with $3.2-billion in Canada and $29-billion in the United States, according to data compiled by the Center for Automotive Research (CAR), an industry think-tank based in Ann Arbor, Mich. About $8-billion flowed into the U.S. South – which for much of the 2000s was the hot spot.
“It’s still growing,” Francisco Gonzalez, chief executive officer of ProMexico, the government’s trade and development arm, said in a telephone interview from Mexico City.
Mexico has become the location of choice based not only on wages of about $8 an hour, but also, Mr. Gonzalez said, on a host of free-trade agreements and the growth of a strong cadre of auto suppliers.
“They’ve learned how to make better cars,” added Sean McAlinden, CAR’s executive vice-president of research and chief economist.
Mr. McAlinden said CAR officials were briefed recently by officials of Audi AG, which will open its first North American assembly plant in 2016 in Puebla, Mexico, where its parent Volkswagen AG has been making cars for more than a generation.
“They point out that Mexico has 44 multilateral and bilateral trade agreements and in the case of Audi, they expect – like BMW and Mercedes in the U.S. South – to ship over 60 per cent of their output outside North America,” he said.
BMW AG and Mercedes-Benz, part of Daimler AG, are expanding their plants in South Carolina and Alabama respectively, but BMW is reported to be negotiating with Mexico to build another plant.
The growth of Mexico worries officials in the southern states, Mr. McAlinden noted.
“A lot of plants they thought they were going to get from Germany or Japan they’re seeing showing up in Mexico,” he said.
The Fit models will be shipped to the United States and Canada from the plant, which is equipped with some of Honda’s most recent innovations, including a more efficient paint shop that applies three coats and bakes the car bodies twice, instead of the traditional four-coat, three-bake process. The new process reduces energy consumption by 40 per cent.