The Obama Administration spent more than $80 billion last year to prop up General Motors and Chrysler in a controversial effort to save millions of American manufacturing jobs. Both car companies have since stabilized, and business is also looking up at Ford Motor (F). Yet as they map out their investment plans in the year ahead, the U.S. auto companies will likely put most of their new jobs and plant capacity in Mexico, not the U.S., auto analysts predict.
Chrysler announced in February that it's spending $550 million to retool its factory in Toluca to assemble the subcompact Fiat 500 model. Last month, Ford reopened an assembly plant in Cuautitlán to build Fiesta compacts for the 2011 model year. The factory will generate 2,000 jobs and is part of $3 billion in investments in Mexico announced since 2008. In the U.S., Ford has closed four assembly plants since 2006 and plans to close four more facilities by the end of 2011.
Mexico's gains will come at the expense of workers in the U.S. and Canada, says Dennis DesRosiers, president of DesRosiers Automotive Consultants in Richmond Hill, Ontario. Mexico's share of North American auto production will rise to 19 percent over the next decade, from an average of 12 percent from 2000 to 2009, according to DesRosiers. Over the same period the U.S. will lose 7 percentage points, to 65 percent of the market, and Canada's share will hold at 16 percent. "There is going to be more capacity put into North America—and Mexico is going to get more than its fair share," he says.
Moves to Mexico may speed up as Chrysler and GM pay back government bailout money and the political scrutiny they face eases, says Michael Robinet, vice-president of global forecasting for CSM Worldwide in Northville, Mich. The reason isn't hard to fathom. GM workers in Mexico earn wages and benefits of 340 pesos a day ($26.40) on average, or less than $4 an hour, says Tereso Medina, head of the union for GM's 5,000 workers in Saltillo, a city about 180 miles (300 kilometers) south of the Texas border, where one in four Mexican autos is produced. GM and Ford workers in the U.S. earn about $55 an hour with benefits.
Representative John Dingell (D-Mich.) believes U.S. automakers that received government assistance should work to preserve U.S. jobs. "I understand the economic argument for the offshoring of production, but I think the practice is reprehensible," Dingell noted in an e-mail. "U.S. automakers have benefitted greatly from federal largesse and should feel morally compelled to retain and create as many domestic jobs as possible."
Mexico stands to benefit from more stringent U.S. fuel-efficiency requirements because it's more profitable to make small cars where labor costs are lower, Robinet said. Ford says it continues to invest heavily in its American production capacity. Mexico was responsible for 14.2 percent of Ford's U.S.-Mexican car production last year and 16 percent in 2008, compared with 11.8 percent in 2006, according to company data. For every dollar Ford invested in Mexico during the past five years, the company spent $7 in the U.S., says James Tetreault, vice-president for North American manufacturing. Ford's two Mexican assembly plants have operated for more than 30 years, he says. "In North America, it's all about utilizing our existing footprint," Tetreault says. "It's not like we're building greenfield plants and moving production to Mexico."
GM has announced investments of $3.67 billion in Mexico since November 2007, including a new assembly plant in San Luis Potosí. The company has closed five U.S.-based assembly plants and put three more on standby since June 2005, according to Tom Wilkinson, a GM spokesman.
A significant portion of Chrysler's production of the Fiat 500 will be sold in South America, said Jodi Tinson, a spokeswoman. "Mexico is in an ideal position as a bridge between Nafta and Latin America because of the country's free-trade agreements with its neighbors to both the north and south," Tinson said in an e-mail.
The bottom line: For Detroit automakers, the economic advantages of building cars in Mexico will likely trump pressure to keep jobs at home.