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Ford following Toyota to Mexico for production

Ford putting $2.5 billion to build new plant, upgrade existing facility

Published: April 18, 2015, 8:35 PM
Updated: April 21, 2015, 3:54 PM

Ford Fiesta production - Ford Fiesta production line

Recent announcements from Ford and Toyota indicate a shift in power in the North American auto industry, at least in the power that comes with production. And it looks as if Mexico is the destination of choice if you want to build cars.

It’s not a sudden shift, but a transition that has been in motion for quite some time. The Mexican auto industry is actually more than 100 years old, having first been the site of assembly for manufacturers Daimler and Renault in 1910, though facilities were soon torn down during the Mexican Revolution.

Buick was the first to set up shop in the country, in 1921, followed by Ford in 1925 and a host of others (including Chrysler, Citroen, Fiat, Volkswagen and Volvo, among others) in the decades leading up to the ’60s, when the government demanded domestic content in the production process and many manufacturers packed up their equipment and went home.

Several decades went by before carmakers again turned their attention to Mexico, with companies who had left in the economic turmoil of the ’60s (such as Mercedes-Benz and Peugeot) returning in the mid to late ’90s to give it another go when the North American market opened up with the North America Free Trade Agreement (NAFTA). At the time, it was estimated that Mexico built one in 20 vehicles for sale in North America. That figure today is roughly one in five.

Mexican manufacturing started to take off during the worldwide economic recession of 2008-09, when many carmakers started to look at cheaper production alternatives.

The Mexican government jumped at the opportunity by offering outstanding incentives to what was already an attractive low-cost labour force (auto workers in Mexico make as much per work day as their counterparts in Canada and the U.S. make in an hour to an hour and a half), and the results speak for themselves.

Manufacturers flocked to the ideal between-continents location to produce cars not only for the Americas (under NAFTA) but to ferry product year-round to Africa, Asia, Australasia and Europe, and bring components in from other low-cost markets such as India and China (since Mexico has more free-trade agreements than the U.S. and Canada combined).

In 2014, auto companies worldwide committed some $7 billion to auto production in Mexico — some ten times the investment it made to Canada, at roughly $750 million, and not far removed from the $10.5 billion invested in U.S. facilities.

And the shift isn’t about to swing, with recent announcements by Ford (putting $2.5 billion U.S. into new and existing facilities in Mexico, to build more engines and transmissions) and Toyota (spending $1 billion building a new facility to relocate Corolla production from Cambridge, Ontario).

There’s bound to be more in coming years, but the latest investments simply cap off an amazing year for Mexican automotive production that saw announcements from Audi ($1.3 billion to build a plant to make SUVs), BMW ($1 billion to build a production plant for popular U.S. models), Kia ($1 billion for a new manufacturing facility) and Mercedes and Nissan ($1.36 billion to build new M-Bs and Infinitis), as well as the start of production of Honda Fits (at a new plant) and Mazda2s and Mazda3s (also at a newly-built plant).