Made in Mexico: An emerging auto giant powers past Canada

[Anonymous]

http://www.theglobeandmail.com/report-on-business/international-business/latin-american-business/mexico-feature/article22987307/">http://www.theglobeandmail.com/report-o ... e22987307/">http://www.theglobeandmail.com/report-on-business/international-business/latin-american-business/mexico-feature/article22987307/

When Salvatore Lauria started work at Autotek in Puebla, Mexico, there were only a few cars in the company parking lot. Now, 15 years later, the parking lot is full and the vehicles have spilled over on to the neighbouring soccer field.



There are more cars today because Autotek has expanded eight times since it began stamping out bumpers and radiator supports in 1991.



"We often talk about all the expansions we have done in our facility, but we often forget we have had to make four expansions in our parking lot," says Mr. Lauria, general manager of the plant, which was the first factory Magna International Inc. built in Mexico.



Autotek is a prime example of how Magna is taking advantage of a remarkable growth spurt in the auto industry in Mexico. From that single plant, the Canadian auto parts giant has grown to the point where it now operates 29 plants that employ 24,050 people, more than in any other country where Magna makes parts.



Magna is riding a tectonic shift that is transforming the global auto industry as Asian and European car companies pump billions of dollars of investment into a country perfectly positioned to supply eager North American car buyers and the future growth market of South America.



The shock waves from that shift are battering Canada, which for decades stood as a strong No. 2 behind the United States when it came to North American vehicle production, but has tumbled to No. 3 behind Mexico. One-fifth of the jobs in vehicle assembly and auto parts have vanished in Canada since 2001.



As the auto industry's centre of gravity in North America moves inexorably southward, the threat to the remaining jobs in Canada is growing, creating worries for workers and posing a problem for policy makers faced with the potential loss of thousands more jobs.



The erosion of one of the pillars of Canada's manufacturing sector and the corresponding rise of the industry in Mexico is underlined in a series of statistics, including vehicle production, investment in new assembly plants and the trade balance that now stands at $10-billion in Mexico's favour.



One trend, however, stands out.



Canada's share of vehicle production in North America fell last year to its lowest level since 1987 – 14 per cent. The figure for Mexico was 20 per cent, compared with 3 per cent in 1987.

[Anonymous]

A free-trade advantage

The automatic assumption is that auto investment is flooding into Mexico because of rock-bottom wages – and they are low. Assembly plant workers earn the equivalent of about $2.90 (U.S.) an hour, estimates Alex Covarrubias, a professor at Sonora College in Hermosillo, Mexico. That's about 10 per cent of what workers with full seniority are paid hourly at Canadian and U.S. assembly plants.



Mexico's location next door to the U.S. market and close to South America is also a major lure for Asian and European auto makers that want to keep their capital investment as low as possible by supplying both markets from a single location.



What's more, Mexico has free-trade agreements with many of these countries – 45 in total – that allow auto makers to ship duty-free.



"You can export duty-free from Mexico to big automotive markets in the world – except China of course – North America, South America, European Union, Japan," notes Thomas Karig, vice-president of corporate relations for Volkswagen de Mexico. "There's no other country in the world that has these kinds of advantages."



By contrast, Canada, as a competitor with Mexico for investments by global auto makers, does not have similar links. It is a member of the North American free-trade agreement, and has recently signed free-trade deals with Europe and South Korea.



But the assembly industry in Canada is designed to feed the massive U.S. market, not markets around the world.



Mr. Karig works out of the sprawling Volkswagen AG assembly complex in Puebla, a city of about 1.5 million people southeast of Mexico City along the highway between the capital and the Gulf of Mexico port of Veracruz. Autotek is about a half-hour drive away from the Volkswagen plant, which was the first customer for the Magna plant in 1991.



Volkswagen's Puebla plant is its largest assembly plant outside of Germany, home of the legendary Beetle, and likely its only factory where assembly lines are decorated with several shrines to Our Lady of Guadalupe. Three assembly lines pumped out 475,121 Beetle, Golf and Jetta models last year.



About 80 per cent of the vehicles are exported. Beetles travel from Puebla to 100 countries, and all three vehicle models travel north by rail and ship to U.S. and Canadian markets, and by ship to Asia, Europe and South America from ports on both Atlantic and Pacific coasts that are ice-free year-round.



"Trains, roads, ports; everything is very well set up for the market," says Airton Cousseau, managing director of Nissan Mexicana. Nissan Motor Co. Ltd. operates plants in Cuernavaca, south of Mexico City, and in Aguascalientes, north of the capital, where it has two assembly plants already operating and a third under construction.



Volkswagen opened the Puebla plant southeast of Mexico City in 1964, so it's hardly a new kid on the block. The auto maker has spent $4-billion (U.S.) in the past 10 years retooling and expanding that factory as well as building and adding to a new engine plant in the central city of Silao.



The Germany-based company is also part of the massive $8-billion wave of investment announced since 2011. That spending backs the construction of seven new assembly plants that is expected to lead to production of five million vehicles annually by the end of the decade, up from the record 3.2 million that rolled off assembly lines last year.



As all that money floods into Mexico, one assembly plant closed in Canada and another is scheduled to shut down in 2016.



The new investments, including those by Volkswagen's Audi AG luxury unit, BMW AG and a Nissan-Daimler AG joint venture to assemble Mercedes-Benz vehicles, will boost Mexico as a maker of luxury vehicles, not just the subcompact and compact cars that for decades dominated the country's auto output.



The $1.3-billion Audi plant is rising in San Jose Chiapa, a town of about 4,000 people and a one-hour drive from Puebla.



Audi is an example of how economy of scale is another factor working in Mexico's favour, notably the formidable auto parts supply base that has sprung up because of earlier waves of investment.



"They decide to build a plant not too far from Volkswagen to take advantage of the synergies we can create, the support we can provide them for a startup," Mr. Karig says. "They come to Mexico because there are a lot of suppliers that already supply Volkswagen that can easily also supply them in the future."









A Mexican welcome mat

That list of suppliers includes Autotek, from which trucks carrying door beams, instrument panel beams and other stamped parts depart every two hours for the short journey up the highway to Volkswagen.

In one section of the Autotek factory, robots still wrapped in plastic covering sit awaiting installation on a new assembly line that will make cross members for an Audi luxury crossover.



From that original contract with Volkswagen, Autotek has broadened its customer base so that it now supplies a long list of major auto makers that make vehicles in Mexico.

Ben Marshall, assistant general manager of Autotek, points to the free-trade agreements as a key element that has propelled the division's growth.

"Not to mention your biggest market is next door – being the U.S. – but you have more opportunities globally out of Mexico," Mr. Marshall says. "We ship to Russia, we ship to Brazil, U.S., Thailand, India, Venezuela."

Autotek now employs 1,150 people. Another 350 employees will be added this year in Puebla and a satellite plant that supplies Ford Motor Co.

Several Japan-based suppliers have located in the central state of Aguascalientes because of Nissan's construction of two assembly plants in the city of the same name, says Rodolfo Esau Garza de Vega, the state government's Secretary of Economic Development.

[Anonymous]

It's already too long. It goes on to discuss how productivity/workforce quality are about as high as Canada now. The state government and the federal government of Mexico are offering financial incentives to lure companies. And a large middle class is emerging in that Mexican state.

[Anonymous]

It's already too long. It goes on to discuss how productivity/workforce quality are about as high as Canada now. The state government and the federal government of Mexico are offering financial incentives to lure companies. And a large middle class is emerging in that Mexican state.

This bothers me that we are losing our auto industry to Mexico..



I try to support unionized, Canadian workers when ever I possibly can..



Whatever positive changes, I am sure Canadians can do the same or better to regain our share of auto manufacturing..



Thank you Herman for this interesting thread.

 ac_smile

[Anonymous]

It's already too long. It goes on to discuss how productivity/workforce quality are about as high as Canada now. The state government and the federal government of Mexico are offering financial incentives to lure companies. And a large middle class is emerging in that Mexican state.

This bothers me that we are losing our auto industry to Mexico..



I try to support unionized, Canadian workers when ever I possibly can..



Whatever positive changes, I am sure Canadians can do the same or better to regain our share of auto manufacturing..



Thank you Herman for this interesting thread.

 ac_smile

I don't know enough about the auto sector to suggest any improvements that could be made to revitalize our domestic industry.

[J0E]

North America's version of Free Trade is a joke for the Canadian and American worker.

That is why many labor unions opposed it.

In Europe, the European common market is seen as a way to elevate the status of the European citizen, and incentives are offered to the poorer ones to elevate their status.

In North America, the opposite is true, where there is downward pressure on the CanAm worker to lower his or her living standards, to 'compete' with the Mexican, Chinese, Salvadorn worker or wherever they treat their workers like shit. There's a reason why Mexico has such a thriving drug trade. Why bother to work for $3 an hour when you can push drugs for at least 10 times that amount? Because places like Mexico push their workers to the bttom, they gravitate to crime as if it were a job.



Perhaps one way to stem the loss of Canadian jobs is for the government to take away generous tax subsidies to comapnies if they continue to export jobs to Mexico. Caterpillar as well. In other words, give companies generous tax breaks if they keep the jobs in Canada. But take them away if they continue to export them elsewhere.



The Conservative Governmnet in Canada, like previous Republican adminstrations in the USA, reward corporations for sending local jobs overseas. We should end this lucrative arrangement if it hurts the Canadian worker and out country.

[cc]

reward corporations for sending local jobs overseas

Words are too easy to spout. Cite please



That said, I'm not a free trader. I firmly believe we should equalize selling prices via the old and not in vogue tariff / duties method.



Companies were left out of the equation "the old way" ..... cost of goods was equalized and nature took its course very well thank you



Everything I've seen supports the fact that we take in FAR more dollar-wise than we sell to others, China being the most glaring example. A stupid situation to allow.



Oh, and it's not left / right at all as you wish it to be. Left loons are even more adamant that we treat all countries as equal to our own and keep  the system the same

[cc]

Clearly we are killing MANY Canadian jobs  



Like, WhyTF would we allow, even encourage this?



 How can anyone justify this?



Click to enlarge

[Anonymous]

reward corporations for sending local jobs overseas

Words are too easy to spout. Cite please

Trolls don't cite they incite.



Anyway, free trade with the USA has been good for Canada. At least it was good until the year 2000.  Just before free trade, exports to the United States represented 17 per cent of Canada's nominal gross domestic product, in current Canadian dollar terms. By 2000, they had reached 33 per cent of Canada's GDP. Today the number is all the way down to 19 per cent. By that measure, we're practically back to where we started.



There are many reasons for that including the rising Canadian dollar, which appreciated by 75 per cent between 2002 and 2007 as the principal culprit. As well, there was also the tightening of the border that followed the attacks of Sept. 11, the bursting of the tech bubble in 2000-02, the last recession, which hit the United States harder than it hit Canada, and growing competition from other exporters, especially China.



The Eurozone on the other hand is a very one-sided arrangement. It totally benefits Germany and makes their exports to the Southern countries artifically cheap.



As for free trade with China? Tread carefully. For a nearly two millenia, China has always had the upper hand when it came to trade. They didn't do it with guns either like Europeans did.



I'm a free trader, but I would rather have no deal if we can't get a good deal.

[cc]

That's actually the problem. Our "leaders" don't have a clue how to get a proper deal and end up selling their souls ... and the souls / lives  of the citizens they are supposed to act on behalf of.

Trolls don't cite they incite.

Bang on. Take not dear Joey

[Anonymous]

That's actually the problem. Our "leaders" don't have a clue how to get a proper deal and end up selling their souls ... and the souls / lives  of the citizens they are supposed to act on behalf of.

Trolls don't cite they incite.

Bang on. Take not dear Joey

I think the original NAFTA was a good document. The first decade after it's inception was good. However, a lot has changed since 1989. Extending membership to Mexico under Clinton and Chretien was a poor decision in my opinion. The US has become a lot more protectionist post 9/11. We need to wean ourselves off reliance on one market that has becoming more protectionist under the current prez. We need new markets, but like you said it must be a proper deal. Any nation that forges a free trade agreement with China will lose.

[Anonymous]

The auto manufacturing is an industry that provides good, middle class jobs..



Whatever it takes, I would like to see a solution to bring auto jobs that have gone to Mexico brought back home..



Maybe the government could offer some financial incentives, I don't know..



But reversing the trend should be a priority.

[J0E]

reward corporations for sending local jobs overseas

Words are too easy to spout. Cite please

Well, for one, a couple of years back the Caterpillar corporation laid off much of its staff in Canada, demanded its workers cut their wages by 50%, and the Harper government still gave them generous tax breaks.

They also sent a large number of those jobs to 3rd world nations.



I think that sort of thing should end - rewarding corporations for sending jobs overseas.



If companies send their jobs overseas, no tax breaks, generous government subsidies for them.

Ideally, they should pay an exit tax, and another to the nation they offshore the jobs to.



Contrast Caterpillar's actions with Microsoft, which not only opened a large office in Vancouver, but is in the process of opening a 2nd one.

That adds revenue to the tax coffers, employs Canadians in good-paying jobs.

You want to reward the job creators, not companies which offshore jobs and then cut the wages of working Canadians.

So, companies like Microsoft should get the tax breaks, but not Caterpillar.

[Frood]

Microsoft is a failing company. Caterpillar isn't.

[Anonymous]

reward corporations for sending local jobs overseas

Words are too easy to spout. Cite please

Well, for one, a couple of years back the Caterpillar corporation laid off much of its staff in Canada, demanded its workers cut their wages by 50%, and the Harper government still gave them generous tax breaks.

They also sent a large number of those jobs to 3rd world nations.



I think that sort of thing should end - rewarding corporations for sending jobs overseas.



If companies send their jobs overseas, no tax breaks, generous government subsidies for them.

Ideally, they should pay an exit tax, and another to the nation they offshore the jobs to.



Contrast Caterpillar's actions with Microsoft, which not only opened a large office in Vancouver, but is in the process of opening a 2nd one.

That adds revenue to the tax coffers, employs Canadians in good-paying jobs.

You want to reward the job creators, not companies which offshore jobs and then cut the wages of working Canadians.

So, companies like Microsoft should get the tax breaks, but not Caterpillar.

It's funny you mentioned Caterpillar. That closure would not have happened today with a 75 cent dollar. Caterpillar must be kicking themselves in the ass over that decision.