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Samen
12-17-2008, 05:48 PM
http://www.bloomberg.com/apps/news?pid=20601109&sid=aImmc_hK.uGE&refer=home

GM Mexican Plants Expand as Carmaker Seeks Funds for Rescue
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By Thomas Black

Dec. 17 (Bloomberg) -- General Motors Corp., the biggest automaker in the U.S. and Mexico, increased production of $12,625 Chevrolet Aveos south of the border while seeking a bailout to keep domestic plants from closing.

The Detroit-based company and competitors such as Ford Motor Co. shifted more manufacturing to Mexico this year to capitalize on wages less than an eighth of those in the U.S. and factories that make fuel-efficient models. Through November, Mexican plants turned out 5 percent more vehicles than a year earlier, versus an estimated decline of 30 percent in the U.S.

Mexico is so far weathering the collapse of the global auto industry better than its North American neighbors. Even with a projected decrease in production of as much as 20 percent in 2009, the world’s 10th-largest maker of light vehicles will still suffer less than the U.S. or Canada, according to Eduardo Solis, president of the Mexican Automobile Industry Association.

“The type of vehicle that’s produced in Mexico for the cost that it’s produced and the proximity to the U.S. are factors helping us fare better than other countries,” said Emilio Mosso, a deputy director at the Mexican Economy Ministry.

Thanks to investments by most of the major producers, Mexico has developed a high quality, low-cost manufacturing base. Assembly-line technology is now sophisticated enough to let the nation expand into aerospace, with Bombardier Inc., Safran SA and Honeywell International Inc. investing in operations in recent months.

“The number of errors produced in Mexico is relatively lower than in other countries,” Adolfo Albo, an economist in Mexico City with Spain’s Banco Bilbao Vizcaya Argentaria SA said in a telephone interview. “Plants are newer and the training processes are more effective.”

Small-Car Production

Output there also favors small and mid-size vehicles, which make up almost three-quarters of those manufactured. Other models produced in Mexico include the Pontiac G3, Ford Fusion, Volkswagen Beetle and Dodge Journey, a new car-based, sport- utility vehicle.

The product mix positions the industry to grab market share in coming years as consumers seek out fuel efficiency, Mosso said. Through November, Mexico had gained a percentage point to 26 percent of U.S. imports this year, even though close to 30,000 fewer cars from there were sold in the states than in the same period of 2007.

That said, Mexico won’t be immune to the global drop-off in vehicle sales. More than 70 percent of its cars end up in the U.S. where sales in November fell to the lowest annual rate in 26 years, according to Autodata Corp.

Export Decline

Exports to the U.S. slipped 2.6 percent to 1.1 million autos and light trucks through November versus the same period last year. That compares with an 11 percent drop for South Korea, a 9.8 percent decline for Germany and a 7.4 percent slide for Japan, the auto industry association said.

The drop was offset by increased shipments to Europe and South America in the first 11 months. Sales of Mexican exports were up 4 percent through November.

“It’s a world automobile industry crisis that we haven’t yet felt because of those export markets, which next year simply won’t be there,” Solis said.

Still, the “pothole” the industry hit won’t last forever, said Gustavo Cespedes, 46, vehicle manufacturing director for GM North America, who is slated to become chief of the company’s San Luis Potosi plant in January. “Here in Mexico, I believe we’re in a favorable position.”

Labor Costs

Lower labor costs are the biggest advantage. At around $3 an hour, the average Mexican wage is less than one-eighth of those in the U.S.’s $25.34 and one-seventh of Canada’s $21.38, according to Sergio Ornelas, the president of industrial park operator Intermex, which provides real estate services to auto and car-parts producers. Ornelas cited information compiled from the Boston Consulting Group, the U.S. Department of Labor and The Economist Intelligence Unit during a recent conference in San Luis Potosi.

Auto companies contribute to a government-run health system and mandated individual retirement accounts for each worker, which keep health and pension-benefit costs low compared with the U.S., Ornelas said.

The push into Mexico by U.S. car companies could be slowed by restrictions put on GM and Chrysler LLC for accepting Troubled Asset Relief Program funds, said George Magliano, senior auto analyst at Global Insight Inc. in an interview at the San Luis Potosi conference.

“This money is going to come with a tremendous amount of strings,” he said. “If they give you $25 billion and you start closing all your U.S. industry, that could be an issue.”

Bankruptcy Impact

If GM and Chrysler are forced to declare bankruptcy, it may speed up the transfer of production to Mexico as carmakers seek to slash expenses, said Nick Criss, executive director of industrial services in the nation for real estate broker Cushman & Wakefield Inc.

“Mexico tends to be the core manufacturer for many companies because it’s a low-cost center,” Criss said.

GM, for instance, has invested $3.6 billion in Mexico in the last three years. Its auto and light truck production there rose 28 percent in November, the national car industry association said on Dec. 9.

The company said total output in North America, including Mexico, fell 32 percent for the same month to 249,000 vehicles. GM declined to break out its Mexican production.

Ford spent $1.2 billion in 2005 to increase output in Hermosillo of its mid-size Fusion sedan. Production in Mexico from January to November rose 1.5 percent, while it fell 26 percent in the U.S. and 9 percent in Canada, it said.

Investment Increases

Chrysler is building a $570 million factory near Saltillo, Coahuila, that will produce 440,000 engines a year, said Manuel Duarte, a Mexico City-based spokesman. It has canceled one of its two work shifts at a light truck plant there, Duarte said.

China FAW Group Corp. has announced plans to build a car factory in Michoacan on the Pacific coast that will begin operation in 2010. Other Asian companies, including Hyundai Motor Co., South Korea’s biggest automaker, and Tata Motors Ltd., the Mumbai-based maker of Jaguar and Land Rover vehicles, are looking to invest for the first time, Mosso said. Toyota Motor Corp. increased capacity last year at a plant in Tijuana to 50,000 Tacoma trucks.

The wave of investment helped Mexico expand its production to more than 2 million cars in 2007 from 1.54 million in 2003. Mexican car output is forecast to rise to 3 million units by 2015, Magliano said.

U.S. in Reverse

Over the same period, the U.S. industry has gone in reverse, dropping 12 percent to 10.54 million vehicles last year from 11.92 million in 2003, according to CSM Worldwide. The seasonally adjusted annual rate through November plummeted to 8.71 million cars and light trucks, CSM Worldwide said in a Dec. 15 statement.

Mexico also has 12 free-trade pacts, including ones with Japan, the European Union, Chile, Colombia and Israel, and preferential tariff access with 44 other countries, Mosso said.

“We have intrinsic advantages in Mexico that nobody can take away,” GM’s Cespedes said.

To contact the reporter on this story: Thomas Black in Monterrey, Mexico, at [email protected]
Last Updated: December 17, 2008 00:01 EST

BirdGuano
12-17-2008, 05:52 PM
Maybe UAW members can sneak across the border and work there.

:laugh:

Ought Six
12-17-2008, 05:55 PM
For the ones that live in Detroit, the only change would be wages and the language. The social conditions would be about the same.