Automobile Industry Benefits from Mexico's Low Labor Costs

Some automakers, including Volkswagen, Fiat, General Motors and Chrysler, have recently expanded their numerous manufacturing facilities in Mexico to increase export products and drive profitability.

"Mexico is quite competitive in the automobile industry and we're going to see more investments like this," Armando Soto, president of Kaso y Asociados, a Mexico City-based auto industry consulting firm, told Bloomberg in a telephone interview. "This kind of investment helps consolidate a region as an automotive cluster."

Chrysler's Chairman and CEO Sergio Marchionne reported a $164 million investment in the Saltillo North Engine Plant to establish a new production line for the assembly of Tigershark engines. These engines will be exported, per trade agreements in Mexico. An estimated 470 jobs will be created at the plant as a result of Chrysler's investment, After Market News reported. 

In addition, $1.085 billion was recently invested in the construction of a new assembly plant to make the Ram ProMaster van, which came online in July. The vehicle will be sold in Canada, the U.S. and Mexico and will add 1,100 new jobs to the region. The Ram ProMaster - a version of the Fiat Ducato light-commerical vehicle - will use parts manufactured in Italy, according to Marchionne, but the assembly in Mexico saves money. Due to Fiat SpA controlling the Chrysler Group LLC, sharing components - parts that comprise up to two thirds of a car's value - and production capacity between separate brands will enable companies to cut costs even further, according to the source.

Mexico is manufacturing-friendly
Numerous automakers enjoy expanding their production in Mexico because the lower labor costs allow deeper profitability in other markets, such as the U.S., Bloomberg reported.

"I would like to thank President Enrique Peña Nieto for the support his administration has given us, first as Governor and now as President," said Marchionne, Foundry Planet reported. "He has always shown a great commitment to promoting strategically important projects. All of this would not be possible without the extraordinary spirit of collaboration we have found in both the federal and state governments. We feel privileged to have the opportunity to contribute to the future growth of Mexico."

But the Chrysler Group and Fiat are not the only automakers taking advantage of Mexico's manufacturing perks, Bloomberg reported. General Motors has set aside $691 million to expand three of its existing factories in Mexico while Volkswagen AG's Audi brand has injected $1.3 billion to build a new plant in San Jose Chiapa. That plant is expected to create jobs and assemble 150,000 cars a year.