Another major car manufacturer plans to build more facilities in Mexico. Automotive News reported Ford will double its current production by opening a plant in San Luis Potosi and adding to its existing Cuautitlan facility. The company said the goal is for the new location to assemble 350,000 vehicles a year.
This should be the biggest Mexican automotive manufacturing project in 2016, but it's far from the only one. More businesses nearshore their facilities to Mexico to take advantage of local resources and government incentives. These practical benefits allow companies like Ford to turn to Mexico for innovative manufacturing.
Ford's new nearshoring project is just the latest in a vast U.S. manufacturing migration south of the border. In 2014 and 2015, Chrysler, General Motors and Ford opened auto manufacturing facilities in Mexico, according to the Wall Street Journal. It's not just the U.S., either. Seven Asian and European companies opened Mexican plants in the same time period. For example, VW opened a $1 billion location in Mexico to build small SUVs.
This recent surge has raised Mexico from the 9th largest auto-producing country in 2010, to the 7th in 2015. It is projected the country will surpass South Korea by 2020. Global Trade said Mexico is also the world's 6th largest producer of auto parts and the country's entire auto industry should see consistent growth from 2015 to 2021.
Why automakers move to Mexico
Mexico is a beneficial location to conduct international business for a variety of reasons. First, the government promotes foreign trade through legislation and global diplomacy, according to the CheatSheet. Mexico has about 44 liberal trade agreements, more than double the number held by the U.S. Four out of five of the cars built in Mexico are sold in another country.
Second, the Mexican economy has embraced its place as an auto manufacturer. The country's infrastructure makes use of its early production facility success to build facilities and invest in becoming a better manufacturing partner. For example, Mexico has a young and eager workforce, and the country provides increasing educational opportunities to develop manufacturing skills.
"The lack of distance between two countries speeds up communication."
Finally, U.S. nearshoring manufacturing facilities to Mexico eliminates the obstacles usually associated with offshoring production to foreign territories. The lack of distance between the two countries decreases the amount of capital needed for transportation and speeds up communication. The ability to obtain complete visibility of operations and rapid production are what prompt some businesses to turn to Mexico for manufacturing of innovative products.
Ford's innovative products
While Ford plans to keep domestic production focused on proven success like pickup and utility vehicles, the new Mexico manufacturing facilities will build innovative goods like hybrid vehicles. The Motley Fool explained the automaker has an incredible demand for SUVs and trucks, while sales for sedans are declining. By moving sedan and hybrid manufacturing to Mexico, the business can prioritize its big sellers at home and see how nearshoring operations can benefit it's less-popular and untested products.
Mexico is growing not only as a manufacturer for basic goods, but as a thought-leader in production technology. The Houston Chronicle explained many government officials and industry leaders in the country want to take Mexico's newfound manufacturing popularity and start contributing to the innovation process. In a few years, the area could compete with Silicon Valley in terms of designing new products and manufacturing processes.
The ability to observe manufacturing and rapidly communicate with a close manufacturing partner is beneficial for U.S companies trying out new merchandise in shifting markets. As products are introduced, businesses can collect data on feedback and adjust manufacturing in real-time to conserve resources and make the most of opportunities.