News, Insights and Best Practices for Manufacturing in Mexico

Ford, Toyota increase their vehicle manufacturing activity in Mexico

15 Apr 2015

Category: Automotive Manufacturing, Labor & Economics, Logistics Management, Manufacturing in Mexico

The growth of auto manufacturing in Mexico has quickly propelled the country into being one of the world's fastest-growing economies. A number of foreign carmakers have made capital investments to build their own brand-new, privately run factories, or expand their current operations. Other companies looking to take advantage of the benefits of doing business in the country are exploring the offshoring advantages of working with a shelter company. In short, car production is booming in Mexico due to the North American Free Trade Agreement and high-quality vehicles being produced under a low cost manufacturing model.

"Who needs China when you've got Mexico?"

In January, the Wall Street Journal wrote that in 2014, Mexico had a record-breaking year when it came to vehicle production. Automakers built approximately 3.2 million cars and trucks, with this number signaling a 10 percent increase over figures recorded in 2013. In addition, 82 percent of these vehicles were exported to other countries, many of them going to the U.S. market.

Eduardo Solis, who serves as the Mexican Automotive Industry Association's executive vice president, anticipates the number of vehicles manufactured in Mexico to increase again this year to 3.5 million and within five years, this number could be as high as 5 million.

This is one of the primary reasons why car companies are either considering expanding to Mexico or taking steps to bolster their workforces and ramp up overall production.

According to Reuters, citing data from Mexico's National Institute of Statistics and Geography, approximately 1 in 7 people working in the country earns the national minimum wage of $5.10 per day. However, the average hourly rate of pay for employees is $2.43, with those working in the industrial or manufacturing sector earning slightly more at $2.43. Of all the reasons why foreign companies look to establish an operational foothold in the country, the low cost of labor may be one of the biggest.

"Today from a global manufacturing perspective, one could say - particularly in autos - who needs China when you've got Mexico?" Jim O'Neill, an expert on emerging markets and an ex-economist at Goldman Sachs, told Reuters.

The news outlet wrote that in 2013, Mexico saw a record-breaking amount of capital investments made by foreign companies, to the tune of $35 billion. Although skilled manufacturing labor makes up approximately 16 percent of the country's total workforce, this small number of individuals contributes to an economy that is growing at an incredible rate and attracting the attention of organizations across the world.

Mexico's vehicle production sector is thriving as shown as seen though the amount a vehicles being produced in Mexico in factories like the one pictured. Mexico's vehicle production sector is thriving.

Toyota shifts Corolla production from Canada to Mexico
In a report from The Globe and Mail, Japanese automaker, Toyota, built its first factory in Cambridge, Ontario in 1988. The facility was used to make many of Toyota's line of compact cars. However, the company has made a decision to shift its manufacturing activities from Canada to Mexico.

The newspaper wrote that approximately 3.5 million Corollas have been built in Cambridge, but that will change beginning in 2019 once the company's $1 billion plant is finally completed in Mexico. However, Toyota is not leaving Canada completely or shuttering its current operations in the country. The company will still assemble vehicles in Cambridge, just the high-end, luxury models that Toyota offers instead of the compact automobiles previously produced.

The International Business Times wrote that overall vehicle production output in Canada has dropped significantly over the years, mostly due to higher labor costs. The average Canadian autoworker earns approximately $40 per hour, significantly more expensive than their counterparts in Mexico.

"Mexico is an attractive place for production and has been since NAFTA began," Kristen Dzicek, an analyst with the Center for Automotive Research, told IBT.

Ford to build a new plant in Mexico
The move made by Toyota isn't an uncommon one. Automakers are aggressively pushing to begin manufacturing their vehicles in Mexico.

In a separate report, Reuters wrote that Ford is in the planning stages of making a $2.5 billion investment to expand its current operational base in Chihuahua and the construction of a brand new facility that will build vehicle transmissions in Guanajuato. All told, the moves made by Ford will add approximately 6,000 new jobs to the Mexican economy.

It has been five years since the company has made a capital investment in its Mexico operations. In 2008 the company spent $3 billion to improve the manufacturing capabilities at its factory in Cuautitlan.

Mexico's auto industry is booming, particularly as companies with strong ties the U.S. market look to take advantage of tariff-free export of finished products to the country. This sector of the Mexican economy will continue to grow and thrive; solidifying Mexico's standing as the world's eighth-largest vehicle producing country in the world.

"We anticipate that motor vehicles will remain the main support of manufacturing activity in early 2015, as it has been in the last two years," The Wall Street journal quoted Deutsche Bank as reporting.

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