Automotive Manufacturing in Mexico Sets Production and Export Records

June 24, 2014

Mexico set a new record in its production and exports of automobiles for the January through April production period. Production rose by 5.8 percent and exports by 8.7 percent over these four months. Mexico produced a total of 1,022,762 automobiles, 82.9 percent of which were exported, according to the Mexican Automotive Industry Association’s April 2014 press report. Automotive manufacturing in Mexico hit a previous record high in 2012 when Mexico produced three million cars, which was a 12 percent increase from the previous year, according to the United States Embassy in Mexico’s 2013 Auto Industry Factsheet. As of 2013, Mexico was the eighth largest car-producing country, fourth-largest producer of auto parts, and fourth-largest exporter of automobiles, as estimated by the same factsheet.

Automotive manufacturing in Mexico contributed to Mexico’s third consecutive trade surplus in April, totaling 510 million dollars for that month and representing a rise of 3.7 percent from last year, according to Bloomberg. Automotive manufacturing in Mexico accounts for 3.6 percent of Mexico’s GDP, according to the US Embassy in Mexico.

Mexico manufacturing automobiles at this increased rate is an example of recent trends in the global manufacturing economy. With rising labor costs in China, Mexico is becoming increasingly competitive as a manufacturing hub. Manufacturing labor costs in Mexico are estimated to be 19 percent lower in absolute terms and 30 percent lower when accounting for worker productivity than those in China by 2015, according to the Boston Consulting Group (BCG). Given Mexico’s cost advantage, BCG predicts that manufacturing costs in Mexico will be six percent lower than China and 20 to 30 percent lower than Japan, Germany, Italy, and Belgium by that same year. Additionally, BCG approximates that Mexico’s cost advantage over China will enable the country to increase its manufacturing output by 20 billion dollars a year by 2017, increasing its total output to 60 billion dollars a year. The largest increases in production are likely to occur in transportation goods, technological appliances, and machinery. US manufacturers stand to gain from Mexico’s competitive labor costs, given the two country’s proximity and existing free trade agreements.

Business Week points to other advantages of Mexico manufacturing, including Mexico’s low natural gas prices, a plethora of free trade agreements, and specialization in specific industries, particularly automotive and appliance manufacturing. Foreign manufacturers in Mexico are also benefiting from sheltering firms, such as Offshore Group, that provide foreign manufacturers with assistance with the legal logistics of establishing and running their operations. Sheltering companies provide assistance with human resources, tax and fiscal compliance, employee health services, environmental compliance, employee transportation management, and import/export management. These companies enable foreign manufacturers to concentrate on production without the preoccupation of handling the local-level logistics of manufacturing their products abroad.