The rise of China’s manufacturing sector has posed an incredible challenge to the North American auto industry and manufacturing in Mexico appears to present the best possible solution. While some tensions over NAFTA’s rules to free trade precede the current scenario, the demand for American autos continues to outweigh risks to cross-border trade agreements.
If growth projections are accurate, by 2020, Mexico will be turning out a quarter of North American auto production. This is an increase from one in six in the past few years. Foreign direct investment by U.S. automakers in Canadian and Mexican production facilities is an important trade concession in exchange for manufacturing production at lower than national cost. With a projected twenty percent decline in Canadian production in response to environmental laws and other regulation, the forecast for Mexican auto production is more than sixty-two percent of current output.
If the U.S. is to keep pace with China in auto production, it must push to exceed the projected twelve percent increase made by Detroit-based automakers. China is a rapidly growing consumer market. Although there are other mitigating factors to U.S. entry in the Chinese auto market such as consumer finance, auto manufacturers are making headway, as the government continues to accommodate western-style financial instruments for consumer auto lending. This means greater potential for Mexican auto export. The auto parts industry promises to be exceptional. Manufacturing in Mexico could be North America’s key to outpacing Chinese exports.
The truth is that Mexican auto export is only increasing. National production in cars and parts is estimated to be exceeding competitors. According to the U.S. Federal Reserve, Mexican attribution to U.S. automaker exports in 2012 stood at about thirty percent of the nearly two and a half million units shipped abroad. In total, Mexico reported 3.0 million in vehicles compared to Canada at two and half million, and the U.S., which reported over ten million.
At present, Mexico is leading Brazil in economic output. The potential for Mexico to lead other emerging and even developed economies is near. The success of the country’s export-driven model is unmatched. Trade focused versus jobs focused, there is some criticism of Mexico’s approach, yet the results seem to indicate that equilibrium distinguishes it from Brazil’s labor vs. trade protectionist policy outlook. Foreign investors love Mexico’s trade-focused policies for this reason, and this means certain return of auto production to North America.
For Detroit auto makers, the manufacturing in Mexico trend is especially welcome. Mexican manufacturers have the experience and the close proximity that other foreign production sites do not offer. Lower production cost, lower export costs and a long tradition of working together make this a winning combination for companies on both sides of the U.S. – Mexico border.