US Bailout=Mexican Plant Expansion

External Since: May 03, 2007 Posts: 686

US Taxpayer = B I G Sucker

US Bailout=Mexican Plant Expansion
http://www.bloomberg.com/apps/news?pid=20601109&sid=aImmc_hK.uGE&refer=home

Dec. 17 (Bloomberg) -- General Motors Corp., the biggest automaker in
the U.S. and Mexico, increased production of $12,625 Chevrolet Aveos
south of the border while seeking a bailout to keep domestic plants
from closing.

The Detroit-based company and competitors such as Ford Motor Co.
shifted more manufacturing to Mexico this year to capitalize on wages
less than an eighth of those in the U.S. and factories that make fuel-
efficient models. Through November, Mexican plants turned out 5
percent more vehicles than a year earlier, versus an estimated decline
of 30 percent in the U.S.

Mexico is so far weathering the collapse of the global auto industry
better than its North American neighbors. Even with a projected
decrease in production of as much as 20 percent in 2009, the world’s
10th-largest maker of light vehicles will still suffer less than the
U.S. or Canada, according to Eduardo Solis, president of the Mexican
Automobile Industry Association.

“The type of vehicle that’s produced in Mexico for the cost that it’s
produced and the proximity to the U.S. are factors helping us fare
better than other countries,” said Emilio Mosso, a deputy director at
the Mexican Economy Ministry.

Thanks to investments by most of the major producers, Mexico has
developed a high quality, low-cost manufacturing base. Assembly-line
technology is now sophisticated enough to let the nation expand into
aerospace, with Bombardier Inc., Safran SA and Honeywell International
Inc. investing in operations in recent months.

“The number of errors produced in Mexico is relatively lower than in
other countries,” Adolfo Albo, an economist in Mexico City with
Spain’s Banco Bilbao Vizcaya Argentaria SA said in a telephone
interview. “Plants are newer and the training processes are more
effective.”

Small-Car Production

Output there also favors small and mid-size vehicles, which make up
almost three-quarters of those manufactured. Other models produced in
Mexico include the Pontiac G3, Ford Fusion, Volkswagen Beetle and
Dodge Journey, a new car-based, sport- utility vehicle.

The product mix positions the industry to grab market share in coming
years as consumers seek out fuel efficiency, Mosso said. Through
November, Mexico had gained a percentage point to 26 percent of U.S.
imports this year, even though close to 30,000 fewer cars from there
were sold in the states than in the same period of 2007.

That said, Mexico won’t be immune to the global drop-off in vehicle
sales. More than 70 percent of its cars end up in the U.S. where sales
in November fell to the lowest annual rate in 26 years, according to
Autodata Corp.

Export Decline

Exports to the U.S. slipped 2.6 percent to 1.1 million autos and light
trucks through November versus the same period last year. That
compares with an 11 percent drop for South Korea, a 9.8 percent
decline for Germany and a 7.4 percent slide for Japan, the auto
industry association said.

The drop was offset by increased shipments to Europe and South America
in the first 11 months. Sales of Mexican exports were up 4 percent
through November.

“It’s a world automobile industry crisis that we haven’t yet felt
because of those export markets, which next year simply won’t be
there,” Solis said.

Still, the “pothole” the industry hit won’t last forever, said Gustavo
Cespedes, 46, vehicle manufacturing director for GM North America, who
is slated to become chief of the company’s San Luis Potosi plant in
January. “Here in Mexico, I believe we’re in a favorable position.”

Labor Costs

Lower labor costs are the biggest advantage. At around $3 an hour, the
average Mexican wage is less than one-eighth of those in the U.S.’s
$25.34 and one-seventh of Canada’s $21.38, according to Sergio
Ornelas, the president of industrial park operator Intermex, which
provides real estate services to auto and car-parts producers. Ornelas
cited information compiled from the Boston Consulting Group, the U.S.
Department of Labor and The Economist Intelligence Unit during a
recent conference in San Luis Potosi.

Auto companies contribute to a government-run health system and
mandated individual retirement accounts for each worker, which keep
health and pension-benefit costs low compared with the U.S., Ornelas
said.

The push into Mexico by U.S. car companies could be slowed by
restrictions put on GM and Chrysler LLC for accepting Troubled Asset
Relief Program funds, said George Magliano, senior auto analyst at
Global Insight Inc. in an interview at the San Luis Potosi conference.

“This money is going to come with a tremendous amount of strings,” he
said. “If they give you $25 billion and you start closing all your
U.S. industry, that could be an issue.”

Bankruptcy Impact

If GM and Chrysler are forced to declare bankruptcy, it may speed up
the transfer of production to Mexico as carmakers seek to slash
expenses, said Nick Criss, executive director of industrial services
in the nation for real estate broker Cushman & Wakefield Inc.

“Mexico tends to be the core manufacturer for many companies because
it’s a low-cost center,” Criss said.

GM, for instance, has invested $3.6 billion in Mexico in the last
three years. Its auto and light truck production there rose 28 percent
in November, the national car industry association said on Dec. 9.

The company said total output in North America, including Mexico, fell
32 percent for the same month to 249,000 vehicles. GM declined to
break out its Mexican production.

Ford spent $1.2 billion in 2005 to increase output in Hermosillo of
its mid-size Fusion sedan. Production in Mexico from January to
November rose 1.5 percent, while it fell 26 percent in the U.S. and 9
percent in Canada, it said.

Investment Increases

Chrysler is building a $570 million factory near Saltillo, Coahuila,
that will produce 440,000 engines a year, said Manuel Duarte, a Mexico
City-based spokesman. It has canceled one of its two work shifts at a
light truck plant there, Duarte said.

China FAW Group Corp. has announced plans to build a car factory in
Michoacan on the Pacific coast that will begin operation in 2010.
Other Asian companies, including Hyundai Motor Co., South Korea’s
biggest automaker, and Tata Motors Ltd., the Mumbai-based maker of
Jaguar and Land Rover vehicles, are looking to invest for the first
time, Mosso said. Toyota Motor Corp. increased capacity last year at a
plant in Tijuana to 50,000 Tacoma trucks.

The wave of investment helped Mexico expand its production to more
than 2 million cars in 2007 from 1.54 million in 2003. Mexican car
output is forecast to rise to 3 million units by 2015, Magliano said.

U.S. in Reverse

Over the same period, the U.S. industry has gone in reverse, dropping
12 percent to 10.54 million vehicles last year from 11.92 million in
2003, according to CSM Worldwide. The seasonally adjusted annual rate
through November plummeted to 8.71 million cars and light trucks, CSM
Worldwide said in a Dec. 15 statement.

Mexico also has 12 free-trade pacts, including ones with Japan, the
European Union, Chile, Colombia and Israel, and preferential tariff
access with 44 other countries, Mosso said.

“We have intrinsic advantages in Mexico that nobody can take away,”
GM’s Cespedes said.

External Since: Jun 29, 2005 Posts: 578

Here is a thought for you - low wage Mexican workers are subsidizing
UAW retirees and UAW workers in the so called "job bank" (employees
who are getting paid to sit around waiting for things to improve).

Ed