Mexico becomes a global leader in car manufacturing

When an American goes to a car dealership to purchase a new vehicle – regardless whether it is a Volkwagen, Nissan or Ford – chances are he won’t be getting one that has come from Germany, Japan or even the United States. It most probably came off an assembly line at a Mexican plant.

Mexico has become the second-biggest exporter of passenger vehicles to the United States, ahead of Japan and just slightly behind Canada, which currently holds the number-one ranking. But some analysts believe that by next year Mexico will have taken over that spot thanks in part to the North American Free Trade Agreement (Nafta).

In the last 20 years, Mexico has become a global leader in the automotive industry, ranking as the eighth-largest car manufacturer in the world.

In 1994, after tariffs were lifted between Mexico, the United States and Canada under the terms of Nafta, Mexican assembly plants turned out 1,055,221 autos. Last year, the plants assembled 2,933,465 vehicles – almost triple the amount in two decades.

Mexico’s proximity to the United States makes it easier and cheaper for assembly plants to import parts from the north, and piece together the vehicles at Mexican plants with cheaper labor. And to cut down on transport costs, assembly plants have popped up all around the Mexican side of their common border.

Nafta has made it a win-win situation for both of us”

“A Mexican vehicle that is exported to the United States is 40-percent cheaper than what it would cost in that country. The free trade agreement has made it a win-win situation for both of us,” explains Eduardo Solís, president of the Mexican Automotive Industry Association (AMIA).

The majority of vehicles assembled in the country do not remain in Mexico; they are exported to 100 nations. Last year, 83 percent of those assembled – or more than 2.4 million cars and trucks – were sent abroad.

Mexico, which is the fourth-largest exporter of vehicles in the world, has signed agreements with more than 40 nations, including the United States, Canada, Japan and the European Union. “Those agreements give us a preferential entry, which is an advantage for our manufacturers and exporters,” Solís adds.

And now, with Mexico’s entry to the Pacific Alliance, the market will be expanded to its trade bloc partners: Colombia, Chile and Peru. But the United States is still its biggest customer, with six out of 10 vehicles that are sold at US dealerships coming from Mexico.

Last year, Mexico’s trade surplus in the automotive industry grew to an all-time high of $38.774 billion. Revenue from automobile exports is nearly double from what the government rakes in from oil sales abroad.

If Nafta has made it a win-win situation for both parties, as the AMIA chief states, then the industry is predicting abundant growth in the sector. AMIA projections show that in four years Mexico will assemble and export some four million vehicles.

Over the past month, Mazda inaugurated its first Mexican plant at a cost of $770 million while Honda opened another assembly line in Guanajuato state that will produce 200,000 vehicles annually. They are two Japanese auto giants that are now turning out cars and trucks “made in Mexico.”