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Mexico's low labor costs draw Detroit 3 investment

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Mexico's low labor costs draw Detroit 3 investment

North American auto production south of border expected to rise as U.S. work declines

Thomas Black / Bloomberg News

Mexico's share of North American auto production may rise at a quicker pace as General Motors Co., Ford Motor Co. and Chrysler Group LLC seek out workers making less than 10 percent of what their U.S. counterparts earn.

The lower labor costs may help the U.S. companies build smaller cars profitably amid demand for fuel-efficient vehicles in the wake of last year's recession. "Mexico's gains will come at the expense of workers in the U.S. and Canada," said Dennis DesRosiers, president of DesRosiers Automotive Consulting Inc.

"There is going to be more capacity put into North America and Mexico is going to get more than its fair share."

Moves to Mexico may accelerate when Chrysler and GM reduce some of the political pressure they face by repaying government bailout money, said Michael Robinet, vice president of global forecasting for CSM Worldwide in Northville.

DesRosiers says Mexico's share of North American auto production will rise to 19 percent over the next decade from an average 12 percent from 2000 to 2009.

Over the same period, the U.S. will lose 7 percentage points to 65 percent of the market and Canada's share will hold at 16 percent, he said.

GM workers in Mexico earn wages and benefits of $26.40 a day on average, or less than $4 an hour, said Tereso Medina, head of the union for GM's 5,000 workers in Saltillo, a city that makes one in four Mexican autos. Ford workers in the U.S. earn about $55 an hour with benefits, compared with $50 an hour for Toyota Motor Corp.'s U.S. workers, said Lewis Booth, Ford's chief financial officer.

In addition to labor costs, automakers are attracted to Mexico because of the North American Free Trade Agreement and the country's proximity to the U.S., Robinet said. U.S. and Canadian unions have made concessions to bring costs at older factories in line with Toyota's and Honda Motor Co.'s U.S. plants.

Even with the UAW concessions, Mexico remains attractive. Mexico stands to benefit from more stringent U.S. fuel- efficiency requirements because it's more profitable to make small cars where labor costs are lower, Robinet said.

Chrysler announced in February it's spending $550 million to retool its factory in Toluca to assemble the Fiat 500 model.

Last month, Ford reopened an assembly plant in Cuautitlan to build 2011 Fiestas. The factory will generate 2,000 jobs and is part of $3 billion in investments announced since 2008. In the U.S., Ford has closed four assembly plants since 2006 and plans to close four more facilities by the end of 2011.

Mexico was responsible for 14.2 percent of Ford's U.S.-Mexican car production last year, and 16 percent in 2008, compared with 11.8 percent in 2006, according to company data.

For every dollar Ford invested in Mexico during the past five years, the company spent $7 in the U.S., said James Tetreault, vice president for North American manufacturing. Ford's two Mexican assembly plants have operated for more than 30 years.

"In North America, it's all about utilizing our existing footprint," Tetreault said. "It's not like we're building greenfield plants and moving production to Mexico."

U.S. car and light truck production declined every year, to 8.45 million in 2008 from 11.5 million in 2005, according to Wards Automotive Yearbook. In Mexico, output rose every year to 2.08 million in 2008 from 1.61 million in 2005.

Production fell in both countries last year, by 28 percent to 1.5 million units in Mexico and 34 percent to 5.56 million in the U.S.

This year, U.S. production in April rose 40 percent from a year earlier to an annualized rate of 7.05 million vehicles. Mexico's output jumped 77 percent and is on pace to top 2008, according to the Mexican Automobile Industry Association.

GM has announced investments of $3.67 billion in Mexico since November 2007, including a new assembly plant in San Luis Potosi.

The company has closed five U.S.-based assembly plants and put three more on standby since June 2005.

A significant portion of Chrysler's production of the Fiat 500 will be sold in South America, said Jodi Tinson, a spokeswoman.

From The Detroit News: http://detnews.com/article/20100610/AUTO01/6100375/1148/Mexico-s-low-labor-costs-draw-Detroit-3-investment#ixzz0qSfxa0LU

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