Mexicans fear Detroit's woes will soon become theirs

Christian Science MonitorDecember 8, 2008 

Mexico City - As Detroit pleads with lawmakers for a bailout package, Mexico is watching closely, keenly aware that failure of the Big Three to stave off bankruptcy could devastate auto workers south of the border - and reenergize the northward flow of illegal migrants.

Crisis in the U.S. car industry comes as Mexico's economy, which is deeply intertwined with that of the U.S., is showing signs of vulnerability. Remittances from Mexicans abroad have been down most of 2008. Sharply revised economic growth estimates for 2009 offer best-case scenarios of about 1.5 percent. Potential losses in the auto industry, which employs more than half a million people, would be a blow to among the best paid of Mexico's industrial workers.

"The biggest impact will be on auto supply companies, and there will be big problems in [border towns] Tijuana and Ciudad Juarez," says Huberto Juarez Nunez, a labor expert at the Autonomous University of Puebla. And, he says, while the US recession has driven more Mexicans to return home, they could well reconsider. "They'll prefer to wait out the crisis in the US than wait it out in Mexico.

Mexico was the world's 11th-largest car producer in 2007, according to Sisam, an automotive industry consultancy in Mexico City. The industry accounts for 3 percent of gross domestic product.

While Sisam says that car production in Mexico is up this year by 5.4 percent, according to the latest figures from October, uncertainties abound for 2009.

"The outlook for 2009 is not the same; there is a risk that we'll have a fall, given decreased demand in the US," says Felix Rojas Cruz, the group's director general. "The government support in the US is important for Mexico, because we will depend on them for new projects and to increase production for exportation."

Already, exports to the US and domestic sales have fallen. According to IHS Global Insight, a consulting group in Massachusetts, sales this year are expected to slip by 6 percent - the lowest dip since 1995 when Mexico reeled from its so-called "Tequila crisis." Next year the prognosis is worse, with sales estimated to drop by 8.5 percent.

"Mexico depends a lot on the Big Three, and any decision will have a big, immediate impact," says Jorge Carrillo, who studies multinationals at the Colegio de la Frontera Norte in Tijuana.

The auto making industries in Brazil and Argentina will also be affected. But no economy depends on the US more than Mexico, which sends 80 percent of its auto and auto-related exports north. And Mexico has long been a hub for heavy-vehicle production, because of its proximity to the US market and labor that is one-sixth the cost of US labor.

That is the sector that is challenging the industry right now, says Pascual Francisco, an automotive analyst for Latin America at IHS Global Insight.

"That was the primary type of model in production in Mexico, until now," says Mr. Francisco.

In fact, with oil prices limiting demand for such vehicles over the past several years, Mexico's industry faces challenges regardless of a Big Three bailout.

Certain projects here are in question no matter what plan is worked out in Washington, including a General Motors plant in Guanajuato, which makes large vehicles, and a Chrysler plant in Saltillo that specializes in Ram trucks, says Francisco.

A crisis in the Mexican auto industry will be a further blow to the Mexican economy. The industry accounts for 26 percent of its manufactured exports, according to Sisam. While it employs more than 500,000 workers directly, it generates thousands of other jobs.

Auto parts suppliers, since they depend even more heavily on US demand, will be particularly hit hard. That industry employs some 240,000 workers and already some 5,000 jobs have been lost, says Mr. Rojas Cruz. "It is also one of the most important industries in terms of learning," says Mr. Carrillo. "There is a lot of training and specialty schools [set up] around the industry."

In 2007 Mexico produced a record number of vehicles - more than 2 million - and earlier forecasts had reported the potential to double that production by 2015.

In the long term, the hope is that Mexico can reposition itself as a hub for more fuel-efficient cars, even though smaller models are less profitable.

While exports to the US are down, the overall export rate has not decreased because of increased sales to Asia, Europe, and Latin America. Those markets will be crucial to the industry's survival, says Rojas Cruz.

The clearest example of its long-term potential as a new maker of fuel-efficient cars came with Ford's Fiesta announcement last summer that it had chosen Mexico for its subcompact Fiesta production. Mexican President Felipe Calderon said he wanted Mexico to become an "automotive country."

"The opportunities lie in the production of new models of vehicles, as well as increasing exports to different countries to let up slowly the high concentration that goes to the US," says Rojas Cruz."

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