Mexico’s geographic proximity to the U.S. gives it a clear advantage over China in the automotive market. Since Chevy Silverado pickup trucks weigh in at over two tons apiece, it’s a lot cheaper to ship them to the U.S. from northern-central Mexico than it would be to make them in China. The advantage of shipping costs, along with the regulatory and intellectual property protections under NAFTA, means Mexico exports $53 billion worth of automobiles and parts to the U.S. annually, compared to China’s $12 billion.
Mexican automobile production has flourished under NAFTA, tripling since 1994 to 3 million cars and trucks annually. Mexico has outpaced Britain, France, Spain, and Canada to become the world’s eighth largest automobile producer. The industry as a whole produces 23 percent of Mexico’s exports, providing around 579,000 jobs—40 percent of all automotive manufacturing jobs in North America.
All auto production is by foreign companies, as Mexico sold off its floundering state-owned VAM car company in 1989. Nissan is the top producer, followed by Volkswagen, General Motors, Ford, and Chrysler. The location of their operations in Mexico has enabled European and Japanese carmakers to abide by NAFTA’s 62.5 percent local content rule. More importantly, these foreign producers can access high-quality, low-cost production without having to pay transoceanic shipping costs. At $2 to $6 per hour, Mexican assembly line workers make about one-seventh as much as auto workers in the U.S.
The lower wages in Mexico continue to rankle unionized workers in the United States. But when two of the big three U.S. automakers recently pulled back from the brink of bankruptcy, it became apparent that lower costs would be the only way to save the overall industry. Low wages do make for a small market for new cars in Mexico, however, especially when they have to compete with used cars from the United States. The market for imported used American cars—some registered, some not—is estimated at 600,000 per year, and is slightly higher than the number of Mexican-made automobiles sold domestically.
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