Mexico in the News
by Mike Pare | Times Free Press | April 7th, 2013
Made in Mexico: Who will build the next vehicle? Here's the competition
Hundreds of auto industry people from the South met in Chatta-
nooga recently, and much of the talk wasn't about the region but
instead Mexico.
As Volkswagen's Chattanooga plant makes a business case to
assemble new products -- such as a potential sport utility vehicle
-- of�cials inside and outside VW are keeping a sharp eye on activi-
ties south of the U.S. border.
"The caution I'll offer the region is Mexico," said Jay Baron, chief
executive of the Center for Automotive Research, a Michigan entity
that focuses on industry trends.
While Tennessee and Chattanooga of�cials have cited landing
VW's $1 billion auto plant, the German car company over the past
couple of years has invested or announced plans to plow $1.85
billion more into Mexico.
Earlier this year, VW opened its 100th plant worldwide in Mexico --
a factory producing engines for the Chattanooga-made Passat
among other vehicles.
Also, Mexico won a $1.3 billion assembly plant for VW luxury
sibling Audi that's going up and slated to open in 2016. That plant
is believed to be a direct competitor to Chattanooga for the SUV
that VW may develop to better compete in that segment in the
U.S.
Jonathan Browning, Volkswagen Group of America's chief execu-
tive, said the aim is to have "signi�cant local content" inside the
vehicle if it's built, which means the SUV would have most of its
parts sourced from suppliers in North America, including from
VW's already extensive Mexican presence.
"For our core portfolio, it's important to source those vehicles [in
North America] ... and take the foreign exchange rate out of the
business equation," he said.
Nissan, General Motors, Ford, Honda and other carmakers also
are heavily invested in Mexico.
Mexico is already the fourth biggest exporter of vehicles in the
world, and an estimated one of every 10 vehicles sold in the U.S.
was produced in Mexico. Its auto output and exports have almost
doubled from 2009 levels. Its auto factories produced 2.88 million
last year.
Nissan, with an assembly plant in Smyrna, Tenn., and an engine
factory in Decherd, Tenn., is building a $2 billion plant in Mexico,
which will be its third in that country.
VW has a long history of production in Mexico, going back to the
mid-1960s. Its Puebla plant southeast of Mexico City is the coun-
try's largest, according to VW. The plant assembles the Jetta and
Beetle, and it has nearly 14,000 employees.
Mexico has a vast supplier network, which is seen more
and more as a key for VW and other auto companies, and
it offers lower wages than plants in the U.S.
Wages, union
Wages in Mexico for assembly-line workers begin at $40 a
day, according to The Wall Street Journal.
In Chattanooga, a new VW assembly-line worker earns
$15-an-hour, or $120 a day based on an 8-hour shift.
Some of the VW workers at the Puebla plant belong to a
union, an issue that has become front and center recently
at the Chattanooga factory.
Horst Neumann, VW's board member in charge of human
resources, said last month that it may release a plan for a
European-style works council for Chattanooga in May or
June, an action that would require a union in accordance
with U.S. labor law, experts say. Neumann said talks with a
union, presumably the United Auto Workers, could begin in
the second half of the year, according to VW.
CHATTANOOGA PLANTLocation: Enterprise South industrial parkAnnual production capacity: 170,000 vehiclesModel: PassatSize: 2.5 million square feetStaff: Nearly 3,300 employeesSource: VolkswagenPUEBLA PLANTLocation: Puebla, MexicoAnnual production capacity: 510,000 vehicles; 596,000 enginesModels: Jetta, Beetle, Golf hatchback (early 2014)Size: Nearly 10 million square feetStaff: About 14,000 employeesSource: VolkswagenMexican-Built by the numbers2.88 millionMexico auto production in 2012, up 12.8 percent over 20112.35 millionMexican auto exports in 2012, up 9.9 percent63.9 percentShare of new autos produced in Mexico that went to the U.S.Source: Mexico Auto Industry Association
UAW President Bob King has said that he's "pleased that Volk-
swagen, known globally for its system of cooperation with unions
and works councils, has an open mind about letting the employ-
ees in Chattanooga also be a part of the global VW system of
co-determination."
But, Tennessee Gov. Bill Haslam and others have expressed
concerns that unionizing the Chattanooga plant could hurt future
investment and productivity.
He said last week during a tour of the Mars Inc. plant expansion in
Cleveland, Tenn., that he has expressed his concerns to VW.
Haslam said the Saturn and Nissan auto assembly plants in
Tennessee have had different results. General Motors' Saturn
product was discontinued and the Spring Hill plant, which is repre-
sented by the UAW, only recently started assembling vehicles
again. Nissan's Smyrna plant, which has fought off unionizing
efforts, has continued to grow and add production, most recently
the all-electric Leaf.
Supplier network
U.S. auto industry experts and Tennessee and Chattanooga economic
developers see the continued development of the region's auto supplier
network as a way to increase competitiveness.
Bill Hagerty, Tennessee's economic and community development chief,
said the state is working with VW and Nissan in a effort to attract more
suppliers. The aim, he said, is to reduce the delivered cost of an auto off
the assembly line.
"Our goal is to concentrate more suppliers right here and create a logisti-
cal advantage that will make Tennessee even more attractive," Hagerty
said.
He said the state is trying to tell Tennessee's story to business executives
that it not only has a favorable business and tax environment,
right-to-work status and good highways, but it's balance sheet is in order.
"When [Gov. Bill Haslam] and I can sit across the table from a CEO... the
balance sheet aspect has been a closer to us," Hagerty said. "They don't
to want to locate in a state that puts all its �scal problems on the backs of
companies."
Charles Wood, the Chattanooga Area Chamber of Commerce's vice
president of economic development, said that attracting more suppliers
lowers logistics costs for VW by trimming delivery times.
"That's one big priority for us," he said.
VW already has developed a $21 million supplier park in Chatta-
nooga next to its plant where seven companies employ upward
of 500 people, and earth work is going on now to prepare
adjacent land for a possible future expansion.
Lowering Trade Barriers
A bigger picture need for Tennessee and the South, of�cials
said, is more and better trade agreements with Europe and
South American nations to help the U.S. compete by cutting
duties.
Such agreements were one reason VW decided to put the
Audi plant, the company's �rst in North America, in Mexico
rather than the U.S., of�cials have said.
Baron said Mexico has free trade pacts with 44 countries
while the U.S. has 19.
Recently, President Barack Obama announced plans to begin
negotiations with Europe over trade, an action lauded by
Tennessee's two U.S. senators.
"If we lower tariffs, it will make more sense for VW to build
plants in the U.S.," said U.S. Sen. Lamar Alexander.
U.S. Sen. Bob Corker said the European trade agreement is
important for Chattanooga and the state to help boost
German investment in Tennessee.
"If we combine energy prices with a trade agreement, that
bodes incredibly well for Chattanooga and the state," he said.
Corker said in a recent op-ed for Bloomberg that a Passat
built at Volkswagen's Chattanooga plant faces a 10 percent
import duty if exported to Europe. He said that a trade agree-
ment would eliminate these tariffs, reducing costs for the
consumer, encouraging further investment in the U.S. and
spurring new trade between our economies.
"Greater transparency and regulatory coherence under the
agreement would deliver further bene�ts by cutting our costs
and making our businesses more competitive," Corker said.
Clint Brewer, an assistant commissioner with the state's
economic development of�ce, said Chattanooga's VW plant
has an advantage to gain a new product if its sales will be U.S.
focused.
"If you're talking about Central and South America, we've got
a tariff disadvantage," he said.
Mexico in the News
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