MEXICO CITY: For Mexico, the recent groundbreaking for a new $650 million auto factory was worth celebrating. President Vicente Fox and other dignitaries attended the event. Local executives from General Motors, the investor, flew in to the central state of San Luis San Luis Potosí, where the assembly plant now under construction is expected to eventually employ up to 1,800 people and churn out as many as 160,000 compact cars a year.
During the past dozen years, many foreign manufacturers rushed to build factories in states like Alabama, Mississippi, and Tennessee, earning the trend a nickname: Detroit South. But now, Mexico is eyeing that title.
GM, struggling with its own problems, did little to publicize the new factory outside of Mexico. But while any talk of increasing production elsewhere and adding low-wage jobs in Mexico risks creating a backlash in the United States, there is no hiding the relentless advance of the auto industry here.
Automotive production in Mexico is expected to hit record levels this year, surpassing two million cars, as automakers pour billions of dollars of new investment into their Mexican factories.
The expansion, being fueled by Mexico's top five automakers - General Motors, Ford Motor, DaimlerChrysler, Nissan and Volkswagen - stands in contrast to the plans by GM and Ford to cut 60,000 jobs in the United States and close two dozen North American plants through 2012.
The reason for Mexico's new wave of growth is twofold: it is close by the world's largest auto market, allowing greater production integration because auto companies can ship cars and parts by truck and rail rather than on freighters, as they must do from Asia.
And it is still cheap to operate here compared with the United States, where unionized workers earn at least $27 a hour and benefits can double or even triple the total cost. By comparison, Mexico's typical auto industry wages of $3.50 an hour for experienced workers look like a bargain.
Changing tastes are also starting to work in Mexico's favor. As Americans' love affair with fuel-thirsty sport utility vehicles wanes, some analysts believe that Mexico's low costs make the country the natural place for automakers to assemble the next generation of smaller, cheaper cars.
"In the big picture," asked Greg Gardner, an analyst with Harbour Consulting in Troy, Michigan, "can Ford, GM and Chrysler build medium and small cars in the United States and survive?"
Other forces are also at play: Mexico's long track record of producing cars and trucks for the U.S. market; a trained and experienced work force; a critical mass of auto parts suppliers who have migrated here and now produce $24 billion annually with 430,000 workers.
Automakers have spent $4 billion since the beginning of 2005, the government says. They are rolling out new models - from megatrucks to sporty compacts - assembled in retooled factories to match the sophisticated plants north of the border.
New investments could raise Mexico's production to three million cars by 2012, depending on growth in the United States, Mexico's main market, according to Emilio Mosso, an official at the Economy Ministry. In part, the boom is a rebound after sales on aging models made in Mexico slumped and automakers halted production to prepare for new models. Exports are up 50 percent in the first six months of the year from the same period last year. About three-quarters of production is destined elsewhere, mostly to the United States.
"When companies look at where to put a new plant, Mexico is starting to compete a lot more with Detroit South," said Gabriel Renero, a consultant at Deloitte in Mexico City. "They are finding a very attractive work force in this country."
Over the past year, American automakers have all introduced a variety of new models from their Mexican assembly plants. George Magliano, director of automotive research for the Americas at Global Insight, a consulting firm, said more models are likely.
"There's been a conscious effort to put them here to begin with and that has accelerated in the last six months," saidMagliano. The automakers, he predicted, "will expand their thinking in Mexico."
Under the North American Free Trade Agreement, Mexican-made cars enter the U.S. market without duties, essentially erasing the border for the auto industry.
