Mexico is the largest automobile producer in Latin America and has become a critical manufacturing hub for all major automakers. A big reason for this is the access to markets and duty-free exports.
Struggling auto markets in Argentina and Brazil as well as the increased auto demand in USA have contributed well to Mexico’s automotive rise.
For years, global automakers have benefited from Mexico’s low labor costs. Because of NAFTA, 85% of Mexico’s trade is with US and Canada.
However, this high demand has benefited Mexico by increasing demand for labour and thus, increasing employment from 1,20,000 to 5,50,000 in 1994 itself.
Besides cost, the country’s quality labour force is attracting high-end manufacturers. While Mexico traditionally focussed on production of low-cost sedans, foreign companies are now opening its first luxury car plants. Mexico’s Free Trade Agreements (FTAs) have also accelerated its output production greatly. It has 12 free trade accords involving more than 40 countries.
However, Mexico needs to gear up for competition; as USA, Japan and Germany are trying to up their game in this sector.
In 2016, Ford announced that it would move some of its production from Michigan to Mexico. This was harshly criticised by Trump who threatened to impose tariffs of 35% on automobiles from Mexico; a move which would affect Mexico adversely since this sector represents 3% of their GDP.