Tuesday, January 10, 2017

Mexico's Better Trade Deals, Not Labor Costs, Are A Major Reason For Shifting Auto Production From US

From Bloomberg, "Why Trump Tariffs on Mexican Cars Probably Won’t Stop Job Flight" by David Welch and Dave Merrill:
Infrastructure in Mexico lags behind the highway and rail network in the U.S., so it actually costs automakers $300 more per car in additional shipping expenses to produce the vehicle in Mexico and ship it to Europe, and an extra $900 to ship it to the U.S.

That means, even after paying significantly less on labor, a car company is walking away with wage savings of only $300 per car—a fraction of what it costs to build and ship in the U.S. The bulk of the savings are tied to Mexico’s trade agreements and cheaper parts.

Automakers can save $1,500 per car on cheaper Mexican auto parts. Certainly, a lot of those savings are tied to the lower wages workers in Mexico are paid. But some of these parts are imported to Mexico tariff-free from countries in Europe and Asia, particularly for the foreign automakers who are increasingly investing in Mexico instead of the U.S. Since the U.S. doesn’t have as many free trade agreements, some of the automakers would pay extra for some of those parts if they made those models in the U.S., said Bernard Swiecki, senior analyst at CAR.

The same company selling that mid-sized car saves $2,500 per vehicle that it builds in Mexico and ships to Europe because the U.S. doesn't have a trade agreement with the EU. That's more than it saves in parts and wages once shipping costs are figured in.
Source: Bloomberg


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