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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