3 Reasons why Luxury Cars are looking to Mexico

October 15, 2014

Automotive manufacturing in Mexico has made a large presence as the location of choice for automotive manufacturing. Luxury German auto-making rivals like BMW and Mercedes-Benz have created plants in the Latin American nation. Audi also has an important project in moving auto-making from the United States and Europe, allowing Mexico to become a top automotive producer – surpassing Brazil as the world’s seventh-largest automaker, and first in Latin America, according to IHS Automotive predicts. What has made Mexico’s ascent so surprising involves fast-paced auto productions north of the border, coinciding with a Brazilian production slump through the first six months. (Until June of 2010, Mexico has produced more than 1.6 million cars, around 8% more than Brazil.)

Many automakers have chosen Mexico manufacturing to offshore due to its ample benefits. Mexico’s labor force is capable of obtaining the high standards automakers require, such as tight body-panel gaps and complex engineering. In addition, average labor rates in Mexico amount to roughly one-fourth of American worker’s cost, (about $2.50 an hour), and even less compared to German automotive manufactures. Also, Mexico’s relative distance to the U.S. and its vast portfolio of free trade agreements —those including NAFTA, G3 (with Colombia and formerly Venezuela), the European Free Trade Association,— have allowed the nation to become a free export hub for both the Americas, Europe, and the world. By having a variety of free trade agreements, more so than any other nation, it responds to a variety of unilateral and bilateral needs that according to a report established by the Congressional Research Service. Led to increased foreign investment confidence, market access expansion, and having a greater access to goods and services are a few of the advantages of Mexico manufacturing.

By 2020, Mexican automotive output will increase up to 60% for an amount that surpassed five million cars per year. A telling sign of dominance in automotive manufacturing in Mexico stems that last year, one out of five cars sold in the United States were Mexican-made; in six years, one-quarter of American cars will be built south of the border.