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Ford Chooses Mexico For $2 Billion Investment

06 November, 2014

Ford Motor Company will build its new 1.5-liter and 1.6-liter 4-cylinder engines in Mexico instead of Canada, following the collapse of negotiations last week with Unifor, the Canadian autoworker’s union.

“Ford will put the investment in Mexico,” writes the Wall Street Journal. “Those engines are commonly used in the Ford Fusion sedan and Escape sport-utility vehicle, which account together for more than a half-million vehicle sales in North America a year.”

The deal in Canada fell through because both the federal and Ontario governments would not provide enough public money for the project, since Ford refused to make several job and economic commitments, reports CBC News. It was a project Unifor national president Jerry Dias told the CBC was “earmarked for Mexico,” that they tried in vain to have diverted to Canada.

Although Ford declined to comment at this time on the location of the plant, or whether the project would indeed be moved to Mexico, all signs point to a new manufacturing facility south of the border totaling a new investment of at least $2 billion. In addition, the new engine plant is expected to create at least 1,000 new automotive sector jobs.

“We are disappointed that this work will be lost to Mexico,” stated Dias. “Mexico will subsidize heavily and did, just like every other country that wants a strong auto industry.”

For another thing, automotive plants in Mexico can have much lower costs than other parts of North America, which helps offset the cost of building a new facility and training the workforce.

The automotive industry has been going strong in Mexico over recent years and 2014 has been no exception, with auto output and exports on the rise this Sept. Reuters reports that the Mexican Auto Industry saw a 10.7 percent increase in output to hit 267,674 units, compared to the same period in 2013, while shipments grew by 2 percent to hit 220,239 units. The surge in exports this Sept. was due in large part to a jump in shipments to Canada, which hit 26,625 cars for that month alone.

“During the first nine months of the year, auto production in Mexico grew 7.5 percent to total 2.4 million vehicles, while exports during the same period rose 8.7 percent to reach 1.95 million units,” writes Automotive News. “Vehicles and auto parts make up around a fifth of Mexico’s manufactured exports, one of the main pillars of Latin America’s second-biggest economy.”

Click here to learn why Forbes predicts “America’s Car Capital Will Soon Be Mexico.”

Finally,Bloomberg reports that Mexican auto parts makers like Sanluis Corporacion SAB (SANLUISA) are also benefitting from a recent U.S. car boom, as buyers flood American showrooms.

“The largest provider of suspensions for U.S. light vehicles was up 377 percent through [Oct. 15] in 2014, more than any other Mexican stock,” writes Bloomberg. “That’s beating advances of 11 percent for Alfa SAB (ALFAA) and 4.9 percent for Grupo Kuo SAB (KUOB),whose businesses include auto parts.”

Today, since the auto industry is leading economic growth in the U.S.,Mexico’s GDP is expected to rise accordingly, predict economists surveyed by Bloomberg, who expect it to grow by 3.8 percent from 2.5 percent.

Topics: Investment Industry The Wall Street Journal