Why Are Cars Being Built In Mexico?

Why Are Cars Being Built In Mexico?

It was recently announced that the next generation Toyota Corolla will be built in Mexico, marking yet another major automaker that will move the production of its high-volume vehicles to south of the border. So why are more cars being built in Mexico?

There are a number of reasons, but they aren’t as obvious as you might think. Sure, labor in Mexico is cheaper than the in U.S. and Canada, but there’s more to it.

Free Trade

2015-Volkswagen-Golf-Main“We can export our cars duty free to the main consumer markets in the world: U.S. and Canada, European Union, most South American countries, and Japan,” said Consuelo Minutti, head of corporate communication at Volkswagen. The German company currently makes the Golf and Jetta in Mexico and has been building cars in Mexico for decades. The Puebla plant is so important that it’s the biggest VW plant outside of Germany. “Mexico provides a strategic platform for the production of high-volume models for worldwide markets.”

Minutti explained that the Puebla plant in Mexico exports more than 80 percent of its production to global markets, not just North America. “Puebla has amply proven its capability for producing state-of-the-art cars for the most sophisticated markets in the world,” she said.

Local Parts

The free-trade agreements that Mexico has with so many countries comes with a few interesting wrinkles.

“In order to comply with rules of origin of these agreements, local sourcing of components is part of the strategy,” said Minutti.

That means in order for the automakers to ship the cars internationally they have to be built with locally made parts. This leads to automakers investing with the automotive suppliers in Mexico. Volkswagen has already announced that in order to produce the next generation Tiguan crossover, the company will invest $1 billion in Mexico, money that will help expand and update the production facilities at the Puebla plant, as well as tooling to produce auto parts at suppliers.

Strong Workforce

Nissan Mexicana Opens Third Plant, Boosts Production for SentraThat investment in the locals helps to make a strong and dedicated workforce. “We have a very talented workforce there,” said Herman Morfin Director of Corporate Communications at Nissan Mexico. Nissan has three plants in Mexico and has been making cars in the country since the ‘60s. “With that workforce, we’ve basically turned around the number of vehicles we’ve been producing,” he said. “In 2008 we made about 450,000 vehicles. In 2014 that’s up to 850,000. When we have the new Infiniti plant up in 2015 we will be surpassing the one million vehicles mark.”

That workforce has and the now bolstered Mexican economy is causing an upward trend in terms of car-buying in the country. Nissan has recently introduced financing options in the area, and that has helped the brand’s market share jump to 26 percent. “Our success in the area is a benchmark for the whole company on an international scale,” said Morfin.

Quality Concerns?

With so many cars being produced at a cheap labor cost, consumers may be concerned about the quality of the vehicles. “We have a very high standard of operation,” said Morfin. New employees at Nissan’s plants in Mexico have between four and ten months of training, depending on the position, to ensure that quality is up to par. Nissan’s manufacturing team even developed training methods that ensure optimum quality, efficiency and ergonomics within the plant.

“We reached maximum capacity very soon after opening our second plant in Aguascalientes, Mexico.” The plant hit 200,000 vehicles made just 16 months after opening, and every 55 seconds, a Nissan Sentra comes out of the production line at both plants in Aguascalientes.

See Also: Which Cars Are Made in Mexico

Mexico is quickly becoming a hotspot for automakers to produce their cars. Every major automaker has a plant in the country and thanks to the low wages, free-trade, dedicated workforce and the quality standards being met from these plants, it’s likely going to be that way for quite some time.