Big three automakers to produce small cars in Mexico

November 16, 2015 09:58 AM

Detroit’s Big Three automakers are accelerating plans to produce more small cars for the North American market in Mexico as they seek to reduce labor costs, while using higher-paid U.S. workers to build their very profitable trucks, sport utility vehicles and luxury cars.

New versions of several of their popular U.S. compact cars are expected to be made in Mexico, people familiar with the companies' plans said. They include General Motors Co’s new Chevrolet Cruze hatchback, a successor to Ford Motor Co’s Focus compact and a replacement for Fiat Chrysler Automobiles NV’s Jeep Compass compact SUV.

The decisions are prompting three major automotive research firms, who are often used by the automakers and their suppliers for industry forecasting, to project a big increase in Mexican output of small cars by the three companies.

AutoForecast Solutions estimates that GM, Ford and Fiat Chrysler will collectively produce 45 % of their small cars for the North American market in Mexico by 2020, up from 18 % in 2014. LMC Automotive sees the 2020 figure at 37 %, also against 18 % last year, while IHS Automotive projects the Mexican percentage going to 42 % in five years time, though it calculates the 2014 level at a higher level than the others, at 25 %. In response to questions from Reuters, the three automakers declined to discuss their specific plans.

GM said that the "vast majority" of its small cars sold in the U.S. are "produced domestically." Ford said it is "committed to continuing to improve competitiveness and to invest where it makes the best sense for our business." Fiat Chrysler said it "has made no official announcements regarding the company's future production plans."

The Detroit automakers' plans to build more small cars in Mexico are likely to be highly controversial ahead of the November 2016 U.S. presidential election. Businessman Donald Trump, who is seeking to win the nomination to be the Republican presidential candidate, has repeatedly blasted U.S. companies, including Ford, for any moves to shift jobs to Mexico from the U.S. and says he would support government incentives to keep auto production in the United States if he gets into the White House. The Trump campaign did not respond to a request for comment.

It is also a huge issue for the U.S. labor unions, who have been highly critical of the impact of free trade agreements, such as the North American Free Trade Agreement (NAFTA) with Mexico and Canada reached when Bill Clinton was U.S. President in 1994. Hillary Clinton is now the leading contender to be the Democrats' presidential candidate.

The Clinton campaign declined to comment.

United Auto Workers President Dennis Williams has faced criticism from union members that he has acquiesced to jobs going south. "For someone to suggest that we endorse products going to Mexico is just nonsense," he wrote to UAW members last month. The UAW declined a request for a comment for this story.

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