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Competition for automotive investment in the NAFTA zone is intense

Competition for automotive investment in the NAFTA zone is intense

Automotive investment in the NAFTA zone lands in a number of different destinations.

Although Mexico has been highly successful in its ability to attract new automotive investment in the NAFTA zone over the last several years, analysts point out that some states in the US Southeast are giving their Latin American free trade partner a run for its money. One such industry watcher, Latin America light vehicle sales expert at IHS Automotive, Guido Vildozo, points out that Georgia, North Carolina and Alabama, in particular, are vying with Mexico for projects that are being negotiated at present.

The IHS expert believes that, although much automotive investment in the NAFTA zone has gone to Mexico in the recent past, states in the US Southeast have upped the game in terms of what they can and,are willing to and have offered to major automotive OEMs seeking to site new plants. An example of how states in the US South are willing to proffer significant financial and other incentives was evidenced when, in May of this year, the Volvo Car Corp. announced that it would break ground on the construction of a $500 million dollar assembly plant later this year. To win the competition for the investment, the State of South Carolina put together an incentive package that is valued at approximately $120 million. These incentives, in part, will be delivered in the form of tax breaks and infrastructure improvements related to the Port of Charleston and highway access. In addition to offerings from the government, South Carolina’s public utility, SCPSA, sweetened the economic pot by purchasing a 6,800 acre plant site on Volvo’s behalf. South Carolina is expected to reap a 4,000 direct employment windfall, in addition to other economic multipliers.

Although the projects that are being negotiated with Mexico at present are confidential in nature, some in the industry speculate that the origin of this additional automotive investment in the NAFTA zone may be from companies such as Hyundai, Jaguar and Porche. The two projects are reportedly smaller in size than others that have totaled $23 billion under the administration of current Mexican president, Enrique Pena Nieto.

Although, in the competition for new automotive investment in the NAFTA zone, Mexico has a clear advantage in the area of wages over the United States (and Canada), as well as a highly developed and far reaching network of free trade agreements that gives its products tariff and duty cost advantages in a good part of the world, Mexico must address some serious challenges if it expects to meet the Mexican automotive industry’s goal of boosting the number of passenger vehicles that it exports to 5.5 million units by 2020. In short, massive investments in logistics and infrastructure are required to keep plans on track. The ability to successfully receive continued automotive investment in the NAFTA zone, from the Mexican perspective, is contingent upon both the country’s private and public sector making large investments aimed at improving the Mexican logistics and supply chain. The nation needs to concentrate on upgrading the capacity to move product to market on its highways, at its ports and over its railways. If Mexico can make good on these efforts, further automotive foreign direct investment will continue to flow in its direction.

Analysts such as Guido Vildozo at IHS, however, say that the US Southeast is a serious player in the new automotive investment in the NAFTA zone game. He asserts that “of seven plants that were competed for over the last several years, Mexico had a 75% chance of winning the business. Now, with the attractive incentive packages being put together by Southern US states that percentage has been reduced to fifty.”

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