Mexico is one of the fastest growing manufacturers of automobiles in the world. More and more, automotive companies around the world are choosing Mexican manufacturing locations for the sites of new plants.

Mexico’s Booming Automotive Sector

Mexico produces many models for the world’s leading automotive companies. The North American nation is the s world’s seventh largest manufacturer of vehicles, and the fourth largest automotive exporter behind only Germany, Japan, and South Korea. Many of the globe’s leading carmakers have set up operations and continue to expand in Mexico. This has been the case, particularly, in the past few years. Major industry players, such as General Motors, Mercedes-Benz, Daimler, and Chrysler have all invested heavily in Mexican plants in the last decade, or less.

Recently, Reuters confirmed reports that Hyundai has chosen a Mexican manufacturing location for its next-generation Hyundai Verna – the new version of the Accent small car – in Mexico. In just the last five years, automotive companies have poured over a collective $24 billion into Mexico. In the past couple years, at least seven auto makers have opened new Mexican assembly plants, or disclosed plans for new production facilities. Industry analysts predict that Mexico’s current annual production of 3.2 million passenger vehicles and light trucks will rise to five million in just two years.

The US Automotive Sector

Despite the aforementioned, the US is still the market to beat. The North America’s principal economic partner still produces well over 11 million cars and light trucks annually, and in the 1980s, the southern US was the location of choice for automotive manufacturers to open new facilities. This seems to be changing, however, in favor of Mexican manufacturing locations.

While several major car makers are still expanding their operations in south of the Mason-Dixon Line, it has been seven years since a major automotive plant was built from the ground up there. Since South Korea’s Kia built a greenfield plant in Georgia, Daimler AG, BMW, and others have all expanded existing assembly plants in Alabama and South Carolina. New operations since that time have instead gone to Mexico. Why?

Underlying Factors favoring Mexican manufacturing locations

Mexico has a lot going for it when it comes to automotive, and manufacturing in general. The neighboring nation to the south of the US boasts one of the highest ratios of labor quality to labor cost in the world. US labor is relatively high, but carmakers choose Mexico over even China, because the country is also in close proximity to major markets in both North and South America. This means further savings on transportation. On closer inspection, however, there is an additional – perhaps deeper – underlying factor at play in this recent trend.

Audi recently wrapped up construction on a new plant in Mexico to build its Q5 SUV. Although there is no doubt, part of the draw was low labor costs and proximity. In addition to these considerations, Audi specifically cited Mexico’s free-trade agreements that span the globe with over 40 nations as a primary, if not definitive, driver of their decision-making process. Last year, BMW announced they it had chosen between Mexican manufacturing locations for construction of a new plant as well – it, too, cited Mexico’s numerous trade agreements as a primary consideration in the decision to venture south of the US border. It would appear that, at least for the present, Mexico provides something to global automotive companies the US does not, i.e., duty and tariff free access to numerous important consumer markets around the globe.