Mexico built 16% more cars in first half of 2017, bucking slowdown in U.S. and Canada

By Pete Evans

After six consecutive months of record output, Mexico now makes more than one out of every five cars built in North America, new numbers from automotive organization Ward’s shows.

Mexico built 1,926,930 cars in the first half of 2017, almost 16 per cent more than the country cranked out in the first six months of last year. That compares with 1,208,911 Canadian-built vehicles over the same period, a figure which dipped by 2.4 per cent from last year’s level.

The boom means Mexico now makes more cars than the U.S. does, as America built 1,697,551 cars in the first half of 2017. Compared to last year, that figure is down by 17 per cent — about what Mexico’s output has expanded by.

Mexico may now be making more cars than America does, but when larger vehicles such as trucks, vans and SUVs are included, America still leads the region in vehicle production, with 5,812,310 through June — although that figure is down almost five per cent in the past year.

Profit margins on those vehicles tend to be higher, which is why North American automakers build them closer to home, while outsourcing smaller vehicles that aren’t selling as well as they used to.

Last month, Ford announced plans to produce all of its Focuses at a new plant in China, the first time the company will build cars in that country that are destined for sale in North America. Previously, the plan was to build the Focus in Mexico, before changing that plan after pressure from the White House.

And General Motors in January announced it would be cutting 625 jobs at one of its Ontario facilities and moving production to Mexico instead.

U.S. President Donald Trump has vowed to energize American manufacturing in his presidency, and the subject of auto jobs is likely to come up in NAFTA discussions between the three nations slated to start later this summer.

While Trump has rallied support for the Made In America movement, the reality of the North American automotive supply chain makes that basically impossible to achieve, since companies build and assemble hundreds of different components in various countries along the way toward building a single vehicle.

Roughly 40 per cent of the components in a vehicle considered to be made in Mexico in fact come from the U.S., the non-partisan think tank the Center for Automotive Research (CAR) said in a report earlier this year. In Canada, the ratio is about 25 per cent.

A hard-line approach requiring that all cars sold in America be fully made and assembled in America would cost the U.S. about 30,000 jobs, and add thousands of dollars to the price of a vehicle, CAR said.

 

Source: http://www.cbc.ca/news/business/automotive-manufacturing-jobs-1.4220397

 

More U.S. cars are being made in Mexico

The “Made in Mexico” label has become more plentiful on American car lots this year, even as auto makers pressured by President Donald Trump kicked off the year with promises to create more jobs in the U.S.

A move by auto makers to produce some popular sport-utility models in Mexican factories helped spur a 16% increase in production of light vehicles in Mexico during the first six months of the year compared with the same period in 2016. At the same time, tepid sales of sedans held down production in the U.S. and Canada, according to new data posted by WardsAuto.com.

The data indicates one in five cars built in the North American Free Trade Agreement zone comes from Mexico, including hot new products from General Motors Co. and Fiat Chrysler Automobiles NV. That is up from the industry’s reliance on Mexico during the financial crisis, when the U.S. car business received billions of dollars in bailouts aimed at preserving jobs and keeping domestic players afloat.

Mr. Trump launched several attacks on Mexican car imports throughout his campaign and after his election, saying more auto-factory jobs should remain in the U.S. Since then, auto makers have committed to several initiatives, including a move by Ford Motor Co. to scrap a new assembly plant being built in Mexico and invest some of the money saved in a Michigan factory that will add jobs. GM and Fiat Chrysler have said they intend to invest billions of dollars to add jobs in factories in coming years, citing favorable policies related to tax reform and other issues as reason for optimism.

The Trump administration in August will kick off new talks with Canada and Mexico on an overhaul to Nafta. The vehicle-manufacturing business — including a sprawling supply base — is a central negotiation point.

The latest data from WardsAuto shows that U.S. light-vehicle manufacturing fell 5% during the first six months of this year from a year earlier, as auto makers shed workers or scheduled significant downtime to counter a slowdown in demand for sedans. A substantial chunk of America’s automotive manufacturing footprint is devoted to production of family cars or compact cars, which aren’t faring well as gasoline prices remain low and sport-utility vehicles grow in popularity.

Separate U.S. trade data shows that the value of light-vehicle imports from Mexico to the U.S. ballooned 40% through May.

United Auto Workers President Dennis Williams told reporters last week that the union is planning to launch a “Made in America” campaign later this year, an effort to support hundreds of thousands of members building vehicles or parts in U.S. factories. Mr. Williams is looking to follow the Trump administration’s focus on American-made products and will use the effort to educate consumers on how to know if a car is built in America.

Finding those cars is getting harder.

Pickups such as some versions of FCA’s Ram and Chevrolet Silverado, two of the best-selling vehicles in America, are built in Mexico.

GM and Chrysler this year also started producing small crossover SUVs in Mexican plants; these are considered important vehicles for U.S. dealerships because of their growing popularity as consumers shift away from passenger cars.

GM shifted some production of a revamped version of its popular Chevrolet Equinox crossover SUV to Mexico from plants in U.S. and Canada. Over the next few years, the largest U.S. auto maker is expected to add other new models to factories south of the border.

Most of Fiat Chrysler’s increase comes from a decision to shift North American manufacturing of the Jeep Compass from the U.S. to Mexico. An all-new version of that small SUV is being built at FCA’s plant in Toluca, Mexico, which has seen year-to-date production increase 177%, according to WardsAuto.

Meanwhile output at FCA’s factory in Belvidere, Illinois is down nearly 93% year to date, as production of the older Compass model has ended and two new models of the Jeep Patriot and Dodge Dart were canceled. That plant has been retooled for production of a new Jeep Cherokee midsize SUV, which just began in June after being shifted from a Toledo facility.

 

Source: http://www.foxbusiness.com/markets/2017/07/25/more-u-s-cars-are-being-made-in-mexico.html

 

For Wall Street, Mexico Is Great Again

By Kenneth Rapoza

Mexico has a lot of well-known problems. Drugs. Poverty. Corruption. And on the corporate side, low-levels of production outside of the major multinational owned manufacturing firms. But despite the campaign rhetoric to build a wall and to knock Mexico down a peg in a NAFTA do-over, there is one problem our neighbor does not have: beating every single equity market in the Americas to a pulp.

For investors, Mexico is great…again. After a slight lull in affection back in April, the market has rediscovered Mexico now for the past two months. The trend is seen continuing until the fourth quarter.

Mexico was already great at the end of last year on into January for bond investors. They bought local currency Mexican government bonds when the peso fell to its lowest level on record, around 22 to the dollar. It’s now 17.17 to the dollar.  Those investors have gained at least 14.8% since January on the currency alone. The second-place currency in terms of strength against the dollar this year is the Brazilian real and that’s only gained 3.5%.

Morgan Stanley says the Mexico bull run is not over.

Economist Luis Arcentales of Morgan Stanley in New York says the mood has markedly changed since Trump first won the White House. “Besides the great food and the awful traffic, I did sense a shift among local investors who seemed much more constructive about Mexico after having been quite cautious because of a whole host of factors ranging from domestic politics to concerns about protectionism,” he says.

Last week’s news on upcoming NAFTA revisions helped strengthen Mexican markets seven more.  Many of the elements added, such as beefing up local content rules for manufacturers, protecting intellectual property rights and labor provisions were included in President Obama’s failed Trans-Pacific Partnership negotiations, and both Mexico and Canada agreed to make those concessions out of concern that the U.S. would bail and turn to Asia instead. NAFTA renegotiations begin on Aug. 16.

For Arcentales, barring the proposal to scrap the Chapter 19 rule in NAFTA on anti-dumping and trade duty matters in favor of the U.S., most Mexico watchers today think NAFTA just gets better, not worse.

Mexico has benefited from better coordination between the federal government’s two most important entities: oil firm Pemex and the central bank of Mexico, Banxico. Fiscal and monetary policies are tighter, energy reform that allows for greater foreign participation (meaning less spending for Pemex) has been a success thus far, and the central bank managed to protect the currency well, with ample reserves in a severe downturn.

Morgan Stanley strategists say they see “a window of opportunity to express a bullish view” on Mexico at least until their presidential elections next summer. Morgan analysts expect volatility to pick up in the first quarter.

“The story for the Mexican peso will be different in 2018,” says Andres Jaime, a strategist at Morgan.

The peso is unlikely to move closer to the dollar than 17 pesos. It’s already up from 18.12 when FORBES ran its portfolio manager profile on BlackRock’s Gerardo Rodriguez in June. Next year, political uncertainty will have a bigger influence on the currency and on Mexico in general, with volatility kicking into high gear by March. “Some cheapness in the currency is a near certainty in my view, particularly in the second quarter of 2018,” Jaime says.

For now, Mexico is still in the sweet spot. There’s potential for more upside.

Mexico seems to be in the midst of a period of relative calm. Investors have decided to shelve politics for now, possibly until NAFTA negotiations are well under way. Or in early 2018, when party alliances and candidates are defined. The economy is facing a full employment scenario similar to that of the United States. The official unemployment rate as of June is just 3.3%, down from 3.5% for much of the year. The net labor force participation rate rose to 59.3% from 59.2% in May.

Industrial production remains tepid, but that is because the statistical element is heavily weighted towards Mexico’s energy sector and construction.

Mexico continues to face downside risks from public spending cuts, higher gasoline prices and slightly higher interest rates, but it has since avoided the most adverse scenarios trumped up by the media, with the help of the president himself.

To date, there has been no mass deportations of Mexico’s illegal U.S. residents. Such a move would have put undue strain on Mexican public services. Many Mexicans in the United States, included undocumented workers, send money to their families in poor cities and towns across the country. That’s less money the Mexican government has to spend on social welfare, having counted on money from Mexican-Americans now for generations.

NAFTA meanwhile is still firing on all four cylinders, wiping out fears that Trump would sign an executive order calling for the immediate withdrawal from the trade treaty signed in 1995 under President Bill Clinton. They’ve dodged two bullets, helping, for investors anyway, to make Mexico great again.

“Mexico’s better than expected economic performance adds to 2017’s resurgence of emerging markets which is lifting global GDP growth back to potential,” says PNC Financial’s senior international economist Bill Adams in Pittsburgh. “The global economy has reached the sweet spot of the economic expansion,” he says, and within Latin America at least, Mexico is smack dab in the middle of that sweet spot.

 

Source: https://www.forbes.com/sites/kenrapoza/2017/07/24/for-wall-street-mexico-is-great-again/#125eaba576cd

 

Mexico welcomes U.S. NAFTA objectives, eyes stronger North America

By Anthony Esposito

MEXICO CITY (Reuters) – Mexico’s government on Monday said it would work to strengthen the North American economy after the United States published its objectives for the renegotiation of the NAFTA trade deal, which one Mexican official described as “not as bad” as feared.

In a statement, the Mexican economy ministry said it expected talks between the United States, Mexico and Canada on renegotiating the North American Free Trade Agreement (NAFTA) to be able to get under way from Aug. 16.

For now, Mexico would continue with domestic consultations on the revamp of the accord until early August, it added.

The ministry said it would work “to achieve a constructive negotiation process that will allow trade and investment flows to increase and consolidates cooperation and economic integration to strengthen North American competitiveness.”

The United States said its top priority for the talks was shrinking the U.S. trade deficit with Mexico and Canada, a recurring complaint of U.S. President Donald Trump. [L1N1K8149]

In a highly anticipated document sent to lawmakers, U.S. Trade Representative Robert Lighthizer said he would seek to reduce the trade imbalance by improving access for U.S. goods exported to Canada and Mexico under the three-nation pact.

Speaking under condition of anonymity, a senior Mexican official said the list of priorities was “not as bad as I was expecting” and welcomed that the United States was not pushing to impose punitive tariffs, as Trump has threatened.

The official also noted the U.S. wish to ditch the Chapter 19 dispute settlement mechanism that has hindered the United States from pursuing anti-dumping and anti-subsidy cases against Mexican and Canadian firms would be resisted firmly by Canada.

“Canada will fight to (the) death on Chapter 19,” the official said.

 

Source: https://www.reuters.com/article/us-usa-trade-nafta-mexico-idUSKBN1A301D