As the U.S. economy emerges from Covid-19-related lockdowns and subsequent supply chain disruptions, business leaders are beginning to develop a roadmap for redesigning their global supply chains with the aim of making them more resilient, environmentally sustainable, and agile. This endeavor, combined with the Biden administration’s goal of making critical sectors of the U.S. economy more self-reliant and less dependent on China, will require public-private partnerships and hundreds of billions in government investments, subsidies, incentives, and sourcing mandates.

But the United States can’t achieve these goals alone. They will require it to collaborate and strengthen trading partnerships with countries in North America, Central America, and South America and build a reliable, cost-effective land-based transportation network that connects the three Americas. Only with strong partnerships and a Pan-American transportation network will the United States be able to bring manufacturing home from Asia. This reconfiguration would benefit all involved: Creating jobs and promoting political stability in poor countries in the Americas would also build wealth in these nations and slow migration from them to the United States.

In a slew of sectors, the only way to develop cost-effective manufacturing in the United States is for those factories to be fed by an ecosystem of low-cost suppliers located in Central and South America rather than Asia. Given the long transit times from suppliers in Asia, it’s unrealistic for U.S. factories to depend on them. Nor is it realistic to expect a major chunk of the supply base now in Asia to relocate to the United States. That’s because the United States doesn’t have the population needed to support a large-scale factory and logistics infrastructure: The average age of its population is 38.5 — much older than that of the labor force in emerging economies — and more flexible service-sector options would make it difficult to find the huge amount of workers to consistently fill factory and logistics jobs such as trucking.

Leveraging Mexico’s and Central America Younger Populations

Mexico and countries in Central America do have the population and demographics to support a large-scale manufacturing and logistics sector. Their workforce is much larger and younger — the average age across Central America is 24 to 28. The labor cost of manufacturing in Mexico is now equivalent to that of China, and in parts of Central America, such as Honduras, it is even lower. Millions of poor Central Americans are desperate for legal job opportunities, and local manufacturing work would be welcomed, especially by communities now plagued by drug trafficking and production. The establishment of a robust manufacturing sector in these countries would also provide their governments with the resources to build professional security forces with the capability to root out drug cartels.

Creating better economic opportunities and reducing crime and corruption would undoubtedly reduce the emigration from those countries to the United States. And a thriving large middle class with spending power would present U.S. companies with a large market close to home.

Finding Sources of Renewable Water

Another consideration in building a robust manufacturing system that encompasses the Americas is the availability of water — an existing problem that seems certain to grow worse due to global warming. Manufacturing requires large amounts of renewable water, and in many parts of the U.S. West and Southwest, water availability is severely constrained.

Canada and the U.S. Great Lakes region have significantly more water. South American countries such as Brazil, Colombia, and Peru rank among the top water-rich countries in the world. According to the Global Water Partnership (GWP), nearly a third of the world’s renewable water resources are in South America.

In addition to their water resources, many South American countries also have stronger economies than those in Central America, decent infrastructure, and large talent pools (they have high literacy rates and excellent universities). They also are major food exporters and have established companies in a wide range of industries, including autos, steel, chemicals, electronics, pharmaceuticals, apparel and footwear, and appliances. And last but not least, they are also important sources of commodities such as lithium, copper, iron, silver, zinc, tin, lead, manganese, and bauxite.

Constraining China and Russia

A final reason for the United States and its allies in the Americas to build a strong Pan-American manufacturing ecosystem is to constrain the growing economic, political, and military power of China in particular but also Russia. It’s a goal that President Joseph Biden emphasized in the recent G7 Summit, where he called on the world’s richest democracies to offer developing countries an alternative to China’s Belt and Road initiative, which has made major inroads in Asia, Africa, and the Middle East and has large port and road construction projects in the works in Central American countries.

Russia and China have donated millions of Covid-19 vaccines to countries in South America in a bid to increase influence in these regions and gain preferential mining rights and bids on infrastructure projects. At their summit, the Group of Seven countries pledged to provide one billion doses of Covid-19 vaccines to poor countries over the next year and take other actions to increase supplies.

Modernizing the Pan-American Transportation Network

The existing Pan-American Highway is a 19,000-mile network of roads throughout North, Central and South America. The only major break in it is the Darién Gap, the 100-mile marshy and forested region separating Central and South America. To link major industrial regions across the continents in the near term, the roads would need to be expanded and upgraded, and the Darién Gap would have to be bridged, which new tunneling technologies could help achieve. In the medium to long term, a modern rail transportation network would have to be built. This road and rail network would allow goods to travel seamlessly and swiftly over land across the three Americas without spending weeks on the ocean.

In supply chains, speed translates into cash and flexibility translates into resilience. A regional, “near-shored” supply chain would accelerate movement between industrial hubs across the Americas, substantially reducing transit times from raw material to finished goods to final point of sale by weeks. Less time spent in transit would mean less cash tied up in inventory. Consequently, manufacturers would have reduced working capital requirements and healthier balance sheets.

Making It Happen

Of course, a strategic reset of this magnitude will take time and come with a hefty price tag. The best comparison is the Belt and Road initiative, which China launched in 2013. It is aimed at improving the infrastructure between 70 countries across Asia and Europe and into Africa. The estimated cost of this Chinese-financed mega-project is $8 trillion. The United States is in the best position to lead the Pan-American initiative, but it is highly likely that other countries in the Americas would be willing to help share the costs given the clear economic, political, and social benefits that they would reap. Indeed, the creation of the U.S. Interstate Highway System, which was originally championed by President Eisenhower in the 1950s, provided a huge economic boost and helped turn the United States into a global economic powerhouse.

In addition to public outlays, other means could be used to help finance the construction of the network. They include the cash flow from usage fees and tolls, offtake contracts or preferential-rights agreements that would obligate users of the transportation system to buy goods from a company or country making the initial investment in the network, and privately financed build-operate-transfer (BOT) projects, where a private party helps pay for infrastructure in return for the right to operate and collect fees from it for a set period.

Admittedly, the current security, political, and infrastructural problems plaguing countries in Central and South America pose enormous near-term challenges in building a Pan-American manufacturing ecosystem. However, industries like apparel and food already operate in these countries, and there is a budding medical-devices-manufacturing sector in Costa Rica. Other companies could apply the lessons that players in those industries have learned about how to build and ship from factories in Central and South America.

It would be up to more-developed countries like the United States, Canada, Mexico, and Brazil to persuade other countries to embrace the vision and join this ambitious endeavor. Most countries in the Americas aspire to work closely with the United States. And given the better future that a robust Pan-American manufacturing ecosystem could provide for their populations, many would undoubtedly be willing to support the infrastructure projects with guarantees and exclusive market-entry agreements and rights.

To remain competitive in the global landscape, the United States and other countries in the Americas need to revamp their economic ties. They should set their sights on designing the supply chain for the next 50 years that can bring prosperity to all of them.

SEE ORIGINAL SOURCE HBR.ORG

By Nick Bunkley at Automotive News

Mexico in 2018 accounted for more than a quarter of General Motors’ estimated North American production for the first time, a proportion that will rise further if the company follows through with plans to end production at five plants in the U.S. and Canada this year.

GM is now Mexico’s largest auto producer, topping Nissan Motor Co. in a year when it reduced output by an estimated 5 percent in the U.S. and an estimated 33 percent in Canada, according to the Automotive News Data Center. GM built 834,414 vehicles in Mexico last year, an increase of 3.6 percent, vs. a 10 percent decrease to an estimated 763,257 for Nissan, which had been No. 1.

GM’s higher Mexican output at a time when it’s eliminating jobs in the U.S. has angered President Donald Trump and other politicians as well as union officials set to negotiate a new contract with the automaker this fall.

“We want those cars here,” Rep. Debbie Dingell, a Michigan Democrat and former GM lobbyist, said in a statement to Automotive News. “That’s why we have to support a public policy environment that encourages production in the U.S.”

Overall production in Mexico fell by 1 percent in 2018. That’s the first time Mexico production has declined since automakers began opening a flurry of plants south of the U.S. border to take advantage of lower costs from nonunion labor and favorable trade agreements with overseas markets.

But production in Mexico is expected to remain stable in the coming years, particularly now that the U.S., Canada and Mexico have agreed in principle to a renegotiated free-trade agreement, said Eric Anderson, a senior analyst with IHS Markit.

Total North American production declined for a second consecutive year. Production was down an estimated 2.6 percent overall, including an estimated 2 percent in the U.S. and an estimated 8.8 percent in Canada.

Just three automakers built more vehicles in the U.S. in 2018: Tesla, up 151 percent; Volkswagen Group, up an estimated 22 percent; and Honda Motor Co., up 2.7 percent. Ford remained the largest U.S. producer, building nearly 2.4 million vehicles domestically vs. about 2.1 million for GM.

In Mexico, Toyota Motor Corp. built 49 percent more Tacoma pickups in Tijuana, and Hyundai-Kia made 33 percent more small cars in Nuevo Leon. Besides those two and GM, the only other automaker to raise output in Mexico was Fiat Chrysler Automobiles — by 369 vehicles. Honda and Ford joined Nissan with double-digit cutbacks.

A GM spokesman said the company hasn’t added any capacity in Mexico for a decade and has no plans to do so. Its 2018 gain there stemmed from falling demand for GM’s U.S.-made cars and surging popularity of crossovers such as the Mexico-made GMC Terrain and the Chevrolet Equinox, which is built in both Mexico and Canada. Production of the Equinox and Terrain in Mexico nearly doubled from 2017, but GM built 11 percent fewer pickups and 74 percent fewer cars in Mexico last year.Mexico represented an estimated 30.8 percent of GM’s 2018 light-truck production and an estimated 25.7 percent of its total output in North America. Ford got 9.7 percent of its North American supply from Mexico but doesn’t build any pickups, SUVs or crossovers there.

GM is poised for another Mexico production increase in 2019 with the addition of the Chevy Blazer, which started coming off the Equinox line at its Ramos Arizpe plant in November.

The decision to make the Blazer in Mexico — reached, company officials say, when sedan sales were higher and GM had less U.S. capacity to spare — has been a particularly sore spot for the UAW, which learned of it on the day GM reduced its Chevy Cruze plant in Lordstown, Ohio, to one daily shift. GM says it will end production in Lordstown after March 1, followed later in the year by assembly plants in Detroit and Oshawa, Ontario, and propulsion plants in Michigan and Maryland. Unifor, the Canadian union that represents Oshawa workers, last week blocked access to the headquarters of GM Canada in protest of the potential plant closure.

GM now top producer in Mexico as industry output declines” was originally published at Automotive News on 1/29/19.

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

 

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

 

Ford to Build a New Plant in Mexico
  • Ford is investing in a new plant in Mexico’s San Luis Potosi State to produce more small cars
  • The $1.6 billion USD investment will create 2,800 additional direct jobs by 2020
  • Construction begins this summer, with new small cars expected to start rolling off the line in 2018

MEXICO CITY, April 5, 2016 – Further increasing its competitiveness, Ford is investing in a new small car plant in Mexico, building a new manufacturing site in San Luis Potosi State.

Ford is investing $1.6 billion USD in the facility, which begins construction this summer. The new plant will create 2,800 additional direct jobs by 2020.

Specific vehicles being produced at the new facility will be announced later.

This investment comes during Ford’s 91st year in Mexico, including manufacturing vehicles since 1925. Ford and its 116 dealers this year also are celebrating 50 years of strong educational programs, including the construction and maintenance of nearly 200 rural schools throughout the country.

Mexico is Ford’s fourth largest vehicle manufacturing site for global customers – behind the U.S., China and Germany. Vehicles produced in Mexico also serve customers in the U.S., Canada, China, Argentina, Bolivia, Brazil, Colombia, Chile, Paraguay, Peru, Uruguay and South Korea.

The investment is part of the company’s One Ford global product and manufacturing plan. During the past five years, Ford has invested more than $10.2 billion in Ford facilities alone in the U.S. In addition, Ford has invested $2.7 billion in facilities and supplier tooling in Spain, $2.4 billion in Germany and – with the company’s partners – $4.8 billion in China.All of these investments are part of the company’s plan to serve global markets and deliver profitable growth.