My Comments: This is an extremely important short video regarding the North American Union (NAU) and Ted Cruz. Cruz’s wife, Heidi not only is Vice President of Goldman Sachs, but she was also on the Independent Task Force for the NAU, sponsored by the Council on Foreign Relations, of which she was a member. To get to the juicy parts of this video, start at 2 minutes…then listen. You’ll really be surprised at what the NAU is all about and wonder why Cruz claims to be a conservative when his wife has worked on the globalist NAU.
My Comments: If you liked NAFTA and GATT, and the rest of the smaller trade agreements, you’ll really love TPP, TPI, and TPA. There will be no jobs left for Americans. We will be finally a third world country as these filthy rotten traitorous politicians have wanted. Remember all the great auto jobs that millions of families had to raise their children and buy homes? That was the once burgeoning middle class. It is no more. The politicians in charge are destroying our once wonderful country.
The U.S., Canada and Mexico are united under NAFTA but fierce rivals in the boardroom to win automotive investment and jobs.
(Photo: Susana Gonzalez/Bloomberg)
Mexico is the auto industry darling, Canada is struggling to retain a manufacturing footprint, and the U.S. is a house divided with most of the new automotive investment and jobs headed south of the Mason-Dixon line.
The three countries are a united trading block under the North American Free Trade Agreement, or NAFTA, but they’re fierce rivals in the boardrooms where auto executives decide where to invest in the latest equipment and additional jobs.
The relative fortunes of the three countries have changed over the years, but right now, and for the foreseeable future, the farther south you are located, the better.
Of the vehicles built in North America last year, Mexico produced about one in five, or double the rate from 2004. WardsAuto, which tracks production data, expects the rate to increase to one in four by 2020.
“The U.S. South and Mexico are winning the battle,” said Dennis DesRosiers, president of DesRosiers Automotive Consultants near Toronto. “Over half the capacity and 80%-90% of investment dollars are going to the U.S. South or Mexico.”
Conversely, he sees the Canadian auto industry dwindling to five automakers with a single assembly plant each over the next decade or two — or about half its current manufacturing footprint.
The UAW is keeping a close eye on the flood of automotive investment migrating to Mexico, UAW President Dennis Williams said at the union’s bargaining convention in March. The issue is especially critical for the UAW this year as it seeks product commitments from the Detroit Three in negotiating a new contract with the Detroit Three for about 140,000 U.S. autoworkers.
Where is your car made?
The auto industry is global, but increasingly companies want to build in the region where they sell. Which means chances are your new vehicle will continue to be built in North America but may not be made in the U.S.A.
Back in 2004, 11.6 million vehicles were built in the U.S., or 74% of the 15.8 million industry total. Canada built 2.7 million, or 17% of the capacity; and Mexico contributed only 1.4 million vehicles, or 9%, according to WardsAuto.
In 2014, signs were evident the tide had turned.
Mexico’s production had more than doubled to 3.2 million units, or 19% of the 16.9 million industry total. It came at the expense of the U.S., which dipped to 11.4 million units, or 67%; and Canada, which was down to 2.4 million, or 14%.
And the trend will continue. Wards forecasts new plants will add 1.2 million units of capacity in North America by 2020 and it is not evenly split.
Building boom in Mexico
Virtually every automaker is adding capacity in Mexico, including General Motors, Ford, Toyota, Honda, Volkswagen, Audi, BMW, Hyundai and Mazda.
The country is a “massive untapped market” that could grow by another 1 million to 2 million vehicles a year, DesRosiers said.
By 2020, Mexico is expected to build one in four vehicles in a North American industry of 18.6 million units. The U.S. will hold its own at two-thirds of the output, or 12.2 million vehicles. Canada is the big loser, down to 1.6 million vehicles and 9% of the output.
In 2014, automakers announced $18.25 billion in additional investments in North America. The breakdown: almost $10.5 billion for the U.S., $7 billion in new projects for Mexico, and a single $750-million project for Canada, according to the Center for Automotive Research in Ann Arbor.
That is on top of the 18 plants already in Mexico, and there are least five more planned or under construction. Mexico has seen a 40% increase in auto jobs since 2008 to 675,000 last year while the U.S. saw only a 15% increase in the same period to more than 900,000.
The supply base also has improved its quality, said HaigStoddard, industry analyst for WardsAuto. “The litmus test was when Toyota said it would build there,” a reference to the company’s strict standards.
The domestic market continues to grow, and Mexico’s ports and its trade agreements with 45 counties have helped establish it as a strong export hub to Europe and South America as well as the rest of North America. By contrast, the U.S. has about 20 trade agreements, and Canada also has but a fraction of Mexico’s pacts.
“Mexico bested us on trade agreements,” said Sandra Pupatello, a former Canadian politician who now oversees business development for PwC Canada in Toronto as well as the Windsor-Essex Economic Development Corp. “They quietly have been negotiating trade agreements with the world.”
In U.S. South gaining parity
In the U.S., Northern states are gaining third shifts at existing plants while the South is getting investment in new plants and the thousands of jobs that come with them.
By 2019, the U.S. South will have about 5 million units of capacity, almost catching up to the North, where the Midwest is not expected to grow much beyond the more than 6 million now, said Michael Robinet, managing director of IHS Automotive Consulting.
That is astounding given the history of how the auto industry developed.
The U.S. auto industry started in Detroit more than a century ago and the predominance of General Motors, Ford and Chrysler were such that they became known as the “Big Three.”
Production was centered in the Midwest and Michigan in particular — spilling over into neighboring Canada. It wasn’t until foreign automakers decided to build in the U.S. that a new manufacturing base was established in the South. States such as Alabama, Tennessee and Georgia used incentives and a nonunionized workforce to attract automakers seeking a manufacturing toehold in the U.S.
“The U.S. will be fine, at least over the next five years,” said Stoddard. “Production will stay here, especially of larger vehicles. There will be a lot of new capacity in the South, and it is needed. The North will hum along at current levels for the next five years.”
And the global pendulum will continue to swing. The auto industry invested heavily in Canada in the 1980s, Mexico took over as the place to invest in the 1990s when it became part of NAFTA, but lost its status to China only to regain it again. Along the way, the U.S. regained favor.
UAW President Williams blames NAFTA for creating the imbalance, calling it a “terrible trade agreement in my opinion that’s flawed.”
Canada as darling
“Canada in the 1980s and ’90s was the darling low-cost region,” said Stoddard.
Canada’s auto industry was nurtured in Windsor, across the Detroit River from the Motor City, and flourished under the Auto Pact trade agreement of 1965, which removed tariffs on vehicles and parts between the two counties while guaranteeing production levels.
Automakers had to build a vehicle in Canada for every car sold. Almost every major plant investment in Canada can be traced back to the Auto Pact, exports grew substantially and autos became Canada’s largest industry with 20 assembly plants.
The Auto Pact was superseded by NAFTA in 1994, creating a trilateral trade block that added Mexico and allowed its industry to gain traction.
Today, there are 10 assembly plants left in Canada. DesRosiers said Canada has lost 2.1 million units of capacity since 1992 and that figure swells to 2.6 million next year when Oshawa, Ontario, ends some of its production.
“Canada will bear the brunt of any capacity cuts and loss of production,” Stoddard said of the shifting tides.
On Tuesday, the Canadian and Ontario governments appointed a “car czar,” former Toyota executive Ray Tanguay, to market Canada as an attractive base for automotive investment.
“We have to figure out what we need to do to put Ontario and Canada on the map,” Tanguay said, knowing “everybody wants those jobs, everybody wants those investments.”
Brad Duguid, Ontario’s Minister of Economic Development, noted that “in the old days, Ontario and Canada could allow potential auto investments to come to us without a great deal of marketing or a great deal of solicitation,” Duguid said. “Those days unfortunately are gone, which means we’re going to have to up our game.”
Leads must be pursued years before final decisions are made, “We have often found that by the time we get into the running, the decisions have come long before,” Duguid said.
Tanguay will also work to ensure Canada retains the investment it has.
Honda and Toyota continue to invest in Canada, but Fiat Chrysler is spending only the minimum necessary to launch new minivans in Windsor and continues to put off a new paint shop in Brampton, where it makes large cars. Ford workers in Windsor felt the sting when the automaker chose to build a new engine in Mexico despite Canadian lobbying efforts. Windsor was also passed over by Jaguar Land Rover, which considered building a plant there.
General Motors is downsizing its Canadian operations, closing an assembly line and moving production of the Chevrolet Camaro from Oshawa, Ontario, to Lansing in November, resulting in the layoffs of 1,000 workers with no new product to retain them.
GM’s Canadian president has said decisions won’t be finalized until next year when a new labor contract with Canadian union Unifor must be negotiated. That is when a condition of Canada’s $10-million government aid given to GM in 2009 expires. Attached to the money was GM’s promise it would maintain 16% of its North American production in Canada.
GM has no plans to pull out of Canada, but operations must be the “right size and balance the union relationship” to build for the future, said Alan Batey, GM’s president of North America. He noted GM has a lot of capacity in Canada and the smallest market share of the three counties.
Changing competitive advantages
“The three countries fluctuate,” said Batey, who said GM wants a balanced presence in each country to negate the impact of currency fluctuations and avoid shipping great distances.
“The most efficient way is to build where we sell,” Batey said. “We want to source and manufacture within the three countries.”
The pros and cons of each country keep changing.
Everyone wanted to build in Canada until a few decades ago when Mexico emerged as the attractive low-cost region. Then Mexico lost some of its edge in 2000 because its costs were about 11 times more than China, said Peter Hall, chief economist with Export Development Canada.
But wages have been rising about 19% a year in China’s coastal regions while costs have remained flat in Mexico. The end result is that Mexico’s labor costs are only slightly higher than China and in some instances they approach parity.
Within North America, labor costs in northern U.S. states are close to $60 an hour; the South is closer to $40 an hour, and Mexico is less than $10. Canada is even higher, said Hall. The average Mexican will work up to 450 hours more than an American every year, earning less than a fifth of the pay, according to the Organisation for Economic Co-Operation and Development.
But labor is only one of the factors in play when automakers are deciding where to invest. They must be balanced against the productivity and product quality of a trained workforce. There are logistics such as roads, ports, rail access, crime rates, security issues and trade pacts.
It used to be simple: The U.S. had higher labor costs but quality made up for it. Canada offset some of its costs with universal health care, a weaker dollar, productivity and quality. Mexico had problems with quality and productivity, but wages were much lower.
Fast forward to today. With new entry-level wages in the U.S., union-run health care trusts and Obamacare, labor costs have come down. Canada has become a higher-cost nation. Mexico continues to mature, increasing its quality and output to meet greater demand both at home and abroad.
“We want to be part of a growth market,” Batey said, and capitalize on low cost and productivity.
Ford’s Stephen Odell, head of global sales and marketing, adds a cautionary note. “Mexico has a lot of capacity going in. At some point labor rates will go up as a result.”
And Mexico’s political landscape has to be weighed, Stoddard says. It is still not the safest country and there is corruption.
Honda experienced growing pains in Mexico, where it has built a new plant to build the subcompact Fit and new HR-V crossover.
“Looking back, we were probably a little more optimistic than we should have been in Mexico,” said John Mendel, Honda executive vice president of Automobile Operations. “Primarily because new plant, new site, new workforce with an average age of 22 and 60% don’t have driver’s licenses, new supply base, new transportation system and we expected it all to go like we had just built a new plant in Marysville (Ohio). So we were probably a little bit too optimistic.”
Mendel said there was some vandalism in the plants and during transportation, “mostly the kinds of things you could take off and sell: tires and wheels, stock, spray-painting cars, breaking glass, stealing radiators,” Mendel said. “Going from Salaya to either of the ports to the U.S., there is not a lot around there, so I don’t know what you can do. It’s been relatively minor stuff, but it’s happened.”
The foray into Mexico does not diminish the production meccas Honda has established in the U.S. and Canada.
Honda is proud of its heritage in Marysville, Ohio, which continues to grow with plans to make the Acura NSX super car in Ohio, as well as additional facilities in Indiana.
In Canada, Alliston, Ontario, has been a production hub for 30 years, Mendel said. “They have taken the lead plant role for any new vehicle. It speaks to the maturity of the manufacturing process, workforce and the ability to change rapidly and do a great job.”
Toyota is restructuring its North American footprint to better align its plants with regional manufacturing costs. That means clustering higher-value larger vehicles in Northern states and Canada, said Jim Lentz, CEO of Toyota North America.
Toyota now plans to build crossovers in Canada; larger cars and SUVs in Indiana and Kentucky; pickups in Texas and Mexico; and relocate the Corolla small car from Canada to a new plant in Mexico.
Lexus continues to invest in Canada, adding a new stamping plant for the next-generation Lexus RX and RX hybrid in Cambridge, Ontario, said brand chief Mark Templin.
“It is the right thing for us in the long term, positioning us for the next 50 years,” Templin said. And Lexus is investing to build about 50,000 next-generation Lexus ES sedans in Kentucky to meet North American demand.
“There are a lot of people chasing low cost.” Templin said, but Lexus has no plans to assemble in Mexico.
U.S. Rep. Sander Levin is not convinced automakers will use Mexico as an export base because of its various trade agreements, noting as much as 80% of the products are exported to the U.S. “There is not proof yet it’s a major factor.”
And the intellectual heartland is still in the Northern states, said DesRosiers. “The future of U.S. North is the six inches between your ears.”
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