Heading South of the Border for Car Production
Ford announced recently it will invest $2.5 billion to build and new engine and transmission plant in Mexico. It may or may not surprise you to know Ford has actually been in Mexico for 90 years so far and currently produces several cars in the region including the Fiesta, Fusion Hybrid, Lincoln MKZ and Lincoln MKZ Hybrid. This new plant will bring an additional 3,800 jobs to the market in a country where Ford already employs 11,300 people. This is not a new idea, but one that is being seen more and more with automakers.
The idea I refer to is having a plant to completely produce vehicles somewhere near the market they will be sold in. At one time it took several plants to stamp out all the parts and then a separate assembly plant causing a lot of freight hauling between plants to get cars put together. In the past thirty years, automakers have taken this in a different direction which has vehicles completely built in the plant that stamps out the parts. This change is more efficient and makes much more sense than having vehicles made in several different locations.
Now, the tides have turned again and not only do automakers want to make vehicles in one plant, they want that plant to be near the market the cars will be sold in. Having a plant in Korea to serve the Asian market, or one in France to help serve the European market only makes sense. This too will reduce freight and shipping costs. Ever since the global economic downturn in 2008, automakers worldwide have either collaborated, partnered up, or searched for a way to make cars in a way that is more economical for them, which means having a plant near the market.
Currently, Mexico is home to several automakers including Ford, Toyota, GM, and Mazda. By making several cars in Mexico, these automakers can easily reach the markets of both North and South America from a location that is central to these two continents. This model of efficiency and reduced freight costs will help these car manufacturers offer their vehicles at a lower price because the actual overall cost to make these vehicles is less when a plant is located near the actual market they will be sold in. Not only is it easier to serve a market this way, but with the connectivity offered today via the internet, the globe has shrunk and business is easier to do around the world.
The citizens of Mexico can rejoice as they will soon see their new plant in Guanajuato, Mexico which will quickly boost the economy of the region by employing the people who live there. Don’t be too surprised if you see this happening more and more, we already have many Japanese auto plants now located in the US because the market for those vehicles is closer to the plant than if they continues to build them in Japan and have to ship them by boat.