YOU ARE HERE: LAT HomeCollections

U.S. Auto Makers Fret About Threat of Mexican Imports : Vehicles: European rivals could take advantage of a free trade agreement to build factories south of the border, then send cars north.

BREAKING DOWN BORDERS: Impact of a North American Free Trade Pact. One in an occasional series


MEXICO CITY — Thirty years ago, when Detroit was the world's undisputed car-making capital and Canadians streamed through the Detroit-Windsor Tunnel every day to work in its factories, Mexico had virtually no automotive industry.

Decades of government-industry coordination that rivals the cooperation among Japanese leaders and business executives have changed that scenario.

Today, as the three North American countries negotiate a free trade agreement, Mexico is emerging as an automotive powerhouse, a country that in the next decade could rise from its current 12th-place standing among world automobile producers to fourth place, according to a Massachusetts Institute of Technology study.

That worries U.S. and Canadian auto workers, who fear that they will lose more jobs to Mexico. And it worries U.S. auto makers, who see Japanese and European rivals increasing their presence in Mexico--a market Detroit has dominated--as a base to further penetrate a consolidated North American market.

Those concerns have combined with the dispute over 90,000 Honda Civics assembled in Ontario, Canada, which were denied duty-free entry to the United States, to make the automotive industry one of the hottest topics in trilateral trade negotiations.

In theory, all three countries want the same thing: better access to each others' markets. However, Mexico and Canada do not want to give up the prospect of substantial investments from European and Asian auto makers, while Canada and the United States do not want to give an advantage to Mexico, where the automotive industry remains highly protected.

Mexico has made tentative steps toward opening up, allowing limited auto imports beginning in 1990. Consumers stood in line to buy Corvettes, Lincoln Town Cars and the dozen other models available here--at more than double U.S. prices.

Despite the appetite for foreign-made autos, government restrictions assured that only 9,371 imported cars were sold here last year.

That was barely a trickle against the northward flow of auto exports. Even without a free trade agreement, Mexico's international auto sales rose 30% last year, to 358,666. About 90% of the Mexican exports are driving along roads to the north, accounting for about 4% of U.S. and Canadian imports.

Nearly one-third of the vehicles made here are exported. And that does not count the 2 million engines sold to other countries, mainly the United States and Canada.

Automobiles and parts are Mexico's top manufactured export. General Motors is second only to the government oil monopoly among Mexican exporters. While U.S. car manufacturing shrinks, Mexico's industry is growing; auto makers last year announced combined investments in Mexico of $2.7 billion.

About the same time GM announced plans to close 21 plants in the United States and Canada, the company began expanding production at its Saltillo plant, 200 miles south of Laredo, Tex.

Ford, which makes Escorts and Mercury Tracers at a state-of-the-art factory in northwest Mexico, is investing $740 million to refit its export-oriented Chihuahua engine plant. Half the sales of Chrysler's Mexican subsidiary were from exports last year.

For money-losing U.S. auto makers, shifting production to Mexico--where wages are lower, unions are more pliant and the market is growing--is a logical strategy for turning around multibillion-dollar losses.

Not surprisingly, U.S. union officials vociferously disagree.

"A better response to the current crisis would be to revise anti-U.S. GM corporate policies that favor production in Mexico and other countries at the expense of U.S. workers," United Auto Workers President Owen Bieber said in December when the plant closings were announced.

Canadians, who lack a home-grown automotive industry, also worry about the trends. From 1986 to 1991, 60% of foreign investment in the sector flowed to Mexico. As a result, Mexico makes 9% of the cars manufactured in North America, close on the heels of Canada's 11%, but still far behind the United States, with 80%.

Those concerns did not faze the U.S. Big Three until Volkswagen and Nissan began major expansions and Mercedes Benz announced plans for a Mexican auto assembly plant.

Now, the prospect of Mexican-made cars from German- and Japanese-owned factories entering the United States and Canada duty-free has solidified the argument for strict rules of origin.

Those rules will determine whether a product benefits from the proposed three-way free trade agreement. In the case of automobiles, that status probably will be determined by what percentage of the parts (or of their value) used to make a car or truck were manufactured in North America.

The UAW supports an 80% regional content requirement, far higher than the 50% level required in the three-year-old U.S.-Canada free trade agreement.

Los Angeles Times Articles