Cars are produced all over the world and their components are supplied by many different countries. We tend to think of Ford as “American”, Toyota as “Japanese”, and BMW as “German”. That may be true of the car companies, but where in the world their vehicles are actually made is a different story.

America, just a few decades ago, was the world center of vehicle production. Today, it is the world’s largest importer of cars and light trucks, and auto production in the U.S. has declined as a share of its new vehicle sales.

Mexico is now the fastest growing vehicle producer in the world. Mexico is scheduled to produce nearly 5 million cars and light trucks this year, nearly double its 2011 output.

Mexico is Exporting Foreign and Domestic Nameplates to the U.S.

Foreign automakers are manufacturing vehicles in Mexico and exporting them to the U.S. In the past, these companies would likely have built plants in the U.S. rather than in Mexico.

Motor vehicles account for the largest volume of U.S. imports, outpacing oil and cell phones. Mexico is the leading source of vehicles imported by the U.S. that represent a mixture of nameplates.

Vehicle production in Mexico is not limited to foreign nameplates. In fact, each of the Detroit Three is making vehicles in Mexico, which has become “Detroit South”.

Approximately 30% of General Motor vehicles sold in the U.S. are manufactured in Mexico, with Chrysler importing a smaller portion of its U.S. sales from Mexico. Among the Detroit Three, Ford has the smallest share sourced in Mexico, less than 20% of its U.S. volume.

All told, the Detroit Three imported millions of vehicles from Mexico last year, something that many American consumers do not realize when they visit dealers’ showrooms.

Mexico’s Car Production Advantages

Mexico has four major advantages over the U.S. in car production that have attracted a growing number of car manufacturers to establish assembly plants there.

First, costs are lower in Mexico. Not only does it cost less to construct an assembly plant in Mexico, the costs of manpower to produce vehicles are also significantly lower in Mexico than in the U.S. The lack of union power in Mexico makes it easier and more economical for companies to operate there rather than in the U.S., especially in terms of worker benefits.

Second, Free Trade Zones in Mexico facilitate the import of components used in vehicle production and provide an export gateway for vehicles to 44 countries around the world.

Third, the North American Free Trade Agreement (NAFTA) has been instrumental in the rapid growth of Mexico’s vehicle production and its auto exports. NAFTA allows the duty free transfer of vehicles and auto parts between Mexico, the U.S., and Canada. During 2018, Mexico ranked seventh among all countries in vehicle production, with 70% of those cars and light trucks sent to the U.S.

Fourth, Mexico has developed a components industry to supply its auto assembly plants. This enables a highly efficient supply chain to operate in Mexico that, along with the low-cost of Mexican-produced auto parts, lowers vehicle production costs.

Global Vehicles Will Increase U.S. Imports.

A combination of costs and production factors have enabled Mexican vehicle manufacturing to soar over recent years, nearly doubling between 2011 and 2018.

At the same time, vehicle manufacturing in the U.S. has declined, despite four years of record auto sales averaging more than 17 million units.

This reflects a fundamental change in how domestic and foreign nameplate vehicles are reaching the U.S. American consumers should understand that while companies may be based in one country, their vehicle production often is scattered throughout the world.

Originally focused on low-cost, entry-level vehicles, Mexican vehicle production has changed significantly over the past few years. Mexican plants now turn out all types of vehicles including luxury models, pickups, SUVs and crossovers for both foreign and Detroit Three nameplates.

Mexico represents a new type of vehicle manufacturing base. It is a low-cost producer that is positioned to export cars to world markets, not just to the U.S. As vehicles have become global products, Mexico, not the U.S., is at the epicenter of this new industrial reality.

Key Issues: Snapshot

• While car companies are associated with a particular country, their vehicles are often produced in other parts of the world.
• While just a few decades ago, America was the world’s largest producer of vehicles, it now is the world’s largest importer of vehicles. Today, Mexico is the fastest growing vehicle producer on the globe.
• The growing number of foreign automakers in Mexico are exporting most of their production to the U.S. In the past, these foreign nameplate automakers would likely have built plants in the U.S. rather than in Mexico.
• Vehicle production in Mexico is not limited to foreign nameplates. In fact, each of the Detroit Three is making vehicles in Mexico, which is becoming “Detroit South”.
• Mexico has four major advantages that have attracted a growing number of manufacturers to establish assembly plants: a low-cost environment, Trade Free Zones, NAFTA, and auto parts produced in Mexico that provide an efficient and low-cost supply chain for its auto assembly plants.
• While Mexican auto production has soared over the past seven years, vehicle manufacturing in the U.S. has declined as a share the nation’s sales volume.
• Although its vehicle production was originally focused on low-cost, entry-level vehicles, Mexico now makes all types of vehicles, including luxury models and light trucks for both foreign and Detroit Three nameplates.
• U.S. consumers should understand that while vehicle makers may be based in one country, their production is scattered throughout the world and that millions of Detroit Three nameplate cars and light trucks sold in the U.S. are imported from Mexico.