Economic Snapshot for March 17, 2009

Growing share of Big-Three vehicles are assembled in Mexico

By Robert E. Scott

The deep recession and credit market freeze caused U.S. sales of cars and light trucks in 2008 to drop by 18% from 2007 levels.  This decline worsened as 2008 progressed, punctuated by a 36% drop in year-over-year sales in December.

However, while the U.S. auto industry foundered–with production falling 24%–the number of light vehicles assembled in Mexico actually increased by nearly 5% (see chart below). As a result, the Mexican share of “Big Three” vehicle production in North America rose 3.7 percentage points, while the U.S. share fell 2.5 points (the Canadian share also fell). Simply put, the Big Three automakers increased their use of Mexican rather than U.S. labor to produce their vehicles.

Currently, GM and Chrysler are seeking nearly $22 billion in additional restructuring aid from the Obama administration.  In 2008, most of the vehicles that GM and Chrysler built in Mexico were trucks.  Both of these companies lagged behind Ford in offshoring car production to Mexico:  Over a third (34.4%) of all Ford cars built in North America last year were made in Mexico, a far greater share than either GM (5.7%) or Chrysler (0%).   A pressing worry is that GM and Chrysler will use new government loans to catch up to Ford in the offshoring race instead of investing the funds in U.S.-based production.  GM has invested $3.6 billion in Mexico in the past three years, and has recently began making its Aveo subcompact car only in that country.

Taken together, these facts make an “Invest in America” requirement an essential component of any further government assistance for U.S. auto companies.