Detroit auto ills felt in Mexico

Go to original article

Loan funds likely won't reach plants

The U.S. auto bailout lifted the threat of imminent collapse from plants that have been a steady source of jobs in Mexico. But the rescue, backed by U.S. taxpayers, is likely to slow investment in Mexico's auto industry, one of the world's fastest growing.

Lured by low labor costs, Detroit's automakers have been vital to an industry that now makes up 3 percent of Mexico's gross domestic product and accounts for a fifth of its exports.

The 13 plants of Ford, Chrysler and GM account for more than 50 percent of Mexico's auto production.

Although nothing in the $17.4 billion U.S. government loan package forbids it, expansion outside the United States using taxpayer money would most likely lead to a huge backlash.

"They really need this money, so my guess is that they will try to stay away from making new investments in Mexico in the short term because it would look very bad," said Juan Pablo Fuentes, an economist with Moody's Economy.com.

Lawmakers have made it clear that they expect U.S. carmakers to keep jobs at home.

And they have leverage: $4 billion of the auto loan package will only be made available if Congress votes to release $350 billion remaining in the financial industry's bailout fund.

Mexico is heavily reliant on exporting to the United States. Three-quarters of vehicles produced there are exported, 70 percent of them to the United States, according to the Mexican Auto Industry Association.

As U.S. car sales plummeted, Mexico's exports fell nearly 8 percent in November and production declined 2.1 percent.

General Motors, which employs some 12,700 people in Mexico, released more than 600 workers when it stopped making the Suburban at its plant in Silao this year. Chrysler, which employs about 5,000, laid off 800. Both companies said they will idle several Mexican plants next month to cut costs and shrink inventories.

Ford is retooling its Cuautitlan Assembly Plant to build its new Fiesta subcompact, part of a $3 billion investment that will create 4,500 jobs in Mexico. In July, GM opened a plant in San Luis Potosi to make the compact Chevrolet Aveo and Pontiac G-3.

Chrysler is building a $570 million plant in Saltillo for the Phoenix engines intended for fuel-efficient cars in development.