Subject: EU trade deal impact on Mx auto sector
Date: 1 déce 1999  9:00 AM

EU Pact Should Boost Mexico's Auto Industry

By CHRIS KRAUL, Times Staff Writer

MEXICO CITY--This country's automobile industry, already booming thanks to
free-trade pacts with the U.S. and Canada, can expect another big boost
from the historic trade agreement signed last week with the European Union.
It will mean even more Mexican-built cars streaming into the U.S., on top
of the hundreds of thousands of Volkswagen Beetles, Dodge Rams, Plymouth
Neons, Chevy Cavaliers and other models already shipped north of the border
each year.
Mexican officials and industry watchers expect a new burst of investment
from Europe because the pact sharply reduces or eliminates tariffs on all
European manufactured goods, including auto parts, by 2003.
The trade pact will thus make Mexico more attractive to European car makers
both as a market for European makes and as a place to make cars to sell to
the U.S.
Car and truck production in Mexico will top 1.5 million this year, double
the 1990 total, and production is expected to grow by at least an
additional million units by 2004. Auto makers here, with almost half a
million workers, already are Mexico's largest private employers.
One of the first European auto makers to capitalize on the new accord could
be Renault of France, which is expected to announce in a matter of days
that it will begin building a new subcompact model, the Clio, at one of two
Mexican factories owned by its new partner Nissan.
France's Peugeot is also said to be interested in cranking up car
production here. And Volkswagen is considering expanding its hugely
successful factory in Puebla, where it produces the Beetle, or the company
may build another Mexican factory altogether, industry sources say.
"The automotive sector will be among the most exploited sectors of the
agreement in terms of boosting trade between Europe and Mexico," said Mario
Lopez, an economist with Irela, an EU-funded think tank in Madrid.
The predicted European influx would further establish Mexico as a major
auto production center for North America. U.S.-based car makers are
increasingly integrating their parts production and final assembly
operations among Canada, Mexico and the U.S. Of the three countries, Mexico
is expected to account for the largest share of car-sales growth in North
America over the next five years, according to consulting firm A.T. Kearney..
Mexican auto manufacturing has made huge gains in recent years, as U.S. and
foreign manufacturers targeting the U.S. market have expanded or moved here
to take advantage of lower U.S.-Mexico trade barriers and low wages. Labor
here costs about one-seventh what it does in the U.S., and overall
production costs are about 20% lower.
Ford, General Motors, Nissan, DaimlerChrysler and Volkswagen have poured
billions of dollars into Mexico since the North American Free Trade
Agreement took effect in 1994, with Mexico taking in $2.5 billion in auto
investment in 1998 alone. Investment is swelling because manufacturers are
recognizing the huge savings in making cars in Mexico, even after added
transportation costs from Mexico, industry sources said.
The greater European presence in Mexico will intensify competition in the
U.S. market for Detroit and Japanese makers. And the more Mexican-built
cars that are sent to the U.S., the more jobs will be sent to Mexico. U.S.
car and truck production is expected to drop 10% over the next five years,
said Carlos Niezen, a manager at A.T. Kearney's Mexico City office.
The trade deal with Mexico was much sought after by the Europeans, who
since NAFTA have sat by and watched their share of total Mexico trade
shrink from 16% in 1990 to 8% in 1998, according to Irela statistics. Over
the same period, the U.S.' share of Mexican trade grew to 75% from 66%.
Mexico has also reached out to Europe as it has sought to lessen its heavy
reliance on Uncle Sam. The EU pact is the eighth bilateral trade accord
Mexico has signed, and more are on the way.
Renault's Clio will be directed at Mexican consumers, who only now are
regaining their purchasing power since the peso was devalued nearly five
years ago, Niezen said. Mexico's domestic auto sales are still not back to
pre-devaluation levels.

                                                                      * * *

                                                  Making Tracks
Mexico's booming auto industry will benefit from the Mexico-European Union
free trade accord signed last week, which should attract more European
producers. Mexican vehicle production, including portion built for export,
principally to the United States:
 1998: 978,758 cars exported - 1.43 million cars produced
 Source: Mexican Automotive Industry Assn.

Copyright 1999 Los Angeles Times