A worker in the Magna plant in Puebla, Mexico, Wednesday, January 22, 2015. Magna produces a number of car parts that are used by a variety of different car manufactures. Puebla has a growing auto industry.Brett Gundlock/The Globe and Mail
Auto investment soared in Mexico last year and light vehicle production topped three million for the first time, underscoring Canada's decline to junior-partner status in NAFTA when it comes to the auto industry.
Sobering data on investment, trade and vehicle production add to concerns among Canadian executives, government officials and union leaders that the long-term future of the industry in Canada is in jeopardy as Mexico grows into a global powerhouse.
Global auto makers announced investments of $7-billion (U.S.) in Mexico last year, including $3.6-billion for three new assembly plants, compared with just $750-million in Canada, according to numbers compiled by the Center for Automotive Research (CAR), an industry think tank in Ann Arbor, Mich. Those investments will further boost production in Mexico, which grew to 19 per cent of North American vehicle output last year as new Honda Motor Co. Ltd. and Mazda Motor Corp. factories opened.
Industry publication Ward's AutoWorld said Canadian production rose a fraction. But Canada's share of North American output fell to 14 per cent, its lowest level since 1987.
Meanwhile, Canada's trade deficit in vehicles and parts with all countries rose to $19-billion (Canadian). Canada's trade deficit with Mexico surged to a record high of $10.3-billion. Canada's ranking in automotive manufacturing among the three North American Free Trade Agreement countries has been declining since the 2008-2009 recession while Mexico's star has been ascending.
"There hasn't been a new assembly plant that has opened in Canada or the United States since 2009 and we've had seven in a row in Mexico," said Sean McAlinden, CAR's executive vice-president of research and chief economist.
But auto makers invested $10.5-billion (U.S.) in their existing U.S. operations last year and have added thousands of new jobs at assembly plants.
Mexico offers wages that are about 10 per cent of the approximately $30 an hour paid to workers with full seniority at U.S. and Canadian assembly plants. But it also benefits from its location next to the U.S. market and close to emerging markets in South America as well as ports that are open all year, permitting finished vehicles to be shipped around the world.
Observers "forget the advantages that Mexico has developed in terms of location and market access," said Paul Boothe, a professor at the Ivey School of Business at the University of Western Ontario in London, Ont. "They can serve the southern U.S. market just as easily as we can service the northern U.S. market."
Mexican governments also offer financial incentives that eclipse those offered by the Canadian and Ontario governments.
FCA Automobiles received $400-million – or more than 70 per cent – for a $550-million retooling of a plant in Toluca, Mexico. The federal and Ontario governments typically offer 20 per cent of a company's investment.
"They take an entirely different approach to public policy than we do," federal Industry Minister James Moore said in Detroit last month. "It's hundreds of millions of dollars in straight corporate welfare and labour policies that would be wholly unacceptable within Canada."
The growth of the industry coupled with stagnation in Canada has prompted an industry-union group called the Canadian Automotive Partnership Council to urge Mr. Moore and Ontario Economic Development Minister Brad Duguid to establish an automotive investment agency in Canada that would be similar to the Mexican government's ProMexico organization.
A Canada-Ontario Automotive Investment and Attraction Board would provide one-stop shopping for auto makers and co-ordinate incentives offered by the governments and outline requirements and permits needed to build factories.