Analysis

How Mexico is winning the car manufacturing war: Amanda Lang

Canadians tend to think of Mexico as little more than a sunny vacation destination, but over the past 15 years it has transformed its economy into a manufacturing powerhouse that has lessons for Canada, Amanda Lang writes.

Car makers are rushing to Mexico to take advantage of much more than cheap labour

Toyota recently moved Corolla production away from a plant in Ontario and this one in Mississippi to set up shop in Mexico. (Rogelio V. Solis/Associated Press)

Mexico has been on my mind for a couple of years, ever since I met a Canadian entrepreneur who runs a tomato production company in Canada.

He said in passing that his seasonal workers from Mexico out-pick his Canadian workers by a ratio of three to one. "You must pay by the tomato," I guessed, imagining only a financial incentive could create such zeal.

"No," he said, "they all make the same. Some workers are just working harder. They seem to want to."

Ask most Canadians for their view of Mexico, and you're likely to get two impressions — a longed-for vacation destination in winter or, increasingly, a dangerous and somewhat lawless place.

But there is a third Mexico, and it is one that Canadians ignore at our peril.

Mexico's advantages

Fly into Mexico City, a sprawling world-class capital with some 21 million citizens, and you begin to see another side of the place.

If manufacturing there was equated with poor quality a decade and a half ago, that's no longer the case. Mexico has become a leading destination for manufacturers. 

Employees work in the new multibillion-dollar Honda car plant in the central Mexican state of Guanajuato. It's hard to compete with workers willing to make cars for $5 an hour, Amanda Lang writes, but there are other things Canadian policymakers can do to help. (Eduardo Verdugo/Associated Press)
Wages are still considerably lower than similar jobs in Canada, and there's no question that is part of the appeal, but there's more to the Mexico story.

Trade deals — including with the EU — mean shipping from Mexico to Europe, as well as to parts of Asia, can be tariff-free. 

There's also the geographical advantage familiar to Canadians: A close proximity to a huge trading partner, the U.S., and especially to its own booming manufacturing belt in the southern states.

The population is becoming increasingly educated and skilled, so firms that used to send only basic assembly work there are happy now to have Mexican plants handle advanced manufacturing.

A weak currency has helped offset natural increases in wages.

And then there's the out-picking phenomenon. It shows up in manufacturing, too — Mexican factories show productivity gains at staggering annual rates, so a business there actually becomes more profitable year after year.

How Mexico bucked the trend

It all adds up to an era of growth and opportunity for Mexico.

And for Canada? So far, especially in auto manufacturing, it has meant devastation. Lost jobs, lost investment, shuttered plants. And with the big auto firms, ultimately also the loss of good high-skilled jobs in related industries, such as parts supplies.

But the story doesn't have to be one of doom for Canada.

Yes, it's hard to compete with a worker who is willing to make $5 an hour. Nobody wants a "race to the bottom" where Canadian workers can't earn a living. But might Canadian workers be satisfied with a slightly lower salary, if it kept the jobs here? As Mexican wages inevitably rise, is it Canada's chance to get back in the fight?

Trade deals here could be completed faster. Our own productivity needs to rise — we aren't nearly as efficient, regardless of the pay differential. But those things are within our control.

Change them, and Canada could have a strong and growing manufacturing base for generations. Rather than watch the slow decline of this part of our economy, we could get moving. Starting with the low-hanging fruit.

About the Author

Amanda Lang

CBC News Senior Business Correspondent

Amanda Lang is CBC News' senior business correspondent with two decades reporting on finance and the economy on CNN, BNN and CBC. Prior to her broadcast career, she was a print reporter at the Financial Post and the Globe and Mail. She's host of The Exchange with Amanda Lang which airs nightly at 7 p.m. eastern time on CBC News Network.

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