An Automotive News report this morning says BMW may build a factory in Mexico to assemble future versions of its 3-Series sedans and new front-wheel-drive models. If BMW does make such a move, it would add to a growing list of automakers who have passed over the United States as a site for a new assembly plant and headed south -- a trend with no sign of reversal on the horizon.
There's no bigger decision at an automaker than when to build a new assembly plant, projects whose costs run into the billions of dollars. At full production, an auto factory makes money like few other businesses, but if demand falls, the economics of car building can turn a profitable plant into a money loser overnight.
Bankruptcies at General Motors and Chrysler drew in large part from both companies having too much production capacity, and since the 2008 economic collapse, all Detroit automakers have closed plants and kept those still open running at full tilt. While there are a few updates and small expansion plans, no Detroit automaker has opened an all-new assembly factory in the United States since 2006, and none have announced plans for one.
Foreign automakers now have 16 final assembly plants throughout the United States, with dozens of parts factories supplying them; the most recent one to open was Volkswagen's Chattanooga, Tenn., factory in May 2011. Several of them have expansions underway — including BMW's plant in Spartanburg, S.C. and Mercedes' plant in Vance, Ala., — but no foreign automaker has committed to build an all-new plant in the United States since VW.
By comparison, in just the past seven months Mexico has won $4.3 billion in commitments from automakers for new factories. Audi, Honda and Mazda are all building new plants; Nissan will spend $2 billion in a bid to eventually build 2 million vehicles a year in the country. It's not just foreign automakers: Ford, Mexico's largest vehicle exporter, will spend $1.3 billion updating its plant to build the new Ford Fusion and Lincoln MKZ. GM, which builds more cars and trucks in Mexico than any other automaker, and Chrysler have also spent hundreds of millions of dollars upgrading factories for new models.
While Mexican production does give automakers access to free-trade deals with South American nations, the biggest driver behind the move is cheap labor. The lowest hourly wages in an American auto factory are $15 at Kia's Georgia plant; the average is closer to $25, and an experienced UAW worker at a Detroit-owned plant can cross $40. In Mexico, it's $5, with only another $3 per hour for benefits.
It's also worth noting that for decades, every new auto factory or expansion in the United States has come with a grant of government tax breaks and other incentives; Tennessee gave Volkswagen a package totaling $577 million, a record not yet surpassed. Given tight local and state budgets, such giveaways have become harder to justify, even if it means new work.
Other news this morning:
Spyker suing GM for $3 billion over Saab's downfall: A big driver of Saab's collapse was GM's unwillingness to let Saab build and sell it's GM-based designs in China. But $3 billion? That's a lot of Saabs. (Reuters)
GM may write down investment in Peugeot: That didn't take long. (Bloomberg)
Boss Mustang race drivers pull over to protest SCCA: According to Mustang racers in the SCCA's GTS class, the restrictions meant to keep the Mustang Boss 302 from running away from the field make the engine run so hot cars are breaking. In protest, the Mustang teams parked their cars for the final race this weekend at Mid-Ohio. (Addi Racing)