An auto industry inflection point: Mexico soon to trump Canada on production


Auto analyst Dennis Desrosiers says the day is fast approaching when Mexican factories will produce more cars and light trucks than Canadian ones.

The reason is pretty simple, says Desrosiers:

Mexico is low labour cost and Canada is now the highest labour cost jurisdiction in the world (at least in our unionized plants). Mexico wages are in the $4.50 per hour range and in response to the difficulties experienced by their OEM producers the Mexican unions have agreed to two tier wages with new workers starting at $2.00 per hour. To put this in perspective, it costs GM, Ford and Chrysler about $78 dollars an hour in Canada. Now this isn't quite fair since this includes costs for retirees and benefits costs which are NOT included in the Mexico hourly rate mentioned above but needless to say the gap between Canada and Mexico labour is massive.

Desrosiers says Mexico tends to make smaller vehicles while the larger, more valuable products are made in Canada. Of course with gas prices where they are, people are not buying the bigger cars, they're buying the small ones made in Mexico. As a result, Mexico is on pace to make about 2.2 million cars this year. Canada will likely make around 2 million. Once upon a time, Canadian factories used to make about 3 million cars a year.

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