Business | Economy
US recession spills south of the border
The spectre of bankruptcy hanging over automakers in Detroit is also stoking fears in Mexico, whose car industry is heavily dependent on the US economy.
- Reuters
- Published: 23:32 December 8, 2008
Silao: The spectre of bankruptcy hanging over automakers in Detroit is also stoking fears in Mexico, whose car industry is heavily dependent on the US economy.
Mexico was the world's 10th-biggest car producer in 2007, building cars for most of the world's top car makers, but exports are slackening as the United States goes through its worst financial crisis since the Great Depression.
At a General Motors plant in Silao, nestled among the cornfields of Mexico's heartland, workers fear the steady flow of full-size pickup trucks and SUVs would quickly come to a standstill if the US Congress fails to bail out its parent.
The plant discontinued producing the gas-guzzling Suburban this summer and slashed about a fifth of its work force.
"If they don't get the loan, GM could disappear from Mexico," said Carlos Campos, a worker at the plant.
If the plant closed, it would send shock waves through the local economy, hitting parts suppliers and a host of other businesses.
"It would be a terrible blow," said Dimas Rangel, a union leader for parts suppliers used by the plant.
GM, Ford and Chrysler have around a dozen factories in Mexico, where the car industry has become a big part of the economy. Nissan, Toyota, Honda and Volkswagen also have plants here.
Even without a bailout for Detroit, the Mexican auto sector is facing its toughest times since the mid-1990s, when the North American Free Trade Agreement sent a flood of Mexican-built cars into the US.
As demand in its biggest market dries up, and Europe also slides toward recession, Mexican sales are plummeting.
At least 5000 jobs have already been shed from the auto parts sector, according to the industry's national trade group, and unions are negotiating work stoppages.
"2009 is going to be a hard time for the industry," said Pascual Francisco, an analyst at IHS Global Insight based in Lexington, Massachusetts. "Everybody is going to stop production for a few weeks or a few months."
The problems in Mexico are the same as in the US - an over-reliance on gas-guzzling trucks and SUVs.
Death sentence
"In the middle of this crisis, the GM plant here is making huge vehicles that, in the short term at least, have a death sentence," said Amador Rodriguez, a lawmaker in Guanajuato, the state where GM's Silao plant is located.
Analysts have already questioned the future of a Chrysler plant in Saltillo, in northeastern Mexico, which makes the Ram truck and produces Nissan trucks on the same assembly line.
Vehicles and parts now account for around one-fifth of Mexico's total manufactured exports. The industry employs nearly 600,000 Mexicans and they are among the country's best paid industrial workers.
The crash of a United States carmaker would cripple Mexico's industrial output, push up unemployment, and cause the economy to shrink next year by as much as 1.2 per cent, said Gabriel Casillas, an economist at UBS in Mexico City.
"This would be a very serious setback for the Mexican economy, even more so considering that we continue to be a third world country with a very poor distribution of wealth," Casillas said.
The Mexican economy is already slipping as United States consumer spending withers and Mexican immigrants living in the United States send home less cash.
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