Coming to America

Make America Great Again. By and large this is the phrase that registered with voters across the country as they selected reality television star and real estate mogul Donald Trump to the White House. For most of the election just how Trump would make America great again remained clouded in a flurry of late night tweets and five second news bites but one of the most consistent themes was the return of manufacturing jobs from a host of foreign locations. Once again, just exactly how these jobs would return seemed muddle in a variety of tax reductions, tariffs, withdrawing from trade deals and, if need be, Oval Office intimidation. With domestic manufacturers firmly entrenched south of the border most figured the blustering by Trump would have little effect on where they decided to expand their operations. But then, like a bolt of the blue (oval), Ford announced they were canceling plans to build a 1.6 billion dollar Mexican factory for small car production in favor of investing a smaller sum in their existing Michigan facility of Flat Rock. Now, whether or not this had anything to do with future president is up for debate. Officials from Ford say no but did add they are encouraged by the future business friendly climate proposed by the Trump administration. 

But anyway, all this trade deal and tariff talking got me to thinking about domestic heavy truck builders Freightliner and International. Both companies have a significant footprint in Mexico. International operates a large facility in Escobedo producing both their Class 8 and heavy duty offerings of the LT and HX. Freightliner has two factories in Mexico producing nearly every truck in their current lineup that is also mirrored by factories in the United States. Will favorable taxes or ending trade deals lure these two manufacturers back to their native land? As usual, only time will tell but in the in the spirit of arm chair quarterbacking take a look at this Bloomberg article that breaks down the advantages and disadvantages offered by Mexico. For the TL:DR crowd the average auto manufacturer sees a savings of around 400 dollars per car assembled in Mexico compared to the same model produced in America. Despite the vast difference in wages between the two work forces inefficiencies with Mexican infrastructure quickly reduce the impact of lower wages on the finished car. The true savings are found when manufacturers are able to use cheaper made parts and combine them with generous trade deals.

At the end of the day business is business and that means any CEO or board of directors will chase the most profitable location to do business. As long as Mexico is able to offer a large selection of cheaply made parts and favorable trade deals, both with the U.S. and globally, they will always be able to offer an attractive environment to auto makers of all kinds.

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