Toyota and Mazda Announce New Investment in the United States, Production Shift in Mexico

The automotive industry is a poster child around the world for good, blue collar, middle-class jobs. For decades, this was only true in the industrialized countries of Europe, North America, and Japan. That has shifted in recent years as workers in emerging economies gained access to jobs in the automotive industry.

Vehicle production has become a major economic driving force in developing economies. After 2009, vehicle production in developing countries overtook production levels in the developed world. Among developing countries in the Western hemisphere, Mexico is experiencing a boom in its automotive sector.

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A report by the Ministry of Economy of Mexico on the state of the auto industry lays out how profitable the industry has been for Mexico. The Ministry of Economy estimated that as of December 2015 the automotive industry employed 875,000 workers in Mexico. Of those, 82,000 were in the vehicle manufacturing sector, and 793,000 were in the auto parts sector.

These manufacturing jobs in the automotive sector provide some of the best paying blue collar jobs in the country. According to the National Institute of Statistics and Geography, the average household income in 2014 was just under 160,000 pesos. That same year, the average worker manufacturing vehicles earned just under 300,000 pesos.

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For workers in Mexico, a job in vehicle manufacturing is can be a sure way to the growing middle class. However, upcoming renegotiations of the North American Free Trade Agreement and actions by President Donald Trump may threaten those jobs.

Even before his inauguration, Donald Trump threatened to economic retaliation against auto companies that invested south of the border.

However, his ire quickly fades when a company announces its plans to invest in the United States.

What President Trump’s tweet does not include was news from Toyota and Mazda about a slight change in their manufacturing plans in North America that may indicate a significant shift for the Mexican auto industry.

Reuters reports that Toyota and Mazda plan to move new production of the Toyota Corolla sedan and a Mazda crossover from a plant it is building in central Mexico to the new $1.6 billion plant it will build in the United States. Toyota says that the plant in Central Mexico will produce SUVs and the Toyota Tacoma pickup truck. Most of the vehicles manufactured in Mexico currently are smaller cars, while plants in the United States and Canada have typically made the more expensive SUVs and trucks.

There are two important implications to Toyota and Mazda’s announcements. First, the decision by the Japanese automakers to shift production patterns in North America vis-a-vis smaller cars and larger SUVs and trucks could be a sign that the companies are hedging their bets in regards to the upcoming NAFTA renegotiations.

Second, the decision to build SUVs and trucks in Mexico may indicate that Toyota and Mazda see domestic demand for the more expensive vehicles will continue to rise in the future.

Of course, these two implications are not mutually exclusive and it is possible that both effected Toyota and Mazda’s recent decisions.

The upcoming talks between Canada, Mexico, and the United States over the future of the North American Free Trade Agreement will have immense consequences for all three countries. For the nearly one million workers in auto manufacturing in Mexico, the talks will have a very real impact on their lives and livelihoods.

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