“American Car Manufacturers Quietly Increasing Production Overseas!”
According to K. Venkatesh Prasad, a senior vice president at the Center for Automotive Research, the shift towards modern vehicle production in Mexico started with components before moving on to full vehicle production over time. He stated that over the past two decades, there has been continuous investment by the Detroit Three in Canada and Mexico, primarily driven by cost considerations and a gradual increase in complexity.
In Canada, manufacturers initially focused on systems before transitioning to car production, largely due to the close proximity of Windsor to Detroit. Prasad noted a recent shift in spending patterns, with more investments potentially going to Canada than Mexico in the last four years, particularly due to advancements in electrification.
Harley Shaiken, a labor expert from the University of California, Berkeley, commented on the United States-Mexico-Canada Agreement, which aimed to address the shortcomings of the North American Free Trade Agreement of 1994. While the 2018 agreement includes stronger provisions on worker rights and environmental protections, it has not led to the desired reduction in the U.S. trade deficit with its neighbors as anticipated by President Donald Trump.
The roots of Mexican automotive production can be traced back 100 years to the ties forged between the Detroit Three and Mexico. Ford Motor Co. established its first assembly plant in Mexico City in 1930, with General Motors and Chrysler following suit by 1938. The Mexican government’s incentives, such as import duty discounts and rail freight concessions, attracted these companies to set up production facilities in the country.
The development of maquiladoras in the 1960s further boosted automotive parts production in Mexico, providing duty-free facilities for companies to import parts or assembly products without taxation. The influx of Japanese automakers in the 1970s and 1980s spurred additional investment in Mexico as U.S. automakers sought to offshore labor-intensive production.
The implementation of the North American Free Trade Agreement in 1994 facilitated the movement of goods across North America without tariffs, further encouraging companies to shift production to Mexico. Despite a revised agreement signed during Trump’s presidency, challenges remain in addressing the trade deficit and ensuring benefits reach American workers in the auto sector.
During this process, Mexican wages are significantly lower compared to those in the United States, with Mexican auto workers earning around 10% of what their counterparts in the northern country make today. Despite this, Shaiken noted, “What I have observed in many Mexican plants is that Mexican productivity is actually on par or even higher than that of the U.S., and the quality of products is excellent.” Shaiken refers to this phenomenon as “high productivity poverty” — Mexican workers produce top-notch goods but do not receive a fair wage. This situation impacts U.S. workers as the combination of high productivity and low wages attracts investments, leading to the closure of plants in the U.S. and their relocation to Mexico. However, Mexican workers are also disadvantaged, as they cannot afford the products they help manufacture, evident in the small parking lots in Mexican auto factories.
In contrast, trade relations with Canada have a long history similar to that of Mexico, but the work environment differs due to the country’s robust unions. The relationship with Canada traces back to Henry Ford, who established his first Canadian automotive plant in 1904 to avoid tariffs on Canadian imports. The 35% tariff on vehicles entering Canada, a remnant from the carriage era, prompted Ford to establish operations in Canada to circumvent the tariff. This situation continued until the 1960s when Canada initiated a trade conflict against the U.S. following the introduction of the automatic transmission. This move flooded the Canadian market with domestically manufactured vehicles, exempt from tariffs, leading to the presence of U.S. companies’ branch plants in Canada due to the auto industry’s requirements.
In 1965, the Canada–United States Automotive Products Agreement was implemented, precursor to NAFTA, eliminating tariffs between the two nations. This agreement bolstered auto manufacturing in Canada, creating more job opportunities. Although the pact was dissolved in 2001, NAFTA largely replaced it by then.
With tariffs out of the picture, Ford, General Motors, and Chrysler optimized their production in North America, consolidating their Canadian facilities to focus on the continent as a whole rather than individual markets. The impact was swift and significant. Prior to the auto pact in 1963, out of the 632,000 vehicles produced in Canada, only 921 were exported to the U.S. However, by 1973, with the auto pact in full effect, Canada manufactured 1,589,000 vehicles, exporting 1,092,000 to the U.S. The Canadian auto industry in the ’60s and ’70s seamlessly integrated with its American counterpart.
Regarding labor, Canada’s union presence initially stemmed from the UAW, established in 1937 following a strike at General Motors’ Oshawa, Ontario plant. Under the leadership of Bob White, the esteemed president of the Canadian Auto Workers, the branch emerged as an independent union in 1984.
Since its merger with other entities in 2013 to form Unifor, the labor organization in Canada has seen significant advancements. “Canada has good labor laws. In a number of ways, they’re better than the U.S.,” noted Shaiken. The agreements forged over the years have created many job opportunities, particularly benefiting blue-collar workers. However, the core decision-making processes concerning vehicle and parts production have largely remained within the U.S.
“For more than 60 years, the Canadian and American auto industries have relied on each other. Together, we have crafted top-notch cars and trucks that continue to be the envy of the global market,” emphasized Unifor National President Lana Payne in a statement. “Unionized autoworkers have tirelessly advocated for and secured gold standard collective agreements that not only fostered good employment opportunities but also elevated living standards and fostered robust, thriving communities.”
Furthermore, Payne highlighted, “Two-way trade in automotive goods amounts to approximately $160 billion annually and is evenly divided in near perfect equilibrium. Any disruption to this intricate relationship, as initiated by Trump, jeopardizes the welfare of union jobs on both sides of the border. It is a reckless and perilous move.”
In North America, General Motors currently sustains a workforce of around 120,000 individuals, with 90,000 in the U.S., 23,000 in Mexico, and 6,000 in Canada. Ford Motor Co. boasts an estimated 71,974 employees across North America, with 5,480 in Canada and 7,000 in Mexico, as of figures provided on the company’s website for the third quarter of 2024. Similarly, Stellantis maintains approximately 75,500 employees in North America, with 52,000 in the U.S., 8,600 in Canada, and 14,900 in Mexico.
For further information on General Motors, contact Jackie Charniga at jcharniga@freepress.com. This article was originally published in the Detroit Free Press: Despite tariff threat, Mexico, Canada have been key to US car manufacturing.
