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6
2017

Mexico’s growing role in the auto
industry under NAFTA: Who makes
what and what goes where
Thomas H. Klier and James M. Rubenstein
Introduction and summary

Mexico has become one of the world’s leading producers and exporters of motor vehicles, although it
has no automakers of its own. During the more than two decades under the North American Free Trade
Agreement (NAFTA, entered into by the United States, Canada, and Mexico), Mexico’s light vehicle production
more than tripled—from 1.1 million units in 1994 to nearly 3.5 million units in 2016. Moreover, Mexico’s
light vehicle exports increased from 579,000 to 2.8 million units during the same period.1 By 2016, motor
vehicle assembly and parts plants employed 735,472 workers in Mexico.2 Mexico is the low-wage country
among NAFTA partners. Over the period 2007–14, on average, wages in motor vehicle assembly represented
around one-fifth of those in the United States and wages in the production of motor vehicle parts about
one-eighth.3 According to one 2016 news article on trade trends, after a recent growth spurt, the automotive
sector now represents 25 percent of Mexico’s manufacturing exports and over 3 percent of the country’s
gross domestic product (GDP).4
In this article, we explore the impact of NAFTA on Mexico’s motor vehicle industry—specifically, on
Mexico’s integration into North America’s automotive industry and the subsequent increase in intra-industry
trade in automobiles.5 The auto industry has undergone dramatic changes over the past 20-plus years.
First, we provide a brief summary of the history of auto production and related trade policies in Mexico
before NAFTA. Then we provide a detailed analysis of Mexico’s light vehicle production and exports
from 1990 through 2016. Our analysis shows how Mexico has become an integral part of North America’s
motor vehicle industry. In addition to aggregated industry-wide statistics, we are able to draw on data that
identify the specific country of sale for vehicles produced in Mexico. These data are available on an annual
basis from 2005 through 2014. Finally, we discuss how the observed trends in Mexico’s light vehicle
production and trade have affected the spatial distribution of auto production within Mexico and across
North America. We show that as in the United States, the motor vehicle industry has agglomerated in Mexico.

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A brief history of Mexico’s auto production and trade policies
before NAFTA
Mexico has a long history of motor vehicle production by international automakers. The first entrant was
Ford, which began to assemble Model Ts in Mexico City in 1925.6 General Motors (GM) and Chrysler
built their first assembly plants in Mexico during the 1930s (Werner, 1993). By 1960, a dozen companies
were assembling vehicles in Mexico and supplying most of the domestic market (Klier and Rubenstein,
2013b; and Moreno Brid, 1992, p. 260).
A key factor in shaping the development of Mexico’s auto industry was the country’s industry-specific
trade policies. During the first half of the twentieth century, vehicles sold in Mexico were either imported
as finished products or put together at small-scale assembly plants (Klier and Rubenstein, 2013b).
Automotive decrees issued in 1947 and 1962 limited the ability of international automakers to assemble
vehicles in Mexico and to use imported parts (Healy, 2016, pp. 39–40; Moreno Brid, 1992, pp. 260–261;
and Moreno Brid, 1996). The 1947 decree imposed quotas on the import of parts to assembly plants. In
1962, the Mexican government started implementing a policy of import substitution, favoring domestic
production over imports. That policy prohibited imports of finished vehicles, engines, and other auto parts,
significantly raising trade barriers for Mexico’s auto industry. As a result, the 1962 decree compelled
every carmaker to alter operations in Mexico: It stimulated the construction of several vehicle assembly
and engine plants. For instance, Ford built a new assembly plant at Cuautitlán in 1964, and Chrysler at
Toluca in 1968.7 Notably, around the same time, Nissan and Volkswagen built their first full-scale assembly
plants in Mexico—Volkswagen at Puebla in 1965 and Nissan at Cuernavaca in 1966. All four plants were
located in the center of Mexico, within 90 miles of Mexico City. After the 1962 decree, many of the other
automakers stopped assembling and selling vehicles in Mexico. The surviving plants saw a noticeable
increase in the volume of production, from 48,841 vehicles in total in 1962 to 189,000 in 1970.

Yet the 1962 decree did little to improve the competitiveness of Mexico’s auto industry (Womack, Jones,
and Roos, 1991, pp. 264–265). The Mexico-produced vehicles “were of poorer quality and entailed higher
production costs than their foreign counterparts” (Moreno Brid, 1996). Subsequently, a series of automotive
decrees during the 1970s and 1980s moderately loosened trade barriers while continuing to protect the
domestic production of vehicles (Moreno Brid, 1996). In the process, Mexico’s light vehicle production
grew rapidly during those two decades, from 189,000 in 1970 to 490,000 in 1980 and 801,000 in 1990.
By 1981, when GM opened its Ramos Arizpe plant, the Big Three automakers (Chrysler, Ford, and GM)
each had two full-scale assembly plants in Mexico. A few years later, Ford became the first among the Big
Three (today referred to as the Detroit Three) to replace its original plant; in 1986 it opened a new plant in
Hermosillo, two years after closing its original Mexico City plant.8
By 1983 the Mexican government shifted its auto industry policy again, this time focusing on export
promotion. Vehicle producers responded by opening modern and competitive plants (Klier and Rubenstein,
2013b). This represented the start of the process of integrating Mexico into North America’s auto industry.
The automotive decree of 1989 permitted imports to account for 20 percent of each automaker’s sales in
Mexico, as long as the value of its exports from Mexico exceeded that of its imports. The 1989 decree
also set the local content requirements to 36 percent (Moreno Brid, 1996; and Womack, Jones, and Roos,
1991, p. 266). According to Hufbauer and Schott (2005, p. 369), “the Mexican Automotive Decree of
1989 substantially liberalized Mexican rules on the auto industry, even though the national value added
requirement and native ownership requirement remained huge impediments to industry rationalization.”

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A significant step toward Mexico’s market integration with the United States was the establishment of the
maquiladora (sometimes called maquila) program (Russell, 2016, pp. 389–390). Maquiladoras are manufacturing operations in Mexico that assemble imported components into exportable products; the attraction
of this program was twofold—inputs from the United States were imported to Mexico tariff-free (provided
the maquiladora output would be exported back), and on the U.S. side, tariffs were incurred on only the
value that was added in Mexico (De La Cruz et al., 2011, p. 4). The Border Industrialization Program
(BIP) authorizing maquiladora plants had been established by Mexico back in 1965, but the auto industry
did not take full advantage of the program until the 1980s (De La Cruz et al., 2011, p. 4). By the late 1980s,
BIP had been used quite heavily for plants producing motor vehicle parts. Maquiladoras boomed in the
1980s, when a collapse in the value of the peso beginning in 1982 created irresistibly low costs of doing
business in Mexico,9 aside from the easing of trade barriers (Wilson, 2010; and Berry, Grilli, and Lópezde-Silanes, 1992, pp. 25, 28). The number of automotive maquiladoras increased from 53 in 1980 to
187 in 1990 and 313 in 2006 (Berry, Grilli, and López-de-Silanes, 1992, table 4; and Murphy and
McDonough, 2012, p. 427).
Of greater importance for the auto sector was the enactment of PITEX (Programa de Importación Temporal
para Producir Artículos de Exportación) in 1990. The maquiladora program was designed primarily for
foreign-owned companies that wanted to import nearly all of their inputs and subsequently export their
production. PITEX allowed domestic as well as foreign-owned companies to sell most of their production
in Mexico (Rice, 1998, p. 380). For example, an auto parts supplier that sold most of its output to an assembly
plant in Mexico could qualify for tariff relief under PITEX, but not as a maquiladora. Consequently, as of
2006, auto-related manufacturers accounted for 48.7 percent of exports of all firms registered under the
PITEX program, but only 6.2 percent of exports of all maquiladora plants (De La Cruz et al., 2011, pp. 7–8).
In November 2006, the maquiladora and PITEX programs were merged into a single program called
IMMEX (Industria Manufacturera, Maquiladora y de Servicios de Exportación) (De La Cruz et al., 2011, p. 5).

Mexico’s integration with the North American market

The implementation of NAFTA, which began in 1994, removed most of Mexico’s remaining trade restrictions
with its neighbors to the north over a period of ten years. Annex 300-A of NAFTA spells out the details of
liberalizing trade in the auto industry. Key provisions affecting Mexico’s auto industry included the following:
• For every $1 worth of imported vehicles, the required minimum value of exports declined from $1.75
in 1993 to $0.80 in 1994, $0.55 in 2003, and zero dollars in 2004.
• The minimum requirement for Mexican content for duty-free export declined from 36 percent in 1993
to 34 percent in 1994, 29 percent in 2003, and zero percent in 2004.
• Import duties declined from 20 percent in 1993 to 10 percent in 1994 and zero percent in 2004.
• Parts plants in Mexico were permitted to be 100 percent owned by foreigners after 1998 (Moreno Brid,
1996; Ramírez de la O, 1998, p. 65; and Studer, 1994, pp. 27–29).
The five “legacy” automakers (Chrysler, Ford, GM, Nissan, and VW), with production facilities in Mexico
prior to the implementation of NAFTA, received a head start in the free trade era.10 In addition, for all
automakers, in order to qualify for duty-free export from Mexico after 2002, at least 62.5 percent of a
vehicle’s content had to be made somewhere in North America (Studer, 1994, pp. 28–29; and Hufbauer
and Schott, 2005, p. 369). That threshold was raised from a previous 50 percent requirement to keep foreign
automotive producers (in particular Japanese carmakers) from using Mexico as an export platform for
selling into the United States (Hufbauer and Schott, 2005, p. 369).

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At the time of the NAFTA negotiations, many analysts questioned whether Mexico’s motor vehicle industry
would benefit from tighter integration with the United States’. For example, the Office of Technology
Assessment (OTA) of the U.S. Congress found “little reason to believe that existing efficient capacity with
a high utilization rate in the United States or Canada would be closed and replaced by production in Mexico”
(U.S. Congress, Office of Technology Assessment, 1992, p. 133). The OTA also explained that “most of
the [foreign] companies have assembly plants near Mexico City that primarily serve the domestic market.
Historically, these have been profitable only because of trade barriers; if a North American Free Trade
Agreement (NAFTA) sharply lowered those barriers, these plants would have to reduce their costs and
improve their productivity to remain viable” (U.S. Congress, Office of Technology Assessment, 1992, p. 133).
The OTA concluded that “in the short term, then, neither the Big Three nor transplant assemblers can
expect to substantially improve their competitive positions by moving production to Mexico” (U.S. Congress,
Office of Technology Assessment, 1992, p. 133).
In reality, NAFTA negotiations stimulated a round of investment by the country’s five legacy carmakers,
resulting in vehicle assembly plants in Mexico receiving state-of-the-art technology (Klier and Rubenstein,
2013b). For example, in anticipation of NAFTA, three full-scale assembly plants were opened during the
early 1990s (one each by Chrysler, GM, and Nissan). In addition, to meet NAFTA’s requirements that some
production be located in Mexico in order to be able to import vehicles, Honda and Toyota for the first time
began production in Mexico—at small-scale plants in El Salto (in 1995) and Tijuana (in 2004), respectively.
With the implementation of NAFTA, Mexico opened up its market. As a result, auto manufacturers started
to optimize their production operations within the entire economic space of North America. In the process,
vehicle assembly facilities in Mexico adopted the latest technology and became essentially interchangeable
with those in the United States and Canada. For example, the PT Cruiser, sold by Chrysler over model
years 2001–10, was assembled exclusively at the company’s plant in Toluca, Mexico.

For Mexico, NAFTA also proved to be the trigger for negotiating trade agreements with many other countries
(Villarreal, 2017). Through its free trade agreements, Mexico gained “tariff-free access to 47 percent of
the global new vehicle market in 2015” (Swiecki and Menk, 2016, p. 17). As of 2016, Mexico had reached
14 agreements with 46 countries (Iliff, 2016a). As Villarreal (2017) noted, “Mexico’s pursuit of free trade
agreements with other countries is a way to bring benefits to the economy, but also to reduce its economic
dependence on the United States.”
Under NAFTA, there was a ten-year transition period for phasing out most of the trade barriers that had
existed before. After the conclusion of that period in 2004, a large number of foreign-headquartered carmakers
announced plans to assemble vehicles in Mexico for the first time. BMW, Daimler’s Mercedes-Benz,
Hyundai Motor Group’s Kia Motors, Mazda, and Volkswagen Group’s Audi subsidiary were all set to
begin production between 2013 and 2020, raising the number of vehicle producers to 11. The number of
assembly plants in Mexico was set to increase from 11 in 2004 to 21 in 2020.
Only two of the ten additional plants built since 2004 will have been built by the Detroit Three producers.
Thus, the Detroit Three producers’ share of Mexico’s light vehicle production is set to continue to decline:
For instance, their production share decreased from 56 percent in 2005 to 45 percent in 2016. Moreover,
their share of light vehicle sales within Mexico fell from 50 percent to 32 percent over the same period.11
Thus, under NAFTA, Mexico’s auto industry not only became much more integrated with those of the
United States and Canada, it also became much more international in nature.

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FIGURE 1

Mexico’s light vehicle production and
share of North America’s production, 1990–2016
percent
25

millions of units
5.0
4.5
4.0

3.5
3.0

2.5
2.0

1.5
1.0

0.5
0.0

0
1990

’95

2000

Mexico’s production (left-hand scale)

’05

’10

’15

Mexico’s share of North America’s production (right-hand scale)

Source: Authors’ calculations based on data from WardsAuto InfoBank.

Mexico’s light vehicle production under NAFTA
Light vehicle production in Mexico increased from 821,000 in 1990 to nearly 3.5 million in 2016—an
average annual increase of 13 percent (figure 1).12 Most of the increase in Mexico has come in two spurts.
First, over the first five years under NAFTA, light vehicle production increased from 930,000 in 1995 to
1.9 million in 2000. Second, after four straight years of decline, Mexico’s light vehicle production increased
from around 1.5 million in 2004 to almost 3.5 million in 2016. The Detroit Three’s production share in
Mexico has been declining since 2004, when the transition agreements associated with NAFTA implementation
had run their course. Mexico had traditionally been the backyard of the Detroit Three’s North American
operations (their operations in Mexico primarily served the Mexican market). Between 1985 and 2004,
the Detroit Three producers, on average, accounted for 62 percent of Mexico’s light vehicle production.
Subsequently, as more overseas-headquartered producers entered Mexico, that share had dropped to an
average of 52 percent during 2005–16 (with Detroit Three production coming in below 50 percent in 2015
and 2016).13 To put it differently, Chrysler (now Fiat Chrysler Automobiles, or FCA),14 Ford, and GM
together accounted for only 36 percent of the increase in Mexico’s light vehicle production (2.54 million
units) between 1995 and 2016.15
Given the growth in light vehicle production volumes in Mexico, the country’s share of North America’s
production increased from 6.2 percent in 1995 to 10.9 percent in 2000, 18.9 percent in 2010, and 19.5 percent

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TABLE 1

North America’s light vehicle production, by country, 1990–2016

1990

Mexico

1995

2000

2005

2010

2016

6.5

6.1

10.9

10.2

18.9

19.5

United States

77.9

78.0

72.1

73.2

63.8

67.2

Canada

15.6

15.9

17.0

16.7

17.3

13.3

12,247,273

14,908,686

17,162,649

15,750,904

11,910,873

17,748,953

Total (units)

Notes: All values are in percent except for those in the final row. Columns (share values) may not total because of rounding.
Source: Authors’ calculations based on data from WardsAuto InfoBank.

TABLE 2

Change in North America’s light vehicle production, by country and time period
Time period

Units
(millions)

Mexico

United States

Canada

( - - - - - - - - - - - - - - - - - percent - - - - - - - - - - - - - - - - - )

1995–2016

2.8

90.1

10.3

–0.4

1990–2016

5.5

48.4

43.3

8.2

2010–16

5.8

20.7

74.2

5.0

Note: Rows (share values) may not total because of rounding.
Source: Authors’ calculations based on data from WardsAuto InfoBank.

in 2016 (figure 1). Between 1995 and 2016, the share of North America’s light vehicle production decreased
in the United States from 78 percent to 67 percent and in Canada from 16 percent to 13 percent (table 1).

How much a particular country accounts for the change in North America’s light vehicle production will
differ depending on the chosen time frame. Mexico accounted for just over 90 percent of the 2.8 million
unit increase in light vehicle production in North America between 1995 and 2016. However, Mexico
accounted for only about one-half of the 5.5 million unit increase in the region’s production of light vehicles
between 1990 and 2016 and only around one-fifth of the 5.8 million unit increase between 2010 and 2016
(table 2).16
Mexico’s share of light vehicle production in North America is likely to increase further in the years ahead.
As of year-end 2016, four assembly plants were under construction in North America; three of the four
were in Mexico and only one in the United States (by Volvo in South Carolina). According to WardsAuto
Forecasts, Mexico will account for just under 26 percent of North America’s automotive production by 2023.17
The importance of Mexico as an auto production location in North America varies by carmaker. Among
Mexico’s five leading producers, at the high end VW had 82 percent of its North American production in
Mexico in 2016, whereas the Detroit Three producers’ shares ranged from 13 percent to 20 percent (table 3).
Nissan, which fell between the extremes, with 45 percent of its North American production in Mexico in
2016, more than doubled the share of its North American production located in Mexico in 1995. By comparison,
in 1995, near the start of NAFTA’s implementation, the production share in Mexico was lower for four of
the five large auto producers assembling vehicles there back then: Each of the Detroit Three automakers
had between 4 percent and 8 percent of their respective North American production in Mexico, and Nissan
had 17 percent. VW was the exception: All of its North American production was located in Mexico in

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TABLE 3

Light vehicle production in Mexico, by automaker, 1995 and 2016
Share of North America’s
production in Mexico
1995

Production in Mexico

2016

1995

( - - - - - - - - - - - percent - - - - - - - - - - - )

2016

( - - - - - - - thousands of units - - - - - - - )

FCA

8.0

17.7

205

441

Ford

5.3

12.9

214

391

3.6

19.5

198

711

Honda

0.0

13.0

255

Hyundai (Kia)

0.0

14.0

105

Mazda

0.0

100.0

149

Nissan

16.9

45.4

107

838

Toyota
VW
All

0.0

6.6

141

100.0

82.0

191

425

6.2

19.5

916

3,457

Notes: Production columns do not total because of rounding. FCA means Fiat Chrysler Automobiles (1995 data are only
for Chrysler, which merged with Fiat in 2014). GM means General Motors. VW means Volkswagen (2016 VW data also
account for Audi light vehicle production).
Source: Authors’ calculations based on data from WardsAuto InfoBank.

FIGURE 2

Mexico’s share of North America’s light
vehicle production and sales, 1990–2016
percent
25

7
20

0
1990

’95

2000

’05

’10

Mexico’s share of light vehicle production
Mexico’s share of light vehicle sales

Source: Authors’ calculations based on data from
WardsAuto InfoBank.

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’15

1995; it wasn’t until 2011 that the company opened
an assembly plant in Tennessee.
Mexico’s share of light vehicle production in
North America is much higher than its share of
light vehicle sales in the region. In 2016, Mexico
produced about 3.5 million light vehicles, or
19.5 percent of North America’s total. By
comparison, there were 1.6 million light vehicle
sales in Mexico, or only 7.6 percent of the region’s
total (figure 2). Mexico has just over 26 percent
of North America’s population,18 so its share of
the region’s sales is disproportionately low.
While Mexico has featured a higher share of
North America’s production than its sales for
quite some time, the gap between the share of
production and the share of sales became much
more pronounced beginning around 2008. Mexico’s
light vehicle production expanded rapidly, growing from 1.5 million units in 2009 to around
3.5 million in 2016, whereas its light vehicle
sales increased more modestly from 753,000 in
2009 to 1.6 million over the same time period.19

Federal Reserve Bank of Chicago

FIGURE 3

Mexico’s light vehicle sales, by region of origin, 1985–2016
percent
100
90
80
70
60
50
40
30
20
10
0

1985

’90
Asia

’95
Europe

2000
South America

’05
Mexico

’10

’15

United States and Canada

Sources: Authors’ calculations based on data from WardsAuto InfoBank and AMIA.

Since 2006, sales of new light vehicles in Mexico have been held down by a surge in the availability of
used cars. A 2005 automotive decree from the Mexican government removed a number of barriers to the
import of used cars from the United States. As a result, the number of used cars imported into Mexico
essentially doubled—from 776,000 in 2005 to 1.6 million in 2006 (Iliff, 2016b). Mexico restored restrictions
on the import of used cars in 2014 (Fry, 2014). Used car imports subsequently declined to 180,000 units
in 2015, but nearly 8 million used cars had already been brought into the country between 2005 and 2015,
depressing demand for new cars (Iliff, 2016b).
As Mexico’s economy has opened up, the share of imports among new light vehicles sold in the country
has risen quite dramatically (see figure 3). Leading up to NAFTA, about 90 percent of new light vehicles
sold in Mexico were produced in the country. Imports from the United States and Canada rose substantially
during the 1990s. Subsequently, imports from other regions throughout the world (notably, those from
Asia) have grown as well. For some time, the majority of new light vehicles sold in Mexico have been imported.
In 2016, 56 percent of Mexico’s new light vehicle sales were produced in North America (41 percent in
Mexico); that said, accounting for 25 percent of these sales, Asia was the region of origin with the
second-largest share.
Within North America, Mexico produces a distinct mix of light vehicles. To illustrate this, we group
production data by vehicle segments. WardsAuto organizes vehicles into 28 segments. We consolidate those
into ten segments—three for cars and seven for light trucks. The three segments for cars we distinguish
are small, midsize, and large and luxury cars. The seven segments for light trucks are small crossover utility
vehicles (CUVs), midsize CUVs, large and luxury CUVs, sport utility vehicles (SUVs), vans, small pickups,
and large pickups. Automakers in Mexico specialize in two of these ten segments. In 2014, approximately
one-half of Mexico’s light vehicle production was made up of small cars—and nearly one-fifth made up
of large pickup trucks (table 4).20 Midsize cars and midsize CUVs each accounted for just under 10 percent
of total production.

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TABLE 4

Mexico’s light vehicle production, by vehicle segment, for select years
Segments

1995

2005

2014

( - - - - - - - - - - - - - - - - - - - - - - - percent - - - - - - - - - - - - - - - - - - - - - - - )
Light trucks

23.1

46.6

39.6

Large pickups

15.5

22.0

18.5

Small pickups

1.9

2.8

4.7

Vans (all types)

0.3

0.0

1.6

SUVs (all types)

5.4

5.0

0.0

Large and luxury CUVs

0.0

3.2

Midsize CUVs

0.0

3.8

9.6

Small CUVs

0.0

13.0

1.9

76.9

53.4

60.4

Large and luxury cars

0.3

0.6

1.2

Midsize cars

9.3

4.9

8.8

67.3

47.8

50.4

Cars

Small cars

Notes: Columns may not total because of rounding. SUV means sport utility vehicle. CUV means crossover utility vehicle.
Source: Authors’ calculations based on data from WardsAuto InfoBank.

TABLE 5

Mexico’s contribution to North America’s light vehicle sales, by vehicle segment, 2014
Segments

Segment’s share of
sales in North America

Share of segment’s sales in North America
that were produced in Mexico

( - - - - - - - - - - - - - - - - - - - - - - - percent - - - - - - - - - - - - - - - - - - - - - - - )

Light trucks

52.7

12.7

Large pickups

12.2

24.5

Small pickups

1.8

39.1

Vans (all types)

5.5

5.0

SUVs (all types)

6.5

0.0

Large and luxury CUVs

6.3

7.1

17.2

10.3

3.2

15.6

47.3

27.0

Midsize CUVs
Small CUVs
Cars
Large and luxury cars

8.8

4.8

Midsize cars

16.8

9.5

Small cars

21.7

47.9

Notes: SUV means sport utility vehicle. CUV means crossover utility vehicle.
Sources: Authors’ calculations based on data from WardsAuto InfoBank and IHS Markit.

Note that Mexico’s vehicle production mix is not proportional to North America’s light vehicle sales mix.
Rather, auto production in Mexico is quite specialized. In 2014, Mexico produced 48 percent of the small
cars and 25 percent of the large pickups sold in North America (table 5). Mexico’s role in producing vehicles
in these two segments for the North American market has been growing. Back in 2005, only 21 percent
of small cars and 13 percent of large pickup trucks sold in North America were assembled in Mexico.21

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As seen in table 5, Mexico’s automotive production accounted for rather small shares of the vans, SUVs,
and large and midsize cars—segments with declining sales—that were sold in North America in 2014.
However, Mexico’s light vehicle output also accounted for fairly small percentages of the CUVs sold in
the region that year; North America’s fastest-growing segment is CUVs (for which sales in the region more
than doubled between 2005 and 2014, according to data from WardsAuto InfoBank).
The segmentation (or product mix) strategies vary among the five legacy producers in Mexico. Figure 4
shows them in three groups:
• As of 2014 Ford assembled only cars (chiefly small and midsize models) in Mexico. Ford no longer
produces trucks in Mexico.
• FCA and GM specialize in large pickup trucks. These two companies were responsible for all of the
large pickup truck production in Mexico in 2014; back then, 91 percent of FCA’s light vehicle production
in Mexico and 98 percent of GM’s were large pickups (this output in Mexico represented 40 percent
and 43 percent of FCA’s and GM’s full-size pickup production across North America, respectively).
• Nissan and VW primarily assemble small cars in Mexico. As of 2014, all that VW produced there was
small cars, whereas Nissan also produced some small pickup trucks and vans in Mexico in addition to
small cars.22
The destinations for the two largest light vehicle segments by production volume vary:
• Large pickup trucks represented 19 percent of production in Mexico in 2014 (see table 4). Two carmakers—
FCA and GM—were responsible for producing all of them. Essentially all of the trucks were exported
(97 percent); all but 3 percent of these exports from Mexico went to the United States or Canada.23

• Small cars, which represented 50 percent of Mexico’s production in 2014 (and 67 percent in 1995) (see
table 4), were less likely to be exported north. Exports represented 77 percent of Mexico’s small car
production in 2014, but only 65 percent of all these exports were shipped north to the United States and
Canada. Furthermore, Detroit Three carmakers were responsible for producing only 16 percent of Mexico’s
small cars in 2014 (down substantially from 56 percent in 1995).24
Figure 4 shows that automakers’ segmentation strategies in Mexico have not changed all that dramatically
over the 20 or so years under NAFTA: Ford increased production of midsize cars, GM and FCA of large
pickups, and VW and Nissan of small cars; GM’s and FCA’s respective decisions to start assembling
CUVs in Mexico may be the only marked difference.

Mexico’s growing importance in automotive trade
Given the increasing gap between its automotive production and sales, Mexico inevitably is running a surplus
in light vehicle trade. The share of Mexico’s light vehicle production that is exported increased from 14 percent
in 1985 to 80 percent in 2016 (figure 5). Consistent with several decrees that emphasized trade liberalization
for Mexico’s auto industry, exports started growing in the early 1980s. By 1994, when NAFTA came into
effect, the export share had reached 53 percent. In 1995, that share shot up to 84 percent, representing the
single biggest annual jump since 1985. Since 1995, exports have averaged 79 percent of Mexico’s production,
with relatively little annual variation.25

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FIGURE 4

Mexico’s light vehicle production, by automaker and vehicle segment, 1995 and 2014
Automaker
Ford

GM
and FCA

VW and
Nissan

Ford

GM
and FCA

VW and
Nissan

Large pickups

Small pickups

Vans (all types)

Segment

SUVs (all types)

Large and
luxury CUVs
Midsize CUVs

Small CUVs

Large and
luxury cars
Midsize cars

Small cars

11
1995

2014
Bubbles scaled by units of production

1,000,000

250,000

50,000

Notes: SUV means sport utility vehicle. CUV means crossover utility vehicle. FCA means Fiat Chrysler Automobiles (1995 data
are only for Chrysler, which merged with Fiat in 2014). GM means General Motors. VW means Volkswagen.
Source: Authors’ calculations based on data from WardsAuto InfoBank.

How does Mexico’s auto export profile compare with those of the United States and Canada? We have
access to data that document the country of destination for each vehicle model produced in Mexico for
each year over the period 2005–14. The country of destination is unknown for approximately 10 percent
of the vehicles, although after comparing the detailed data used in this article with aggregated data from
WardsAuto InfoBank and AMIA, we are confident that “destination unknown” production can be classified
as exports.26 In 2014 the United States exported only 21 percent of its vehicle production, whereas Mexico
exported 82 percent and Canada 88 percent (table 6). Thus, less than 20 percent of light vehicles produced
in Canada and Mexico are sold at home. Yet, compared with Canada’s light vehicle production, Mexico’s

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FIGURE 5

Mexico’s volume of light vehicle exports and share of production exported, 1985–2016
millions of units

percent

3.0

100
90

2.5
80
70
2.0
60
1.5

50
40

1.0
30
20
0.5
10
0.0

0
1985

’90

’95

2000

’05

’10

’15

Share of Mexico’s production exported (right-hand scale)

Mexico’s volume of exports (left-hand scale)

Sources: Authors’ calculations based on data from WardsAuto InfoBank and AMIA.

TABLE 6

Light vehicle production in NAFTA countries, by destination, 2014
Destination

Mexico

Canada

United States

( - - - - - - - - - - - - - - - - - percent - - - - - - - - - - - - - - - - - - )
Domestic

Exported to other two NAFTA countries

Exported elsewhere

Exported, but destination unknown

Note: NAFTA means North American Free Trade Agreement.
Source: Authors’ calculations based on data from IHS Markit.

has a much broader set of destinations, with its NAFTA partners accounting for only 59 percent of it.27
Ninety-one percent of Canada’s light vehicle production remained in NAFTA; 79 percent of Canada’s
light vehicle production went to its two NAFTA partners (the vast majority of which ended up in the
United States).
Today most exports of light vehicles from Mexico head north. Identified exports to NAFTA partners (the
United States and Canada) accounted for around 60 percent of vehicles produced in Mexico in 2005,

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TABLE 7

Mexico’s light vehicle production, by destination, for select years
Volume
Destination

2005

2010

2014

2005

( - - - - - thousands of units - - - - - )

2010

2014

( - - - - - - - - - percent - - - - - - - - - )

Mexico

422

380

567

26.4

16.8

17.8

United States and Canada

940

1,355

1,898

58.8

60.1

59.4

Latin America

177

242

1.8

7.8

7.6

Europe

145

3.4

6.4

2.3

0.1

1.2

2.4

China
Other Asia
Unknown
Total

1.1

1.8

1.3

135

133

295

8.4

5.9

9.2

1,599

2,256

3,194

100.0

Source: Authors’ calculations based on data from IHS Markit.

TABLE 8

Light vehicle exports from Mexico, by automaker, 2014
Volume of exports
(thousands of units)

Share of
Mexico’s exports

Share of
production exported

( - - - - - - - - - - - - - - percent - - - - - - - - - - - - - - - )

FCA

431

Ford

402

504

Nissan

394

393

Others
All

209

2,331

100

Notes: The first two columns do not total because of rounding. FCA means Fiat Chrysler Automobiles. GM means General
Motors. VW means Volkswagen.
Source: Authors’ calculations based on data from IHS Markit.

2010, and 2014 (table 7). Between 2005 and 2014, the shares of automotive production in Mexico going
to Latin America and China increased, while the share of production sold domestically declined—from 26
percent to 18 percent.
In 2014, each of the five legacy producers in Mexico exported a similar volume of light vehicles—around
400,000 to 500,000 units per producer (table 8). Each of the five companies accounted for between 17 and
22 percent of Mexico’s light vehicle exports. Newer entrants into Mexico (for instance, Honda, Mazda, and
Toyota) were responsible for the remainder. FCA and Ford exported more than 90 percent of the vehicles
they each produced in Mexico in 2014, whereas Nissan exported only 58 percent; for GM and VW, exports
amounted to 82 percent and 85 percent, respectively.

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TABLE 9

Automakers, by destination of light vehicle production in Mexico, 2012–14 average
FCA

Ford

Nissan

6.0

3.2

17.5

37.6

16.1

Exported to United States
and Canada

71.6

78.3

63.0

38.6

45.1

Exported elsewhere

16.4

15.7

12.6

12.3

37.5

Destination unknown

5.9

2.7

6.9

11.6

1.3

100.0

461

464

632

720

531

Stays in Mexico

Total
Number of vehicles
(thousands of units)

Notes: All values are in percent except for those in the final row. Columns (share values) may not total because of rounding.
FCA means Fiat Chrysler Automobiles (pre-2014 data are only for Chrysler, which merged with Fiat in 2014). GM means
General Motors. VW means Volkswagen.
Source: Authors’ calculations based on data from IHS Markit.

TABLE 10

Destination of light vehicle production in Mexico, by automakers, 2012–14 average

Stays in Mexico

Exported to
United States
and Canada

Exported
elsewhere

Destination
unknown

FCA

5.0

19.3

14.2

13.4

Ford

2.7

21.2

13.7

6.2

20.2

23.3

14.9

21.4

Nissan

49.4

16.2

16.5

40.9

15.6

14.0

37.4

3.5

Others
Total
Number of vehicles
(thousands of units)

7.1

5.9

3.2

14.7

100.0

548

1,710

533

204

Automakers differ by how much of their respective outputs in Mexico go to particular destinations (table 9).
For four of the five legacy carmakers, on average, at least three-fourths of their light vehicle production in
Mexico went to the United States and Canada or stayed in Mexico (that is, remained in the NAFTA region)
in 2012–14. The exception was VW, which exported, on average, 38 percent of its light vehicle production
in Mexico to the rest of the world (primarily Europe and, to some extent, South America) in 2012–14.
Put another way, VW—which accounted for only 17 percent of light vehicle exports from Mexico in 2014
(see table 8)—was responsible for an annual average of 37 percent of Mexico’s production exported to regions
outside North America over the period 2012–14 (table 10). In contrast, during 2012–14, Nissan accounted
for an average of almost one-half of the light vehicles that were produced in Mexico and stayed there
(table 10), although it produced only one-fourth of the vehicles in that country on average over that span.28

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Mexico’s growth in auto production and the industry’s footprint
How has the rapid growth of light vehicle production in Mexico altered the production footprint across the
NAFTA region? In this section, we discuss the spatial distribution of the auto industry at two geographic
scales: within Mexico and within North America.
Economic geographers consistently find that the motor vehicle industry has a high degree of agglomeration
(Ellison and Glaeser, 1997; Duranton and Overman, 2005; and Goldman, Klier, and Walstrum, 2015).
The motor vehicle industry has a tendency to agglomerate because of the co-location of the two types of
production facilities: the several thousand producers of parts and the several dozen final assembly plants
(where the parts are put together to make finished vehicles). In North America, most auto assembly plants
and parts suppliers have traditionally clustered in a north–south corridor (chiefly in the United States) known
as “auto alley.” A set of ten states that extend from Michigan south to the Gulf of Mexico makes up most
of this corridor.29 This location pattern has arisen in large measure to minimize the cost of shipping finished
vehicles to regional markets (Klier and Rubenstein, 2013a, 2015; Rubenstein, 1992; and Weber, 1929).
Moreover, the pattern has emerged in part because it is common for parts plants to ship to multiple assembly
plants, often run by different automakers (Klier and Rubenstein, 2008).

Agglomeration within Mexico
To accommodate the substantial increase in production in Mexico, carmakers have constructed numerous
assembly plants there (table 11). In 1990, when NAFTA negotiations began, Mexico hosted eight active
light vehicle assembly plants: Two of these were opened during the 1930s (by Chrysler and GM), four
during the 1960s (by Chrysler, Ford, Nissan, and VW), and two during the 1980s (by Ford and GM).
(Recall that Ford’s original plant in Mexico, opened in 1925, had already been closed by the mid-1980s.)
In anticipation of NAFTA, four plants were opened during the first half of the 1990s (by Chrysler, GM,
Honda, and Nissan) and GM’s 1930s-era plant was closed, which raised the total from eight to 11 by the
end of the decade.

During the first decade of the twenty-first century, two plants were opened (by GM and Toyota) and the
remaining 1930s-era plant was closed (by Chrysler), which brought the total to 12. During 2013 and 2014,
four more assembly plants were opened (by Chrysler, Honda, Mazda, and Nissan). And then in 2016, two
additional assembly plants were opened (by Hyundai Motor Group’s Kia Motors and VW’s Audi subsidiary).
Three more plants were scheduled to open between 2017 and 2020 (two individually by BMW and Toyota,
plus one jointly by Daimler’s Mercedes-Benz and Nissan’s Infiniti). Ford started construction on another
plant in Mexico in 2016 but canceled it in 2017.30 Thus, the number of plants was slated to increase from
12 in 2012 to 21 in 2020, which would add 1.7 million units in light vehicle production capacity.31
Only one of the nine plants opened or set to open between 2010 and 2020 will have been constructed by
the three Detroit-based automakers (specifically, Chrysler, in 2013) (see table 11). Five of the nine will
have been constructed solely by Asian automakers, in order to source more of their North American small
car sales from products made in North America rather than imports from Asia. The others will have been
built by three German luxury auto manufacturers—VW’s Audi, BMW, and Daimler’s Mercedes-Benz
(in conjunction with Nissan’s Infiniti). They have been drawn to Mexico because of the tariff savings on
international sales of their premium vehicles produced there. In 2020, the Detroit Three producers are
anticipated to operate only eight of 21 assembly plants in Mexico (see table 11). At 45 percent in 2016,
the Detroit Three’s share of light vehicle production in Mexico is expected to decline in the coming years.32
By 2020, all of the 11 carmakers operating in Mexico will have other production facilities in North
America. They tend to run their North American operations in a geographically integrated fashion. This

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TABLE 11

Auto assembly plants in Mexico, 2016
Automaker

Assembly
plant location

Year opened

Productiona
(thousands of units)

Ford

Mexico City

1925

Mexico City

1935

FCA

Lago Alberto

1938

Ford

Cuautitlán

1964

Puebla

1965

415

Nissan

Cuernavaca

1966

293

FCA

Toluca

1968

133

Ramos Arizpe

1981

118

Ford

Hermosillo

1986

321

Nissan

Aguascalientes

1992

376

Silao

1993

398

FCA

Saltillo

1995

263

Honda

El Salto

1995

Toyota

Tijuana

2004

San Luis Potosí

2008

186

Mazda

Salamanca

2013

193

Nissan

Aguascalientes

2013

177

FCA

Saltillo

2013

Honda

Celaya

2014

196

Hyundai (Kia)

Monterrey

2016

105e

VW (Audi)

San José Chiapa

2016

11e

Daimler–Nissan
(Mercedes-Benz and Infiniti)

Aguascalientes

2017

230*

BMW

San Luis Potosí

2019

150*

Toyota

Guanajuato

2020

200*

Actual 2016 production for plants in operation in 2016; planned capacity for plants under construction in 2016.
Closed in 1984. (More details on this plant in note 6 of main text.)
c
Closed in 1995.
d
Closed in 2002.
e
Partial year production.
* Anticipated (as of 2016).
Notes: This table shows all assembly plants as of 2016 for automakers that had been continuously producing vehicles in Mexico
since they first entered the market. FCA means Fiat Chrysler Automobiles (pre-2014 data are only for Chrysler, which merged
with Fiat in 2014). GM means General Motors. VW means Volkswagen. BMW means Bayerische Motoren Werke (Bavarian
Motor Works). (GM also operated a low-volume truck plant in Toluca between 1995 and 2008; it produced a small number of
commercial trucks, as well as full-size pickups.)
Sources: Healy (2016), Werner (1993), WardsAuto InfoBank, and company websites.
a
b

applies especially to their respective supply chains, which extend across national borders in North America
in many ways.
Within Mexico, agglomeration is especially noticeable. Vehicle production within Mexico is highly clustered
in a rectangular area of about 50,000 square miles—which is around 150 miles east–west and 350 miles

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FIGURE 6

Auto assembly plants and major railroads in Mexico, 2016
Tijuana

Calexico

Nogales

Ciudad Juárez

Hermosillo

Piedras Negras

Nuevo Laredo

Monterrey

Ramos Arizpe
Saltillo

San Luis Potosí

Aguascalientes
Major railroads
Assembly plants scaled by units
of production (2016) or capacity

500,000
0

330,000
50
100
Miles

Major railroads
Assembly plants scaled by units
of production (2016) or capacity
500,000
0

330,000
50

100

30,000
150

Brownsville

Silao
El Salto
Salamanca

Guanajuato
Celaya

Mexico City

Toluca
Cuernavaca
Lázaro Cárdenas

San José Chiapa
Veracruz

Puebla
Cuautitlán

30,000
150

Miles

Note: Plants not yet producing for all of 2016 are shown with their announced capacity.
Sources: Authors’ adaptation of data from WardsAuto InfoBank, auto company websites, and Maptitude.

north–south, between Aguascalientes and San Luis Potosí on the northern end and between Cuernavaca,
Cuautitlán, and Puebla on the southern end (figure 6).
In 2016, 2.5 million light vehicles (or 72 percent of Mexico’s total light vehicle production) were assembled
at 11 plants within this cluster. In 2020, around 3.3 million vehicles (about 73 percent of Mexico’s production)
are anticipated to be produced at 15 assembly plants within this cluster.33
During the era of trade barriers, Mexico’s assembly plants and most parts production plants were clustered
near Mexico City—the principal domestic market for vehicles. Starting in the late 1970s, the maquiladora

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FIGURE 7

Population density and auto assembly plants in Mexico

Tijuana

Hermosillo

Ramos Arizpe
Saltillo

Aguascalientes
Silao
El Salto
Salamanca

Monterrey

San Luis Potosí
Guanajuato
Celaya
Mexico City

Toluca
Cuernavaca

San José Chiapa
Puebla
Cuautitlán

Population density (people per square mile)
of municipalities (2010)
0 to 31
186 to 310

31 to 124
310 to 50,000

124 to 186

Assembly plants scaled by units of production
(2016) or capacity
500,000
0

330,000
100

200

30,000
300

Miles

Note: Plants not yet producing for all of 2016 are shown with their announced capacity.
Sources: Authors’ adaptation of data from WardsAuto InfoBank, auto company websites, and Maptitude.

motor vehicle parts plants were sited primarily in the north of Mexico, near the U.S. border, in order to
minimize transportation costs to and from auto alley in the United States. Subsequently, three of the six
assembly plants opened during the 1980s and the first half of the 1990s also located closer to the U.S. border.
Since the implementation of NAFTA, carmakers have returned to the traditional vehicle-producing region
of central Mexico. In the twenty-first century, eight of the 11 assembly plants that opened or are set to open
have been sited in central Mexico and only three have been sited in the north. Carmakers are locating in
central Mexico in part to be in proximity to the country’s consumers (figure 7). About a quarter of the
country’s population resides in and around Mexico City.34

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Also significant for the clustering of Mexico’s
auto industry is the ease of access to the counCorrelation between distance to
try’s transportation network, especially Class I
Veracruz and export share to
railroads.35 An estimated 80–85 percent of motor
non-NAFTA countries, 2014
vehicles assembled in Mexico and destined for

percent
the United States and Canada are transported by
rail (Ludwig, 2016). When NAFTA implementa35
tion began, Mexico’s government-run rail system
30
was not capable of meeting the needs of the auto
industry’s just-in-time delivery model (Blanchard,
25
2013). In the mid-1990s, the government of
20
Mexico privatized the rail system. The rail lines
connecting the U.S. border with central Mexico
15
were awarded to two railroads: Ferromex (Ferrocarril
10
Mexicano) and Kansas City Southern de México
100
200
300
400
500
(KCSM) (Douglas, 2012).36 Ferromex carries
miles
55–60 percent of the vehicles assembled in Mexico
Data
Trend line
to the U.S. border and KCSM 40–45 percent
Note: Each data point represents an assembly plant’s
(Blanchard, 2013).37 These two railroads have
distance to Veracruz and the share of its exports from
Mexico sent to countries outside the North American
invested heavily to improve service. As a result,
Free Trade Agreement (NAFTA) region.
for instance, KCSM reduced the time for the
Sources: Authors’ calculations based on data from IHS
700-mile run from Mexico City to Laredo, Texas,
Markit and Maptitude.
from 70 hours in 1996 to 34 hours in 2002
(Blaszak, 2013). The trains are equipped with bilingual computer screens and adapt easily to changes in
the electric power grid (Blanchard, 2013).
FIGURE 8

Vehicles not exported by rail leave Mexico by sea. Figure 6 shows that some Class I rail lines run east–west
to port cities on the coasts of the Gulf of Mexico and Pacific Ocean. Veracruz, on the Gulf Coast, handles
approximately 80 percent of Mexico’s vehicle exports. Most of the remainder leave through Lázaro Cárdenas
on the country’s west coast (Swiecki and Menk, 2016, p. 27). VW operates a fleet of six “ro-ro” (roll-on,
roll-off) ships on a triangular trade route. Vehicles made in Germany are loaded at the port of Emden, and
unloaded at Veracruz for sale in Mexico. The ships are then reloaded with VW vehicles assembled in
Puebla; some are unloaded at ports on the U.S. East Coast, whereas others stay on the ships as they return
to Europe (Blaszak, 2013).
Note that within Mexico’s auto assembly cluster, vehicles destined for countries other than the United
States and Canada tend to be produced in plants closer to Veracruz, the main shipping port for finished
vehicles. Figure 8 shows that the correlation between the distance of assembly plants in Mexico to Veracruz
and the share of exports from each of these plants that goes to non-NAFTA countries is –0.24 in 2014 (in
other words, the farther away a plant is from Veracruz, the lower is its share of production bound for
non-NAFTA destinations).

Agglomeration within North America
Given the significant changes in Mexico’s light vehicle production and exports under NAFTA, we are left
to wonder whether the economic geography of auto production across the wider North American region is
being fundamentally restructured. In other words, what does the growing role of Mexico in auto manufacturing imply for the industry’s economics and spatial distribution within North America?

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In 1995, shortly after NAFTA implementation
began, 84 percent of the light vehicles sold in
the United States were assembled in one of the
three North American countries. By 2016, that
share had slipped a bit to 78 percent.38 In other
words, the vast majority of light vehicles sold
in the United States continue to be produced in
North America. However, within North America,
the distribution of assembly plants has changed
quite a bit over the past two decades.

TABLE 12

Light vehicle sales in the United States,
by region of origin, 2014

NAFTA
United States
Canada
Mexico
Unknown

Volume

(units)

(percent)

12,994,158
8,978,967
1,855,719
1,678,827
480,645

79.0
54.6
11.3
10.2
2.9

In 2014, 79 percent of light vehicles sold in
the U.S. market were produced in North America
Asia
2,403,825
14.6
(see table 12). The balance was imported from
Total
16,452,190
100.0
Asia (14.6 percent) and Europe (6.4 percent).
Note: NAFTA means North American Free Trade Agreement.
Of the vehicles produced in North America
Sources: Authors’ calculations based on data from
and sold in the United States, 69 percent were
WardsAuto InfoBank and IHS Markit.
produced in the United States, 14 percent in
Canada, and 13 percent in Mexico (with 4 percent not being attributed in the data).39
Europe

1,054,207

6.4

To date, the increases in Mexico’s volume and share of North America’s light vehicle production have
not come at the expense of the existing production in auto alley—which remains the principal cluster of
production, with nearly three times the production volume of Mexico’s. Between 1995 and 2016 auto
alley actually increased its share of North America’s light vehicle production—by 2.8 percentage points—
as the overall volume of industry production in the NAFTA region jumped by 2.8 million units. Mexico’s
growth has come principally through the shuttering of assembly plants in the United States outside of auto
alley, as well as, to a smaller extent, in Canada (see table 13 and figures 9 and 10).

As we’ve already documented, a second significant cluster has formed within Mexico, in addition to auto
alley in the United States (and Canada). So, there are now two major auto production clusters within
TABLE 13

Light vehicle production, by location within North America, 1995 and 2016
1995

U.S. auto alley

2016

Volume

(millions of units)

(percent)

(millions of units)

(percent)

8.2

54.7

10.2

57.5

Other parts of
United States

3.5

23.3

1.7

9.7

Canada

2.4

15.9

2.4

13.3

Mexico
Total

0.9

6.1

3.5

19.5

14.9

100.0

17.7

100.0

Notes: Columns may not total because of rounding. Auto alley is the defined as the area within approximately 150 miles
of U.S. interstate highways I-65 and I-75. It includes assembly plants within the ten states of Alabama, Georgia, Illinois,
Indiana, Kentucky, Michigan, Mississippi, Ohio, South Carolina, and Tennessee. Auto alley is also sometimes defined to
extend into the southern end of Ontario, Canada, along Route 401. This analysis, however, classifies Canada’s assembly
plants separately.
Source: Authors’ calculations based on data from WardsAuto InfoBank.

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FIGURE 9

North America’s light vehicle production footprint, 1995

21
Assembly plants scaled by units of production
750,000
0

420,000
150

300

20,000
450

Miles

Sources: Authors’ adaptation of data from WardsAuto InfoBank and Maptitude.

North America. Mexico’s share of North America’s light vehicle production increased from a little over 5 percent
to almost 20 percent during the first two decades of NAFTA (figures 1 and 2), and nearly 60 percent of its
production was sent to its NAFTA neighbors to the north in 2014 (table 6). As a result, relative to the
mid-1990s, when NAFTA implementation commenced, far more vehicles are now being transported over
longer distances from assembly plants to dealers. The Center for Automotive Research (CAR) estimates
that, for the case of a midsize car, carmakers incur an average of $900 more in shipping costs for a vehicle
produced in Mexico and sold in the U.S. market, compared with one produced and sold in the United States
(Swiecki and Menk, 2016, p. 46). CAR also estimates that labor costs for final assembly are on average
$600 lower and parts production costs $1,500 lower in Mexico than in the United States (Swiecki and
Menk, 2016, p. 46). Thus, according to CAR, carmakers are now realizing net savings by locating production
of some types of vehicles in Mexico, largely because of much lower parts production costs in Mexico

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FIGURE 10

North America’s light vehicle production footprint, 2016

Assembly plants scaled by units of
production (2016) or capacity
750,000
0

420,000
150

300

20,000
450

Miles

Note: Plants not yet producing for all of 2016 are shown with their announced capacity.
Sources: Authors’ adaptation of data from WardsAuto InfoBank, auto company websites, and Maptitude.

versus the United States.40 These net savings help explain why Mexico now hosts North America’s second
cluster of auto production.
Finally, on account of its central location between the United States and South America, Mexico has the
potential to play a prominent role in automotive production across the entire Western Hemisphere. The
clustering of assembly plants in central Mexico, rather than along the U.S. border, allows these plants to
more easily export vehicles to South America. If southbound trade were to increase, Mexico’s auto
production cluster could be further strengthened.

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Conclusion
The implementation of NAFTA, which began in 1994, deepened the integration of Mexico into the North
American economic space. Mexico’s light vehicle assembly and share of North America’s production
have grown rapidly during the past quarter-century. Most of the increase in auto output has been exported,
with the United States remaining the principal destination, although other destinations have been accounting
for growing shares. In 2014, around 83 percent of Mexico’s light vehicle production was exported,
compared with about 76 percent in 2005 (figure 5). Meanwhile, the share of Mexico’s production sold in
Mexico declined from 26 percent in 2005 to 18 percent in 2014 (table 7).
Light vehicle production and exports from Mexico have been concentrated in two vehicle segments: large
pickups and small cars. Assembly plants opened or under construction during the 2010s have been designed
primarily for the production of small cars.
Five foreign-headquartered automakers—FCA (formerly Chrysler), Ford, GM, Nissan, and VW—have
long dominated light vehicle production in Mexico as a result of a lack of domestic producers and a
succession of government decrees regulating local car content. Following the elimination of trade barriers
within North America, these five legacy automakers have adopted different product mixes and export
strategies. Furthermore, a number of international carmakers have added production capacity in Mexico
(some, such as Mazda, for the first time) since the turn of the millennium; much of the output of these
producers represents a substitution of imports to North America from Asia. In addition, the three leading
German-owned premium brands (VW’s Audi, BMW, and Daimler’s Mercedes-Benz) have also been
attracted to Mexico because it gives these automakers the ability to export high-priced vehicles to a large
number of countries without facing tariffs, thanks to the Mexico’s large number of free trade agreements.

To date, Mexico’s rapid growth in auto output has not come at the expense of production within the U.S.
corridor dubbed auto alley. However, the rise of Mexico’s auto industry represents the emergence of a
second vehicle production cluster within North America. The assembly plants within this cluster tend to
specialize in making small cars and large pickups, and they are well positioned to export their vehicles
throughout the Western Hemisphere.
NOTES
Mexico’s auto production and export data cited here are from WardsAuto InfoBank, database available
online by subscription, http://wardsauto.com/faq/what-wardsauto-infobank; and AMIA (Asociación
Mexicana de la Industria Automotriz, or, in English, Mexican Automotive Industry Association), available
online by subscription, https://knoema.com/MXAUMOI2016/mexico-automotive-industry-statisticsmonthly-update (accessed April 10, 2017). In this article, we focus on light vehicle production—that is,
the production of passenger cars and light trucks; we exclude from our analysis medium- and heavy-duty
trucks (such as those used in the construction industry) and buses.

More specifically, Mexico had 61,100 workers in vehicle assembly and 674,372 in parts production in
2016; these data are from INEGI (Instituto Nacional de Estadística y Geografía, or, in English, National
Institute of Statistics and Geography), available online, http://www.inegi.org.mx/sistemas/bie/ (accessed
June 20, 2017). By comparison, employment in the U.S. motor vehicle industry totaled 760,800 in 2016
(180,900 in vehicle assembly and 579,900 in parts production); these data are from the U.S. Bureau of
Labor Statistics from Haver Analytics.

Swiecki and Menk (2016, p. 32).

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Ruda (2016).

In this article, we refer to the NAFTA region and North America interchangeably for convenience. We
focus on just the integration of the motor vehicle assembly sector within the NAFTA region, and do not
discuss what has happened with the motor vehicle parts sector across the region. By “intra-industry trade,”
we mean trade in similar products (often differentiated by the level of quality and/or particular features)
between nations. We also don’t discuss what might happen if the North American Free Trade Agreement
were to be changed (see, for example, Dziczek et al., 2017).

See Healy (2016, p. 41) and Werner (1993). In 1925 Ford started assembling its Model Ts in a rented
garage (its first plant) near downtown Mexico City. (In 1932, the company built a plant from the ground
up in another part of Mexico City and moved its operations there.)

From this point on, unless indicated otherwise, references to (actual and planned) assembly plant openings
(and closings), as well as light vehicle production, are taken straight from auto company websites; WardsAuto
InfoBank; and Ramírez de la O (1998).
7

The other two original plants owned by the Detroit Three were closed much later—in 1995 (GM’s) and
2002 (Chrysler’s).

Precipitated by plummeting oil revenues, the value of the Mexican peso fell from 26 to around 3,000 to
the U.S. dollar between 1982 and 1987 (Hayes, 1987).

To be able to sell their output in Mexico, auto firms not already producing there when NAFTA began had
to have around 30 percent of their vehicles’ parts originate in that country; however, this onerous requirement
for new entrants was phased out by 2003 (Womack, 1994, note 5, p. 18).

The light vehicle production and sales percentage values are from authors’ calculations based on data
from WardsAuto InfoBank.

Authors’ calculations based on data from WardsAuto InfoBank.

Chrysler was fully merged with Fiat in 2014, forming Fiat Chrysler Automobiles. For Chrysler’s history,
visit the website, http://www.fcanorthamerica.com/company/Heritage/Pages/Chrysler-Heritage-1800.aspx.

Authors’ calculations based on data from WardsAuto InfoBank.

We use these start dates for particular reasons: The year 1995 corresponds roughly to when NAFTA
implementation began, 1990 is when NAFTA negotiations commenced, and 2010 marks the first full year
following the end of the Great Recession.

Authors’ calculations based on data from WardsAuto Forecasts, database available online by subscription,
http://intelligence.wardsauto.com/forecasts (projections as of August 2017).

Authors’ calculations based on data from the Population Reference Bureau (2016).

Mexico’s yearly totals for both light vehicle production and sales mentioned throughout this paragraph
are from WardsAuto InfoBank.

By 2016 those percentages were little changed; we focus here on 2014 production data, since we later
introduce data on export destinations. Among the sources we have access to, those export data are available
only through 2014.

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Authors’ calculations based on data from WardsAuto InfoBank and IHS Markit.

Authors’ calculations based on data from WardsAuto InfoBank.

Authors’ calculations based on data from IHS Markit.

Authors’ calculations based on data from WardsAuto InfoBank and IHS Markit.

Authors’ calculations based on data from WardsAuto InfoBank and AMIA.

That means the values for the specific export destinations (and origins of imports) listed in tables 6, 7, 9,
10, and 12 represent lower bounds.

That is the minimum share of Mexico’s light vehicle production exported to its NAFTA partners; if all
exports whose destinations are unknown were sent to the United States and Canada, the share could be as
high as 68 percent (see table 6).

Authors’ calculations based on data from WardsAuto InfoBank.

Auto alley is the defined as the area within 100 miles of the U.S. interstate highways I-65 and I-75. It
includes assembly plants within the ten states of Alabama, Georgia, Illinois, Indiana, Kentucky,
Michigan, Mississippi, Ohio, South Carolina, and Tennessee. Auto alley is sometimes defined to extend
into the southern end of Ontario, Canada, along Route 401.
29

Ford’s decision in early 2017 to cancel construction of an assembly plant to be built in Mexico reflected
the company’s recognition that it could meet demand for small and midsize cars from existing assembly
plants (Woodall and Shepardson, 2017).

Authors’ calculations based on data from WardsAuto InfoBank and WardsAuto Forecasts (projections as
of August 2017).

Information from entry on Mexico in the CIA World Factbook, available online, https://www.cia.gov/
library/publications/the-world-factbook/geos/mx.html.

A Class I railroad in the United States is defined by the Surface Transportation Board as having annual
carrier operating revenues of $457.91 million or more in 2015. Two Mexican railroads, Ferromex (Ferrocarril
Mexicano) and Kansas City Southern de México (KCSM), meet the U.S. definition (Association of American
Railroads, 2017).

The United States has seven Class I railroads, and Canada has two that meet the U.S. definition of Class I
railroads (Association of American Railroads, 2017).

For example, most vehicles shipped by KCSM from Mexico are transferred at terminals inside the United
States to one of seven U.S. Class I railroads or one of two Canadian Class I railroads (not all Class I railroads
transport light vehicles)—to Union Pacific (UP) at Laredo, Texas; to UP, Canadian Pacific, and CSX at
Kansas City, Missouri; to Canadian National at Jackson, Mississippi; to Norfolk Southern at Meridian,
Mississippi; and to BNSF at Fort Worth, Texas. VW transfers most of its vehicles assembled in Puebla
from Mexican to U.S. trains at a facility in Houston, Texas (Blanchard, 2013).

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Authors’ calculations based on data from WardsAuto InfoBank.

Authors’ calculations based on data from WardsAuto InfoBank and IHS Markit.

Swiecki and Menk (2016) reached a different conclusion than a similar comparison by the U.S. Congress,
Office of Technology Assessment (1992) did 24 years earlier. Perhaps this is not all that surprising given
how much time had passed. Back in the early 1990s, higher costs for producing parts in Mexico and for
shipping finished vehicles from Mexico (relative to these costs for plants in the United States) more than
outweighed a modest labor cost saving, according to the OTA. Thus, in 1992 the OTA concluded that labor
cost savings from auto production in Mexico were less than the shipping penalty (U.S. Congress, Office
of Technology Assessment, 1992, p. 145; and Studer, 1994, pp. 30–31). According to Swiecki and Menk
(2016, p. 48), the 1992 OTA data on transportation and labor costs was “integral” in securing passage of
NAFTA in the United States as these data suggested that the competitive position of the U.S. auto industry
was secure.

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Thomas H. Klier is a senior economist in the Economic
Research Department at the Federal Reserve Bank of
Chicago. James M. Rubenstein is a professor emeritus in
the Department of Geography at Miami University, Ohio.
The authors would like to thank Tom Haasl for excellent
research assistance and our editor and reviewers, as well
as seminar participants, for helpful comments.
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