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 Business News | April 2005 
Mexico Recovery May Hit Roadblocks
 Brian Winter - Reuters
| | Sluggishness in U.S. auto industry spills over border. |
Mexico City - The fate of Mexico's economy this year may be decided in an odd place — Detroit.
Weakness in the U.S. auto industry, which has large export factories in Mexico employing tens of thousands of workers, could threaten the vibrancy of a local economic recovery that is otherwise firing on nearly all cylinders.
The Mexican auto sector, which accounts for about a fifth of the country's manufactured exports, saw output stumble 10 percent in the first three months of 2005.
"The recent woes in the U.S. automotive industry — from credit downgrades to production schedule cuts and high inventories — have raised concerns about just how vulnerable Mexico's economy is," Morgan Stanley said in a report.
For every four autos made in Mexico, three are exported, most of which go to the United States. Of those exports, roughly 70 percent come from factories owned by Detroit's Big Three automakers — General Motors Corp., Ford Motor Co. and DaimlerChrysler.
Economists worry that if U.S. companies cut output further at their Mexican plants, it could translate into broad economic weakness.
An already large trade deficit could expand, jobs could be lost, and the Mexican peso may weaken.
Even where business is relatively good, such as at the Mexican unit of Volkswagen, U.S. demand is flat.
"We expect demand will be about the same as last year. Not great, not terrible," said Thomas Karig, Volkswagen's spokesman in Mexico.
Shock waves from an auto sector slowdown in Mexico go far beyond the walls of factories that make the cars. For example, auto parts supplier Delphi Corp. has 54 plants throughout Mexico employing roughly 68,000 people.
The auto sector could make the difference between a good year or a great year for Mexico's overall economy, which is expected to grow about 4 percent.
A boom in credit, fueling consumer spending and low-cost housing sales, has helped offset the recent weakness in exports.
Meanwhile, tensions over the presidential candidacy of Mexico City Mayor Andres Manuel Lopez Obrador, a leftist viewed with suspicion by Wall Street, could damage investment ahead of 2006 elections.
But activity is said to be picking back up at Mexico's maquiladora factories, which import raw goods from the United States and then ship finished products back across the border duty free.
"We had a flat couple of months, but activity usually heats up around April and we're getting greater impulse from the United States," said Cesar Lopez, a spokesman for Plantronics, an electronics maquiladora in Tijuana which supplies goods to companies, including Nokia.
Lopez, formerly the president of the Tijuana maquiladora association, said several local factories had introduced training programs to meet demand for high-tech production.
"That tells you that most of the qualified people already have jobs, which is good news," Lopez said.
But economists say non-maquiladora factory output has been been weak in recent months, with their future fate tied to a familiar source — the United States. |
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