Mexico as the unlikely winner in the auto sector. A review of firm localization strategies and labor relations transitions theories.

Publication Type:

Conference Paper


Gerpisa colloquium, Brussels (2023)


After two and half years of being into force, it seems that the USMCA is not fulfilling its premises and promises. The USMCA –the new free trade for North America—put in motion a new set of rules of origin and labor value content meant to alter the flows of investment, jobs, and trade between the three countries. Likewise, because of US conditions to sign the new treaty, in Mexico there is a new labor law and minimum wage policy meant to back a new labor relation model based on ILO’s Fundamental Labor Rights and binding enforcement mechanisms.
In 2002 Mexico became the “unlikely winner,” as The Economist put it, due to its strong economic performance, ranking sixth out of 34 OECD countries. Amid worldwide economic hardships, global supply shocks, and geopolitical uncertainty, Mexico exceled as one of the preferable nearshoring frontiers to invest and keep attracting FDI flows. The automotive industry was and is at the tip of this process, accounting for more than 20% of such flows, which rises to 65% when considering all automobile-related investments. In the last two years FDI in the auto sector reached 10 billion and auto output went from 3.3 to 3.5 million units –hitting practically its pre-pandemic high.
Furthermore, a number of these investments are directed to build state-of-art technology facilities, be to manufacture electric cars be to conduct product development, redesign supply chains, or deploy further digital technologies. For instance, Elon Musk just announced Tesla will build one of his mega-factories in Norther Mexico to manufacture a new generation of Teslas, whereas last year Ford inaugurated the largest research and engineering center in the country –i.e., its Global Technology and Business Center at central Mexico-- and is manufacturing its Mustang Mach-E at Cuautitlan. Likewise, GM and BMW are pouring one billion each to engineer EVs in Ramos Arizpe and San Luis Potosi, respectively.
These investments to support EVs engineering call into question product life cycle theories, be in its original version (Rogers, 1966), be in some of its contemporary derivatives like Klier and Rubenstein (2020), Amsden and Tschang (2003), among others.
For one thing, what we have now is the very possibility that a car technology trajectory breaker –i.e., the EVs--, which is just in an early life-cycle stage, will not be any longer exclusively manufactured in the area where it was created.
On the other hand, these developments are unfolding even though labor unrest in the sector is taking on unprecedented levels and the rapid response mechanisms (RRM) furnished by USMCA to denounce and remedy labor rights violations have been instrumental to support the renewal of union organizations. During this period, US trade and labor representatives have presented six denounces under the RRM against auto firms for labor rights violations, mostly related to the rights to freely organize and engage in collective negotiations –the last one being against VU Manufacturing in January 2023, and the first one being against GM Silao back in 2021.
The continuous and growing FDI flows into Mexico implies not only the possibility that the deterritorialization of the US auto industry will continue, as anticipated by Covarrubias (2020-2022), but calls into question USMCA goals. At the same time, they question the breadth and depth of the Mexican labor relation model’s transformation commanded by USMCA.
This paper aims to make sense of these developments and evolutions through proposing a framework to analyze the transition of the automotive sector towards a new industrial and labor regime working from a host of different theoretical perspectives. Among others, product and industrial life cycle theories (Klepper & Graddy, 1990), regime destabilization (Turnheim & Geels, 2013), dialectical issue life cycle Model (Geels and Pena, 2015), and policy windows and the multiple streams framework (Kingdon, 2003).
To this end, the paper draws on primary and secondary evidence from some of the most relevant North American auto industry recent developments.

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