At the Volkswagen car plant near the Mexican city of Puebla, the arms of bright orange robots trace precise arcs through the air and gently stamp grey metal car doors into shape.
Next door, amid posters urging them to “take pride in your work”, men and women fix dashboards into car bodies that move slowly down an assembly line.
The products of these efforts – elegant red, white and lemon-yellow Beetles – stand in formation a few hundred yards away on Avenue B, in another spotlessly clean factory hall.
This is the face of Mexico’s car industry: efficient, technologically advanced and increasingly oriented to export.
Thomas Karig, a vice president at Volkswagen in Mexico, says the decision in 1997 to base world-wide production of the New Beetle at the plant has born fruit. “Sales of the model have exceeded forecasts. Mexico is very competitive.”
Volkswagen’s success mirrors broader trends. Over the past 20 years, output of new cars has increased fourfold, reaching 1,416,665 units in 2007. Investment has flooded into the sector. Since 2002 more than $10bn has been ploughed into car plants, with a further $6bn-$7bn injected into the booming components business, according to industry figures.
The industry as a whole accounts for 13.4 per cent of all manufacturing jobs and, in the component sector alone, employment has more than doubled from 200,000 to 470,000 in the last 10 years.
Exports have surged, with 80 per cent of new cars sold abroad, compared with 41 per cent in 1988.
Overall, the sector generated $43bn in 2007, an amount that makes it the biggest single earner of foreign exchange.
Carmakers are sourcing more and more of their components from Mexican suppliers, with the industry increasingly concentrated in clusters of manufacturers based in northern and central cities.
Nissan, which manufacturers in Aguascalientes and Cuernavaca, now brings in between 60 and 70 per cent of its components from local suppliers, compared with less than half a decade ago.
“We are increasing locally procured parts,” says Shoichi Miyatani, president of the company’s Mexican operation. He adds that only the most advanced state-of-the-art components are brought in from outside.
The big driver of all this growth has been the gradual migration of chunks of the once mighty US motor industry south of the Rio Grande in the wake of the North American Free Trade Agreement (Nafta) in 1994. The deal attracted US manufacturers to locate new capacity in Mexico, mainly because wage rates are less than a sixth of their levels north of the border.
The US industry is far from dead. Two years ago Toyota, for example, chose to base a new north American plant in Texas.
But all three US majors – General Motors, Chrysler and Ford have significant operations in Mexico. Nafta helped make the Mexican industry more internationally focused. As Eduardo Solís, president of the Mexican Association of Motor Manufacturers, puts it: “You must manufacture in the dollar zone what you sell in the dollar zone.”
But two other developments have given extra momentum to exports. First, over the past decade Mexico has entered into a string of free-trade agreements with other trading blocs, most notably the European Union, Japan and Mercosur, the South American customs union linking Argentina and Brazil.
Second, the decline of the dollar against the euro and yen has helped to boost competitiveness significantly. The peso has appreciated against the greenback, but only marginally, and certainly to a much lesser extent than the currencies of rival production centres such as Brazil. As a result, Mexican carmakers are selling greater volumes to Europe and Asia.
Volkswagen sold more than 60 per cent of its output outside the Nafta area. Nissan began exporting its new Tiida model to Europe in 2007 for the first time.
“We exported more than we planned to Europe,” says Mr Miyatani at Nissan.
Export success masks deepening problems in the domestic market.
Here, the problem is the scale of imports of second-hand vehicles from the US, sales of which are undercutting domestic demand for new cars.
Mexico is obliged by its membership of Nafta to open up to imports of cars made since 1994, with a final deadline due next year.
New rules allowing the import of used cars were introduced three years ago and led to a rapid rise in imports, with more than 1m vehicles brought in annually during 2006 and 2007.
At the same time, sales of new cars in Mexico itself have gradually fallen, sinking to 288,833 in 2007, the lowest figure since 1998. Smaller, so-called sub-compact cars – popular among lower-income families – have been particularly depressed, with that niche seeing a fall of between 15 and 20 per cent.
Mr Solís says it is particularly difficult to monitor the safety and emissions standards of these second-hand vehicles. “In the US, a 10-year-old car is virtually scrap,” he says. “These cars come in and we don’t know where they are.”
