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Mexican Government Desperate to Assure Foreign Auto Investors

Countering fears as drug-related violence spreads.

by on Nov.18, 2011

Beetle production begins at the VW plant in Puebla.

Faced with a “frightening” rise in violence, the Mexican government is racing to head off a wholesale move away from the region that serves as the base for many foreign automakers and suppliers,

Mexican security services are offering special private briefings on the government’s strategy for combating violence across that violence-plagued nation, especially in the north where American companies have built hundreds of automotive factories over the past three decades.

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Sergio Rios, a representative of Pro Mexico, an agency of the Mexican government designed to encourage foreign investment, said the special briefings are designed to explain to investors the country’s strategy to combat the drug-related violence that has created havoc across northern Mexico. The briefings are also designed to offer some reassurance about the broader security situation, which is giving some companies pause about investing in the violence-plagued nation.

The briefings were initiated by the Mexican the Mexican government, Rios said. Several companies, among them Ford, have been provided the information by Mexican security services, Rios said.

The rising tide of violence in and around Ciudad Juarez, on the Mexican side of the Rio Grande across from El Paso, Texas, has prompted some companies to move away from the border.

“The security situation is an issue especially in the north,’ Rios acknowledged.

Ciudad Juarez has long been a major production center for automotive suppliers such as Delphi, Lear and Visteon. But over the past decade it also has earned a reputation as one of the most dangerous cities in the world.

“The level of criminality in the North is frightening,” observed Dominque Boulegue, a special projects manager for Hella Lighting Systems, who was responsible for the start of operations of a new Hella plant in Guadalajara, Mexico’s second city. On the other hand walking around Guadalajara is perfectly safe. “You don’t have to keep looking over your shoulder,” he said.

Consequently, it’s not surprising that companies such as Mazda, Honda and Nissan have elected to settle in the center of Mexico, he added. General Motors also has elected to invest in a new plant in San Luis Potosi, which is also closer to the center and away from the “frontier” in northern Mexico where GM, Ford and Chrysler have major assembly plants now.

Rios, however, emphasized the situation along the frontier isn’t uniformly grim.

Over the past five years, the border areas have attracted investment to Mexico’s northern Border States where a cluster of aerospace and aerospace suppliers is rapidly developing, Rios noted. Wilm Uhlenbecker, the new president of Behr America, which has a new plant in Ramos Arizpe, also said Behr keeps an eye on the security issues but has encountered no serious problems since starting construction of the plant in 2006.

But the frontier issue, which includes an ongoing war between rival drug gangs, has had a subtle but marked impact on the rapidly expanding Mexican auto industry. For one thing, companies along the border are having more difficulty recruiting engineers. They would rather work in the center of the country where it is safer, said Samar Gandhi, the director general of the Hella Electronics plant in San Jose Iturbide, in the center of Mexico.

Hella Electronics also has been able to recruit an experienced management team for its new plant in San Jose Iturbide, in part, because experienced employees wanted to move away from the frontier. Sergio Rodriguez, Hella Electronics director of human resources, who had worked for Delphi, said he was glad to accept the job at Hella. Even though he misses being able to shop in El Paso, the overall quality of life is better for his family in San Jose Iturbide, a sentiment echoed by several colleagues who also moved from the north.

Ciudad Juarez is losing a lot of business because of the violence, added Gandhi.


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