hile the future of the Big Three U.S. automakers is being sorted out, companies that supply the array of components that go into their vehicles continue to establish manufacturing bases in central Mexico. Four states, in particular – Guanajuato, Queretaro, San Luis Potosi and Zacatecas – are seeing considerable investment of late.
      "The central states are probably where anything will happen in the future," says Nick Criss, executive vice president and Cushman & Wakefield Mexico. "There's nothing happening at the border."
      Criss, a longtime observer of Mexico's automotive sector, says labor issues are the major driver of projects to the country's interior. Wage rates are reasonable compared to the major border cities and to Monterrey, but the labor in the central states is far more dependable, with much lower turnover and absenteeism rates, he says. Another factor, Criss says, is that the central states are hungry for investment and have been aggressive with incentives, primarily in the form of training, infrastructure improvements and tax abatements.
      "The big issue is how bad the cutbacks or final solution for GM and the others are going to be, and how that affects the supply chain," says Criss.
      If GM goes the bankruptcy route, Mexico's economy will take a major hit, but investment in the sector, particularly among Tier One suppliers, has been brisk in the country's central states.       Guanajuato is Mexico's sixth most populated state with more than 5 million people. During the last decade, it has developed an automotive cluster composed of approximately 60 significant manufacturing operations and nearly 25,000 employees. Much of the growth has come during the past few years. It has one OEM, GM's assembly plant in Silao, a 1.2-million-sq.-ft. (111,480-sq.-m.) plant that employs more than 2,700.
      American Axle & Manufacturing, which began operations in 2000 and has since expanded, is the largest of Guanajuato's Tier One automotive suppliers. The company has invested US$800 million in its operations and employs 3,000.
      German auto transmission manufacturer Getrag and its joint venture partner Getrag Ford are building a new $500-million plant in the Castro Del Rio industrial park in Irapuato, about 186 miles (300 km.) northwest of Mexico City. The project is part of Getrag's effort to introduce its dual clutch transmission technology globally.
      The plant, which will be operational in late 2009 or early 2010, may eventually employ up to 1,300 if the company proceeds with a planned second phase. The first phase will be a 484,650-sq.-ft. (45,000-sq.-m.) modular building. The second phase would double the facility.
      "This was quite a long process as we have a complex set of business criteria in our site selection process," says Norbert Buechelmaier, executive vice president of manufacturing. "We started visiting with our team of manufacturing engineers and HR people in September 2005, and we visited 22 sites in Mexico."

“We expect labor rates to increase over the next five years, but the turnover and absenteeism rates are very favorable. Basically, we considered the area to be quite stable as a union situation.” — Norbert Buechelmaier, executive vice president of manufacturing, Getrag

      The final choice came down to Guanajuato or Queretaro. But before the deal with the State of Guanajuato was signed, word came of an existing building in Durango. Buechelmaier says Getrag looked at the building, but subsequently stayed with its original decision.
      Buechelmaier says Getrag's sophisticated site search process, honed by similar searches in Europe and China, includes evaluating factors such as site conditions, logistics, infrastructure, security and safety, labor costs and incentives.
      Buechelmaier says Getrag's plant will begin with 400 workers in assembly operations. Long-range plans call for that number to grow as high as 1,300 as the operation moves into production of gears and shafts over the next several years. Labor availability and labor costs were also important factors, but not deciding factors, Buechelmaier says.
      "We expect labor rates to increase over the next five years, but the turnover and absenteeism rates are very favorable. Basically, we considered the area to be quite stable as a union situation."       Buechelmaier has plenty of praise for the assistance proffered by the government of the State of Guanajuato.
      "Their support from the beginning to now has been extraordinarily good," he says. "They really acted as an overall consultant in terms of support. We didn't experience such professional support in other areas that we visited. Mexico is not so easy. You have to get help with the local circumstances. They helped us with all the little details, which made life easier."
      Getrag plans to produce around 350,000 transmissions annually. Buechelmaier says a supplier park will be established nearby, but the company has not determined how many of its suppliers will locate there. He says the new transmissions will help increase fuel efficiency in new automobiles. The new plant is not linked to the location of assembly plants, and will ship transmissions to plants in the U.S., Europe and Asia, he says.
      Getrag is one of several German automotive suppliers to move into Castro Del Rio, including Schaeffler Group and Bos Automotive.
      "It's seems like a German industrial park," observes Buechelmaier.
      Schaeffler Group is moving jobs from facilities in Canada and the U.S. to the new plant, which will eventually employ 400. Jobs moving from the U.S. include about 120 from the company's Spartanburg, S.C., plant. Troy, Mich.-based Schaeffler officials declined to be interviewed for this article.
      The new plant's grand opening in early November was attended by Mexico's President Felipe Calderon Hinojosa. Schaeffler Group owner Maria-Elisabeth Schaeffler issued a statement praising the contributions Mexico has made to the success of her company. Schaeffler officials said the company's second Mexican factory will allow the company to strengthen its market position and provide U.S. customers with immediate access to products. The company cited the availability of suitable property to build the factory, a pool of qualified workers, strong infrastructure and access to public transportation as factors in the site decision.
      The new 245,500-sq.-ft. (22,800-sq.-m.) factory is manufacturing Schaeffler's INA and FAG-branded products, including various types of rolling bearings and engine and chassis components. Schaeffler also has a plant in Puebla and a Mexico City-based sales organization.
      Bos Automotive, a maker of vehicle interior systems, is investing $15 million and may create up to 800 jobs over the next five years. Bos also operates a factory in Puebla, Mexico.
      Another German Tier One supplier, Hella, has opened an automotive lighting and electronic equipment facility in San Jose Iturbide. The 275,000-sq.-ft. (25,547-sq.-m.) facility will employ more than 100 people and manufacture transmission range and pedal sensors, plus vacuum and washer pumps for the company's Asia- and North America-based automotive customers.
      But not all automotive suppliers moving into Castro del Rio are based in Germany. Stockholm-based Haldex opened a new facility in February to manufacture limited slip couplings and differentials for GM's all-wheel drive vehicles. Haldex's 26,925-sq.-ft. (2,500-m.) facility employs about 70 and has room for expansion. It is the first North American facility for Haldex's Traction Systems Division.       The Guanajuato Inland Port, located between Leon and Silao, is another major site of automotive investment. Toyota subsidiary Hino Motors Manufacturing Mexico held groundbreaking ceremonies on Oct. 16 for its new truck manufacturing facility. Hino is investing $9 million and expects to begin production in August 2009.
      French firm Faurecia is one of the latest to locate there, investing $25 million in a 700-employee facility to manufacture exhaust systems.
      Other recent automotive investments have come from Samot, a Brazilian firm that makes high-precision machined parts for automotive companies, and Mailhot Industries, a French manufacturer of industrial cylinders.
      The Inland Port, located adjacent to Bajio International Airport, also includes an intermodal facility with rail and major highway access. It also includes Mexico's largest custom house, a 77-acre (31-hectare) facility.       Criss says Guanajuato is well placed, located in the middle of Mexico's major OEM operations, including GM's new plant in the neighboring state of San Luis Potosi.
      "There's Nissan up the road to the north [Aguascalientes] and the cluster around Mexico City is right there," Criss says of Guanajuato's juxtaposition. "It's also in good road position to link up to Monterrey."
      Criss says Guanajuato is one of the most aggressive Mexican states in terms of incentives.
      "It's a fairly wealthy state. It's where [former Mexican President Vicente] Fox is from. He was governor there and he got things started with incentives. The governors that have followed have continued in that vein."
      The recent spate of automotive investment in the central states notwithstanding, the precarious situation of the Big Three, especially GM, is already slowing growth.
      "The cars they [GM] decided to make in Mexico are the big ones, and they are exactly the ones getting hammered. But unless they truly go out of business, they won't shut down in Mexico," Criss says. "They might have to retool. All of this is rippling down the supply chain. A lot of companies that have had projects to move to Mexico have just stopped and everything is on hold. The OEMs and suppliers I talk to consider their Mexico facilities to be their core facilities. If they have three facilities in Mexico and one in the U.S., the one in the U.S will be the one to go. U.S. OEMs have been in a race for a long time to get as many jobs into Mexico as they could before union and legacy costs drag them down."