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Mexico stakes claim as hottest hub for auto production

Most people outside of Mexico have never heard of Aguascalientes. But in the auto industry, this city of 1 million residents is known as ground zero for Nissan's expansion plans in the Americas.

This week the Japanese automaker is opening its second final assembly plant in Aguascalientes, giving Nissan as many final assembly plants in Mexico as it has in the U.S.

"Mexico is quickly becoming the fastest export hub in terms of vehicle production virtually anywhere in the planet," said Michael Robinet, a director with IHS Automotive.

Nissan is not the only automaker expanding production in Mexico.

Honda, Mazda and Audi are adding assembly lines in the country, which has shot past Canada to become the second-largest auto producer in North America.

Mexico is on pace to build 3.15 million vehicles this year, which represents 19 percent of all cars and trucks made in North America.

Ford's assembly plant in Hermosillo is among the company's most productive in the world.

"Mexico has proven for a long time [that] ... it's a fantastic world-class-quality operation," said James Farley, Ford's executive vice president of global marketing, sales and service.

Lower costs fuel Mexican auto boom

Mexico is one of the fastest-growing locations anywhere for auto assembly and parts production.

Calsonic Kansei, which supplies control panels and exhaust systems for Nissan, Mazda and General Motors, has just expanded its operations in Aguascalientes. The Japanese company is increasing to 3,100 workers from 1,400 to keep up with demand from Mexico's auto production.

"The growth here reminds me of China in the early '90s," said Bharat Vennapusa, chief operating officer at Calsonic.

Meghan Reeder | CNBC

Why the surge?

A combination of low costs, a perfect location and a slew of free trade agreements make it advantageous to build and ship in Mexico.

"Mexico over the next decade will likely control more than half of the North American auto employment base," said Mark Muro, senior fellow at the Brookings Institution. "It is an extremely desirable place for labor-intensive assembly, with .... enough engineers and trained workers. And it's got ... superior trade connectivity to the rest of the hemisphere."

For example, Mexico is one of the few countries with a trade agreement that allows automakers to ship vehicles to Brazil at a cost lower than from plants in the U.S. or Europe.

Meanwhile, Mexican auto workers' wages are much lower than those in the U.S.

"Somebody in northern Mexico might be making $3 or $4 an hour at an auto plant. An autoworker in Ohio might be making five to eight times that," said Harley Shaiken, a labor relations professor at the University of California at Berkeley. "It is a very large disparity, which is critical, since the productivity and quality is the same or even higher in Mexico."

Mexico limiting U.S. auto expansion?

More production of cars and trucks in Mexico raises the question: How will it impact plants elsewhere in North America?

"Mexico very clearly is going to press down on production in the U.S., and in particular in Canada," Shaiken said. "So far we have seen a much larger hit in Canada, but it is truly affecting both countries."

Given that most U.S. plants are close to capacity, the location of expanded production will become an urgent question over the next four to five years.

However, Robinet said, the U.S. auto industry can still be competitive with that of Mexico.

"If the U.S. is able to gain an EU trade agreement and some other trade agreements, and continue to work through the process of reducing costs ... there is no doubt that the southeastern United States and Mexico can be really competitive on an equal basis," he said.

—By CNBC's Phil LeBeau. Follow him on Twitter @LeBeauCarNews.

Questions? Comments? BehindTheWheel@cnbc.com.

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