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Mexico braces for fallout from Detroit

Auto woes of the Big Three could hurt plants south of the border – and spur migration north.

By Staff writer of The Christian Science Monitor / December 9, 2008

On the line: An employee worked at General Motors's Silao plant in the state of Guanajuato, Mexico.

Henry Romero/Reuters/File

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Mexico City

As Detroit pleads with lawmakers for a bailout package, Mexico is watching closely, keenly aware that failure of the Big Three to stave off bankruptcy could devastate auto workers south of the border – and reenergize the northward flow of illegal migrants.

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Crisis in the US car industry comes as Mexico's economy, which is deeply intertwined with that of the US, is showing signs of vulnerability. Remittances from Mexicans abroad have been down most of 2008. Sharply revised economic growth estimates for 2009 offer best-case scenarios of about 1.5 percent. Potential losses in the auto industry, which employs more than half a million people, would be a blow to among the best paid of Mexico's industrial workers.

"The biggest impact will be on auto supply companies, and there will be big problems in [border towns] Tijuana and Ciudad Juárez," says Huberto Juárez Nunez, a labor expert at the Autonomous University of Puebla. And, he says, while the US recession has driven more Mexicans to return home, they could well reconsider. "They'll prefer to wait out the crisis in the US than wait it out in Mexico." Mexico was the world's 11th-largest car producer in 2007, according to Sisam, an automotive industry consultancy in Mexico City. The industry accounts for 3 percent of gross domestic product.

While Sisam says that car production in Mexico is up this year by 5.4 percent, according to the latest figures from October, uncertainties abound for 2009.

"The outlook for 2009 is not the same; there is a risk that we'll have a fall, given decreased demand in the US," says Felix Rojas Cruz, the group's director general. "The government support in the US is important for Mexico, because we will depend on them for new projects and to increase production for exportation."

Already, exports to the US and domestic sales have fallen. According to IHS Global Insight, a consulting group in Massachusetts, sales this year are expected to slip by 6 percent – the lowest dip since 1995 when Mexico reeled from its so-called "Tequila crisis." Next year the prognosis is worse, with sales estimated to drop by 8.5 percent.

"Mexico depends a lot on the Big Three, and any decision will have a big, immediate impact," says Jorge Carrillo, who studies multinationals at the Colegio de la Frontera Norte in Tijuana.