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August 19, 2016 02:00 AM

Editorial: Auto industry spending winds up in unlikely place

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    Sometimes things aren't as you'd expect. Or as presidential candidates may want you to believe. One of the big assumptions is that NAFTA has cost the U.S. manufacturing jobs that have gone to low-wage Mexico.

    And because nine of the last 11 new North American vehicle assembly plants have gone to Mexico, it also might be assumed that suppliers to the auto industry are putting their investment dollars mostly south of the border as well.

    But that's not necessarily the case. A study by the Center for Automotive Research shows that over the past decade, suppliers have put the vast majority of their capital spending in the U.S.

    During that period, the supplier network has spent a total of $48.4 billion to build or expand its factories in the U.S. Of that amount, a whopping $44.4 billion went to the U.S., $3.4 billion to Mexico and a paltry $580 million to Canada. That despite the fact Mexico still holds a huge gap in wages, with auto assembly workers making $31.29 an hour in Canada, $27.83 in the U.S. and $6.12 in Mexico.

    All of this investment has allied fears by the automotive community that suppliers wouldn't be able to ramp up capacity enough following the recession as the industry has bounced back with a string of six consecutive years of growth.

    When looking at the post-recession surge of 2010 through June 2016, the CAR study showed the auto industry as a whole—including auto makers—spent $80.7 billion in U.S. operations, more than triple the $25.8 billion in Mexico.

    Where the money is going in the U.S. also might be a bit surprising. With all the foreign car makers setting up assembly operations in the Southern U.S., it might be assumed the lion's share of new investment is going there. And though the region did garner $15.6 billion in total spending for new plants and expansions, an eye-opening $50 billion was spent in the Great Lakes region, which still has a higher concentration of plants.

    The authors of the study predict that the new shape of the North American car industry may see three regions battling for investments as a new supply chain takes shape. More money likely will flow to the South as foreign car makers expand production there, and a good number of suppliers will look to set up shop in Mexico as its vehicle output heads toward the 5 million units projected for 2020.

    But the Great Lakes region and its built-in infrastructure will continue to compete for these funds.

    The obvious loser in the automotive game has been Canada. The country's fluctuating currency, less of an advantage in health care costs than in the past and a supply base far removed from the industry's growth regions, will continue to make our northern neighbors less competitive.

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