Auto industry woes head south

MEXICO CITY — The U.S. auto bailout lifts the threat of imminent collapse from plants that have been a steady source of jobs in Mexico. But the rescue, backed by American taxpayers, is likely to slow investment in Mexico's auto industry, one of the fastest growing in the world.

Lured by low labor costs, Detroit's automakers have been critical to an industry that now makes up 3 percent of Mexico's gross domestic production and accounts for a fifth of its exports. The 13 plants run by Ford, Chrysler and GM account for more than 50 percent of Mexico's auto production.

While nothing in the $17.4 billion U.S. government loan package prohibits it, expansion outside of the United States using taxpayer money would most likely lead to a huge backlash.

"They really need this money, so my guess is that they will try to stay away from making new investments in Mexico in the short term because it would look very bad," said Juan Pablo Fuentes, an economist with Moody's Economy.com.

Lawmakers have made clear they expect U.S. carmakers to keep jobs at home. And they have leverage: $4 billion of the auto loan package will only be made available if Congress votes to release $350 billion that remains in the financial industry bailout fund.

"I think they are very much aware of Congress' concerns and would do nothing untoward that would in essence breach the trust that we have extended to them," Rep. Sheila Jackson-Lee, of Texas, said in a telephone interview.

Mexico is heavily reliant on exports to the U.S. Three-quarters of vehicles produced in the country are exported, 70 percent of them to the United States, according to the Mexican Auto Industry Association. As U.S. car sales plummeted, Mexican auto exports fell nearly 8 percent in November and production declined 2.1 percent.

General Motors, which employs some 12,700 people in Mexico, released more than 600 workers when it stopped making the Suburban at its plant in Silao this year. Chrysler, which employs about 5,000, laid off 800. Both companies said they will idle several Mexican plants in January to cut costs and shrink inventories.

The auto association asked the Mexican government for a $3 billion loan to loosen credit for both dealers and customers in an effort to boost flagging domestic sales. November sales fared even worse than exports, plunging almost 20 percent.