Posted by: David Welch on August 17, 2009
Critics of Detroit’s carmakers could play a real game of gotcha with Chrysler. News reports today say the company will build the Fiat 500 subcompact at Chrysler’s plant in Toluca, Mexico, which builds the Chrysler PT Cruiser and Dodge Journey. Since Fiat owns 20% of Chrysler, the Italians can call the shots. Critics of the auto industry bailout and the government’s 8% ownership stake in Chrysler might say that we spent a few billion dollars to save Chrysler and guarantee Mexican jobs. But build that car here and the same critics could say that the government and the United Auto Workers, which owns 55% of Chrysler, swayed management to keep the jobs in the U.S.
Forget all of that. Building the 500 in Mexico makes good business sense. First of all, it’s tough to make a buck on compacts and tiny cars like the 500. With the exception of BMW’s Mini brand, those cars just don’t fetch fat sticker prices. So margins are usually thin. Mexican wages can help.
There’s another good reason to build in Mexico, especially a car that has international appeal like the 500. Mexico has some nice trade agreements with the European Union, Brazil and Asian countries like Thailand that keep import taxes low for cars, says Michael Robinet, vice president of CSM Worldwide. If you want to build cars in one plant and have access to the U.S., Mexico, Brazil and some Asian markets, going south of the border is sensible. Fiat-Chrysler can sell more of those cars globally and stand a better chance of making money if they can max out the plant with sales around the globe.