MEXICO CITY — Mexico's manufacturing industry already is reacting to a slowdown of the U.S. economy, experts acknowledge. However, concrete reports on how the slowdown is affecting plastics processors vary greatly, with many companies reluctant to discuss the topic.
"It is too early to make comments," insisted Stanhope Ford, general manager of Regioplast SA de CV, a joint venture owned in part by Owens-Illinois Inc. of Toledo, Ohio. "Anything anyone is telling you at this point is pure speculation."
Regioplast has 700 workers in Tlalnepantla, on the northern outskirts of Mexico City. The company makes blow molded bottles and injection molded closures, mostly for consumption in Mexico.
Nevertheless, there is a popular saying in Mexico: "If the U.S. economy sneezes, here we get pneumonia." Despite public confidence in new President Vicente Fox, news of the chill north of the border has had the local press spinning, and more than a few quaking in their boots.
The first big blow came at the end of January, when DaimlerChrysler AG announced it would close three of its six plants in Mexico. Of the 26,000 jobs that the company plans to cut worldwide, one-tenth are in Mexico.
Ford Motor Co. and General Motors Corp. also have slowed production in early 2001, making the auto industry the first real casualty of the economic slowdown. Some 76 percent of Mexico's vehicle production is destined for the U.S. market.
"Those who feel the difficulties are in the automotive industry," said Socorro Sedano, director general of Anipac, the Mexican plastics industry trade group. But she said some processors can shift to other markets.
"Plastics are generally more flexible, because of packaging, bottling and technical equipment," Sedano said.
The automotive industry also represents almost 40 percent of Mexico's crucial $63.5 billion maquiladora industry, which employs 1.4 million. After seeing a steady growth of 11 percent in recent years, the maquila industry is predicting a slowdown for the first months of 2001.
"We hope the U.S. will find a way to reactivate the economy," said Rolando Gonzalez Barron, president of CNIME, the national trade association for maquiladora companies. "The deceleration means less jobs and less exports in the short term, and tremendous adjustments for industry."
More than 80 percent of exports from maquilas are destined for the United States. CNIME said companies in some key border locations with high worker-turnover, like Ciudad Juarez and Tijuana, have been able to cut employment through attrition. Elsewhere, such as Reynosa, layoffs have been required.
Gonzalez said the automotive maquiladora industry will lose about 42,000 jobs in the first four months of 2001, but he added "we will get them all back" in the summer.
Although optimism for the long term is widespread — even DaimlerChrysler spokesman Manuel Duarte said the automaker would start rehiring around June — some plastics producers that serve the domestic market are jittery.
A source inside a molding plant in the Mexico City area said: "We are beginning to notice the slowdown, although signs are not yet clear. It will show in the next three months ... not in exports but in internal consumption, because of inflation and the exchange rate.
"Market growth will not continue, so prices will rise, and the consumer won't have the resources to pay them," said the source, who asked not to be identified.
Analyst Eduardo de la Tijera says the outlook for 2001 does not look good.
"We predict the growth rate will be half of what we expected. From 10-12 percent, we now say it will be 5-6 percent — 6 percent at the most," he said.
Although the immediate impact has been on automotive-related processors, Tijera predicted the greatest affect in terms of volume will be on packaging companies, "now that the manufacturing industry has the brakes on."
"[Petroleos Mexicanos] is seeing growing sales of polyethylene — but this is not because the market is growing. There are many plastics companies not interested in buying in dollars," he said, including processors that sell products to Mexican customers.
The NAFTA effect
Moreover, the slowdown comes at a sensitive time for Mexico, coinciding with new rules under the North American Free Trade Agreement that restrict tariff breaks on supplies, parts and equipment.
Beginning Jan. 1, Article 303 of NAFTA stripped duty-free status from some Asian and European manufacturers. This stung some of the large Asian electronics producers and, to a lesser degree (because of yet another new trade deal), European maquiladora operators.
Although government officials have argued that there really is very little grounds for complaint, given that industry has had seven years to prepare, maquiladora executives counter that they had hoped for a break from President Fox.
"We are not as competitive as before with tariffs, so we need to find local manufacturers to remain competitive," Gonzalez said.
Enrique Castro, owner of a packaging company with 60 employees in Reynosa, reported that one appliance company and another sporting goods firm have moved production outside Mexico in the last eight months.
"In this area of the country plants haven't closed, but some lines have been moved out, to China for example," he said.
Nevertheless, Castro added: "In the same period we have received 35 new companies, from everywhere, some suppliers from Europe and of course from the United States."
Castro said one local factory that makes telephones is struggling, but he noted that a manufacturer of computer discs is thriving.
"Lots of maquilas use my packaging ... I think in general the plastics industry doesn't see the slowdown — there are lots of opportunities here," he said.
CNIME spokesman Carlos Rosette said neither the slowdown nor the tax changes will prevent U.S. companies from setting up production in Mexico, since that process usually takes three years. Companies moving to Mexico now made the decision in the late 1990s, he said.
"The movement is stable," he said. "It is just those that are here, from China, [South] Korea and Taiwan, will produce less," he said.
Sedano said there is no danger that the maquiladora industry is about to perish.
"The overhead in the United States is different, so Mexico will always be attractive to produce at low cost," she said.
"Delphi [Automotive Systems], for example, might get smaller here, or move. Maquilas, of course, can move molds. But in Mexico, the maquila industry is on the northern border, where there are no logistical problems for moving products to the United States.
"If you think of China, it might have very low costs, but would it be worthwhile for a U.S. company to set up there, and send products back? Of course there are products that can be produced elsewhere, but Mexico will always have this geographical advantage."