Mexican Narcoterrorism Causes Alarm

Firefights between narcoterroriists and local and federal authorities in Mexico have forced auto makers to restrict travel to the country poised to become a key piece in the global auto industry puzzle.

Ford Motor Co. and Nissan North America Inc. are among the companies affected by the spread of violence. Ford is limiting travel to Mexico for its workers, while Nissan has instructed its employees to take “cautionary measures.”

A portent of inherent domestic trouble, the unrest also poses a significant near-term challenge for companies contemplating investment in Mexico.

In U.S.-border regions, the level of violence is “like Chicago in the '30s,” says Kathleen Ligocki, an industry consultant with years of experience in Mexico.

Meanwhile, the nation's position as a vital manufacturing hub is becoming more entrenched. This year, Mexico is expected to build nearly 20% of all vehicles produced in North America, according to Ward's data.

Mexico in 2005 accounted for just over 10% of North American output.

The U.S. Department of State has issued a travel warning for U.S. citizens visiting or living in Mexico, a move copied by Canada's foreign affairs department, which encourages Canadians to “avoid non-essential travel.”

These actions follow a recent escalation in kidnappings and a brazen shootout near a school populated by American expatriates. The gun battle, in which two security guards were killed, compelled the State Department to order U.S. consulate staff members to remove their children from Monterrey.

Recently, the Mexican military was called in to help with a raid on a ranch near Texas' southernmost border. Following a gun battle that took four lives, investigators discovered the bodies of 72 murder victims.

Since 2006, 22,700 people have been killed in narcotics-related violence, the U.S. State Department says.

Certain cities are particularly dangerous, such as Ciudad Juarez, Tijuana, Chihuahua City, Nogales, Nuevo Laredo and Monterrey. All are home to auto industry operations.

Ford has an engine plant in Chihuahua, while Monterrey has more than 100 auto-parts manufacturers.

To date, the violence hasn't affected Ford personnel or hampered production. But the auto maker has issued its own travel restrictions. “We've continued to remind folks about the situation to raise awareness and keep them as safe as possible,” spokeswoman Marcey Evans says.

The State Department says the location and timing of future armed engagements cannot be predicted. “U.S. citizens are urged to exercise extreme caution when traveling throughout the region.”

When travel is considered critical, Evans says Ford works with its Mexican operations to ensure employee safety.

One measure includes not allowing employees to spend the night in regions deemed dangerous, Evans says. “If they have to go for business, they may stay at a different location.”

Despite the dire situation, Evans says Ford is confident its operations will not be negatively affected, noting technologies such as teleconferencing will be used in lieu of travel when possible.

Nissan, which operates facilities in Aguascalientes and Cuernavaca, also has taken precautions.

Although there are few major automotive facilities in regions considered the most dangerous, auto makers do business with suppliers scattered throughout the country, making it difficult to restrict travel to only areas deemed safe.

While the Mexican auto industry has yet to experience long-term detrimental affects due to the ongoing violence, that could change, says Bruce Belzowski, associate director of the Automotive Analysis Div. at the University of Michigan Transportation Research Institute.

“There are a lot of things that can be done by email and video conferences, but that's after you have relationships with people in those areas,” Belzowski tells Ward's. “If looking at the future, you have to measure and balance (potential future investments) against the challenges in terms of security issues.”

Ligocki is more hopeful, citing the recent announcement that Volkswagen de Mexico will build a new engine plant in Silao, the central Mexican city that also is home to a General Motors Co. plant.

“The car business is betting that Mexico will work this out,” Ligocki says.

Despite the dangerous security situation, Belzowski says U.S.-based auto makers prefer Mexico to other low-cost countries due to its proximity.