CHATTANOOGA, Tenn.—A barren patch in the rugged hills along the Tennessee River is a sign of how Mexico has accelerated past the U.S. South in the global competition for auto investment.
The tract of cleared woodland lies alongside a factory
Volkswagen AG set out to build in 2008. VW took an option on the adjacent 800 acres as a place where its
Audi unit might build a North American plant someday.
But four years later, when Audi decided to move global production of its Q5 SUV to North America, the prize went to Mexico. Audi now is finishing a $1.3 billion factory in a gritty south-central Mexico town called San Jose Chiapa. The plant’s massive buildings rise like supertankers from dun-colored fields where families scrape by raising corn and beans.
Mexico’s low wages and improved logistics were part of the draw. But for Audi, which plans to ship the factory’s output all over the world, what tipped the scales was Mexico’s unrivaled trade relationships.
“Mexico had more than 40 different free-trade agreements,” said Rupert Stadler, Audi’s chief executive. The pacts give exporters from Mexico duty-free access to markets that contain 60% of the world’s economic output.