Why a $1.6bn car plant has been left to decay

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Mexico is presently the world’s fourth largest car exporter, but could US President Donald Trump’s plans to renegotiate the North American Free Trade Agreement (Nafta) inbetween the US, Canada and Mexico bring this to an end?

On the outskirts of the Mexican state of San Luis Potosi, the skeletal remains of the partially constructed Ford plant loom over the desert. To the residents of the puny towns surrounding the site it’s a constant reminder of a failed economic promise.

For Jose Puebla Ortiz, who sold his plot of land to Ford, it’s still painful to think of the economic prosperity his family could have had.

Mr Puebla Ortiz used the proceeds from the sale to buy a truck. He expected to work as a private contractor during the plant’s construction, but since the company cancelled its plans he has struggled to find regular high-paying work.

“When Ford arrived and we thought everything would be good. there was investment and there was money,” he says.

Now that investment has dried up.

“[Ford] determined to pull out and overnight they told us, ‘it’s over, we’re not continuing, we’re leaving, this is cancelled.’ And, well, there was nothing we could do.”

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In January, Ford announced it was cancelling plans to spend $1.6bn (£1.2bn) building a factory in here in central Mexico. The company’s chief executive at the time, Mark Fields, said the decision related to the declining sales of puny cars the company was intending to build at the fresh plant.

But he also admitted that Donald Trump’s presidential victory and the “improved business climate” the company expected as a result was a factor.

During the campaign and since assuming the presidency Mr Trump has voiced his anger at car companies such as GM and Toyota for using Mexican plants to build cars sold in the US.

He has called for the North American Free Trade Agreement (Nafta) to be renegotiated, blaming it for the loss of US jobs.

The agreement – which came into effect inbetween the US, Canada and Mexico in one thousand nine hundred ninety four – created one of the world’s largest free trade zones by reducing or eliminating tariffs on most products.

It is that kind of executive pressure that has residents here worried.

“It’s because of [Donald Trump] that the plant wasn’t made here – he said if he became president he’d take it away. He became president and he followed through,” says Fidel Ribera, who had been working on the construction of the Ford plant.

For many in San Luis Potosi, Mr Trump’s presidency is seen as a real threat. But most economists, politicians and industry observers think his calls to pull out of or rework Nafta are all talk.

“There’s a learning curve,” says Eduardo Soliz Sanchez, head of Mexico’s car trade assets AMIA.

He says the checks and balances in the US government, where the different branches of government hold equal authority and offset one another, and the interdependence of the car industry across the Nafta members will keep the deal alive.

“Someone should explain to Mr Trump,” says Manuel Molano from the Mexican Competitiveness Institute. “Maybe you began with an oil molecule in Mexico. That becomes some plastic [part] and goes up north to the US, and becomes a more sophisticated part of a car. [Then the chunk] goes back south and becomes a motor, and then goes back up and becomes a finish car.”

On average car parts made in North America cross the US border to Mexico or Canada eight times. And that could mean that restricting Nafta or imposing border taxes on car parts made in the US’s neighbours could cost American jobs.

Mexican officials are betting the US won’t shoot itself in the foot even as its fresh president attempts to switch his country’s role in the global economy.

It’s a bet they can’t afford to lose.

The car sector makes up 6% of Mexico’s gross domestic product and 25% of its exports. In just over twenty years Mexico has gone from a relatively insular economy to the fourth largest car exporter – behind Germany, South Korea and Japan.

Economist Jonathan Heath says Nafta “cemented” the opening of Mexico’s economy.

“That is when the auto industry began to flourish. Now almost every single carmaker in the world is present in Mexico,” Mr Heath says.

It is not just Nafta that has attracted companies such as BMW, Nissan and General Motors. Mexico has trade deals with forty five countries and its position on the US border, with access to both the Atlantic and Pacific Oceans, makes it an ideal trading hub for carmakers.

But any switches to its deal with the US would still be a big deep-throat. Mexico exported 77% of the cars it made to the US last year.

Still AMIA head Mr Soliz Sanchez admits that after twenty three years Nafta would benefit from being updated. He says his group, which represents Mexico’s car and car parts makers, would be okay with “deepening and modernising” the trade agreement.

But for Mexicans who have benefited from its influence, switches to the deal pose a risk.

“We have people from the community here working in BMW, in General Motors,” says Mr Ortiz.

“That’s what we imagined with Ford – that there’d be a lot of work so there’d be enough for all the boys. But there’s nothing we can do, this was cancelled. Ford was cancelled.”

Mr Ortiz’s village is thousands of miles from Washington DC, but the decisions and the rhetoric coming from the US is having a direct influence on him and his neighbours. While the car industry as a entire may not be turning its back on Mexico, the uncertainty is casting a shadow over the livelihoods of Mexicans that rely on the sector.

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