Production At Kia Factory In Mexico Stalled By Politics

Donald Trump is not the only politician up in arms over an automobile assembly plant in Mexico today. Kia is now embroiled in a dispute with Jaime Rodriguez, the new governor of the state of Nuevo Leon. Rodriguez is a former rancher who threw out the ruling party in a landslide last year and says he opposes the deal Kia signed with his predecessor. Kia and its partners have invested more than $2 billion in the new factory.

Kia factory in Mexico
Workers at Kia factory in Mexico. Photo credit: Susana Gonzalez/Bloomberg News

According to Bloomberg, the factory is already five months behind schedule. South Korean President Park Geun Hye appealed to her Mexican counterpart, Enrique Pena Nieto, to intervene in the conflict during a state visit to Mexico City this week. “Mexico has a lot to offer the auto industry. That’s a big part of why Nuevo Leon was chosen,” Kia said in an e-mailed response on Tuesday to questions from Bloomberg News. “However, if there is legal uncertainty or the rule of law isn’t respected in the state, then this could obviously have a negative impact on foreign and local investment as well as any other activity.”

Rodriguez became Mexico’s first state governor elected as an independent last year. Much like a certain US presidential candidate, he electrified voters with his plainspoken criticism of the political establishment. He is popularly known as El Bronco. That nickname can refer either to a wild horse or can be roughly translated as “the brazen one.” He reiterated his opposition to the existing pact with Kia this week while saying an agreement may be near.

“Our government is totally open, but we can’t offer 20 years of payroll tax exemptions,” he said in a statement late Monday. “They want to continue with this same agreement and that’s not possible.” Kia said it has “always had the best disposition to hear alternatives” as long as they comply with the essence of the agreement it signed with the state in 2014.

The factory is expected to produce 300,000 cars a year and generate thousands of jobs, according to Kia. It is anxious to begin production in May. The automaker said the government hadn’t yet made good on commitments to improve rail links and roads as well as drainage and electricity. It hinted that the start of production “could be affected if the infrastructure isn’t completed or advanced.”

At the heart of the issue is whether or not agreements made by one political party must be honored by subsequent leaders. It is not uncommon for local or state governments to provide financial incentives to attract business. The state of Nevada has offered billions in concessions to encourage Tesla Motors and Faraday Future to build factories there. In this case, El Bronco is concerned his predecessor not only offered Kia some candy but gave away the entire candy store during the negotiations.

The situation has echoes elsewhere in Mexico. Ford Motor Company has been attacked by Donald Trump for planning a new factory in Mexico. Some cracks are beginning to appear in the foundation of the global free trade model, as people are beginning to realize that free trade agreements are not all sunshine and roses, especially for native workers. The issues are thorny and complex. It will take more than overheated rhetoric and bombast to solve them.

 

Steve Hanley

Closely following the transition from internal combustion to electricity. Whether it's cars, trucks, ships, or airplanes, sustainability is the key. Please follow me on Google + and Twitter.