General Motors Co. will move production of its revamped GMC Terrain to Mexico from Canada and expand production of the Ontario plant’s Chevrolet Equinox, reflecting the growing popularity of compact sport utility vehicles.
The Detroit-based company currently makes both vehicles Ingersoll, Ontario. GM showed the new upscale Terrain for the first time Sunday night on the eve of the Detroit auto show.
GM has a lot riding on the Equinox and Terrain, which go on sale as redesigned models in the first quarter and this summer, respectively. Small SUVs are a booming segment of the market and a big moneymaker for the company, so when GM planned the new versions, it decided to increase output from one factory to three -- adding the vehicles at two existing facilities in Mexico, according to a GM spokesman.
While the move is GM’s bet that more inventory will mean more new buyers, as well as a play to make more on each sale, it’s also partly a response to hyper competition among automakers seeking an edge through lower production costs. Even so, moving production of the new upscale Terrain to Mexico instead of the U.S. may risk testing the patience of President-elect Donald Trump, who has already has used Twitter to chastise GM and Toyota Motor Corp. for importing low-priced compact cars from south of the border. While the companies also sell these models in emerging markets, GMC is chiefly a U.S. brand with premium SUVs that have fatter sticker prices and higher profit margins than small cars.
“I’m sure we’ll see a tweet” said Kristin Dziczek, analyst at the Center for Automotive Research in Ann Arbor, Michigan. “Labor costs are part of it, but it’s a competitive issue. Once some of the manufacturers go down there, more of them have to.”
The 2015 labor agreement with the United Auto Workers union boosted wages and benefits for thousands of younger U.S. employees who previously made much less than veteran factory hands. Mexican autoworkers earn an average of $8.24 an hour in pay and benefits, compared with $46.35 an hour for those in the U.S. Canadian workers get similar compensation.
Duncan Aldred, vice president of global GMC sales and marketing, said GM is using existing plants that can handle the production volume. He would not elaborate on Trump’s potential trade policies.
“We have been planning this for a long time, and we’re using our existing footprint,” he said.