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Why move Compass to Mexico?

by David Zatz on

Why is FCA — and, for that matter, Ford — moving cars out of the United States? The answer may be found in a web of trade agreements, which resulted in interlocking spheres of discounted or nonexistent import duties.

2018 Jeep Compass rendering

Belvidere makes the Patriot and Compass, and used to make the Dart, but will soon make just the Cherokee (and possibly a Chrysler crossover based on it). While the Cherokee was popular in Europe, for a Jeep, the Renegade has proven to be far more popular.

The new Jeep Compass, which loosely speaking puts a Grand Cherokee look-alike body onto the Renegade chassis, will be made in Mexico, and should prove popular in Europe, aided by its no-import-tax status, if the Renegade is any indication.

2016 Jeep Compass

Mexico is part of the North American Free Trade Agreement (NAFTA), a Latin American free trade deal, and a deal with the EU which means its import duties to Europe will drop from 10% (made in USA) to 0% (made in Mexico).

The decision isn’t all about import taxes or duties; FCA and Ford are both moving all possible car production outside the United States in search of higher margins.  At the same time, newspaper recounts claim that the government has actively kept wages down — contrary to the intent of NAFTA — so workers still get paid relatively little.

As long as fuel prices stay low, the United States and Canada will still have assembly jobs: the small and medium size cars are moving out, but crossovers and pickups are taking up the slack, at least for now.  FCA will likely keep large cars and minivans in Canada, and larger-than-compact crossovers and SUVs will stay in the US. American Ram production will likely soar, as well.

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