Detroit’s Big Three automakers are accelerating plans to produce more small cars for the North American market in Mexico as they seek to reduce labour costs, while using higher-paid US workers to build their very profitable trucks, sport utility vehicles and luxury cars.

New versions of several of their popular US compact cars are expected to be made in Mexico, people familiar with the companies’ plans said. They include General Motors’ new Chevrolet Cruze hatchback, a successor to Ford Motor’s Focus compact and a replacement for Fiat Chrysler Automobiles NV’s Jeep Compass compact SUV.

The decisions are prompting three major automotive research firms, who are often used by the automakers and their suppliers for industry forecasting, to project a big increase in Mexican output of small cars by the three companies.

AutoForecast Solutions estimates that GM, Ford and Fiat Chrysler will collectively produce 45 per cent of their small cars for the North American market in Mexico by 2020, up from 18 per cent in 2014. LMC Automotive sees the 2020 figure at 37 per cent, also against 18 per cent last year, while IHS Automotive projects the Mexican percentage going to 42 per cent in five years time, though it calculates the 2014 level at a higher level than the others, at 25 per cent.

In response to questions from Reuters, the three automakers declined to discuss their specific plans.

GM said that the “vast majority” of its small cars sold in the US are “produced domestically.” Ford said it is “committed to continuing to improve competitiveness and to invest where it makes the best sense for our business.” Fiat Chrysler said it “has made no official announcements regarding the company’s future production plans.”

The Detroit automakers’ plans to build more small cars in Mexico are likely to be highly controversial ahead of the November 2016 US presidential election. Businessman Donald Trump, who is seeking to win the nomination to be the Republican presidential candidate, has repeatedly blasted US companies, including Ford, for any moves to shift jobs to Mexico from the US and says he would support government incentives to keep auto production in the US if he gets into the White House. The Trump campaign did not respond to a request for comment.

The Big Three are also feeling the heat from foreign rivals, including Nissan Motor and Volkswagen

It is also a huge issue for the US labour unions, who have been highly critical of the impact of free trade agreements, such as the North American Free Trade Agreement with Mexico and Canada reached when Bill Clinton was US president in 1994. His wife, Hillary Clinton, is the leading contender to be the Democrats’ presidential candidate. The Clinton campaign declined to comment.

United Auto Workers president Dennis Williams has faced criticism from union members that he has acquiesced to jobs going south. “For someone to suggest that we endorse products going to Mexico is just nonsense,” he wrote to UAW members last month. The UAW declined a request for a comment for this story.

For the automakers it is largely a question of cost and margin. They are determined to reduce costs in production of compact and midsize cars, which already suffer from small profit margins or are losing money.

Overall US sales have been very strong in the past couple of years but larger vehicles such as SUVs and pickup trucks are the big beneficiaries because the plunge in gasoline prices means that fuel economy isn’t as much of an issue for consumers as it was a few years back. The larger vehicles typically generate profits of $10,000 and more each.

The Big Three are also feeling the heat from foreign rivals, including Nissan Motor and Volkswagen, who have been adding production capacity in Mexico.

The margins on small cars may erode further if production remains in the US because new labour agreements negotiated by GM, Ford and Chrysler grant the first raises in a decade to veteran workers, and give recent hires a path to earn $30 an hour after eight years on the job. At the same time, the Detroit automakers need to continue building and selling small cars to meet ever-tightening US fuel economy regulations because big pickups and SUVs have much lower mileage.

Mexican labour rates, which averaged about $5.50 an hour in 2014, are about a fifth of the wages auto workers earn in the United States, according to the Centre for Automotive Research (CAR).

Mexico is an increasingly attractive production base for a variety of reasons.

Its infrastructure, supply base and productivity all have improved in recent years. A plunge in the Mexican peso against the dollar to almost 17 to the Greenback from just over 13 a year ago has also made the country more appealing for US manufacturers, at least in the short term, by reducing its relative costs.

On the downside, shipping costs from Mexico remain high, and energy sources can be unreliable.

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