Drug War Hurts Mexican Business Center's Revival

Mexican marines patrol at a crime scene near Monterrey i i

Mexican navy marines patrol a crime scene near Monterrey, Mexico, after unidentified gunmen killed one person while trying to assassinate the local police chief, March 21, 2010. Monterrey's economy is rebounding, but rampant drug violence is keeping investors away. AP hide caption

itoggle caption AP
Mexican marines patrol at a crime scene near Monterrey

Mexican navy marines patrol a crime scene near Monterrey, Mexico, after unidentified gunmen killed one person while trying to assassinate the local police chief, March 21, 2010. Monterrey's economy is rebounding, but rampant drug violence is keeping investors away.

AP

A wave of drug violence has hit the northern Mexican city of Monterrey at the same time that its factories have started to come roaring back from the global economic downturn.

The production of auto parts in the area jumped nearly 75 percent in the first five months of 2010, compared to the same period last year.

But killings, extortion and kidnappings associated with the drug trade are limiting new ventures in what's known as the "business capital of Mexico."

From Just One Shift To Three

At a modern auto parts plant in Monterrey, workers are building exhaust systems for General Motors. Around the corner, others are making manifolds for Ford. In a section with a Volkswagen logo over it, employees are constructing tail pipes for VW.

Gustavo Canales, the plant's operations manager, says 80 percent of parts made there are shipped to GM plants in the U.S. Other parts are sent to GM plants in Mexico and Colombia and to Volkswagen plants in Mexico.

The Mexican automotive industry, like the rest of the global car business, was hard hit by the economic downturn in 2009. The difference in Mexico is that the industry there has rebounded rapidly.

"We currently are working three shifts on one line that's making the exhaust system for the SRX Cadillac, a hot-selling car for GM right now," Canales says.

But a year ago, this plant was only running a single shift — and just three days a week.

Robots do the welding. Canales says an on-site design team can modify a part at a moment's notice. And, he says, their products can be delivered in just three days to any factory in the U.S.

What he doesn't say is that is achieved at a fraction of the cost of American-made parts.

Factory workers earn about $8,000 a year, which is quite good by Mexican standards.

Business Reputation At Risk

Local companies are trying to attract more international business, but lately one of the biggest dampers on the economy has been the rampant drug violence.

John Doggett, a professor in the McCombs School of Business at the University of Texas at Austin, says Monterrey is the most entrepreneurial, business-friendly place in Mexico. But right now, he says, unless they already had a connection to Monterrey, U.S. firms don't want to touch the place.

"If people start worrying about whether they're going to be kidnapped or murdered or have other bad things happen to them in Mexico, they'll say, well, where else can I go so we can get stuff done. And there are a lot of other countries that are safe options," Doggett says.

He points out that his university pulled all of its exchange students out of Monterrey earlier this year after two students at Tecnologico de Monterrey University were killed in the crossfire of a shootout.

Many of Mexico's largest companies are headquartered in Monterrey. And the area has a per capita income that's nearly twice the national average.

Portraits of two university students killed in drug war crossfire in Monterrey i i

Portraits of two students at the Tecnologico de Monterrey University who were killed on March 19 in the crossfire of a shootout between the Mexican army and suspected drug gang members are displayed on campus in Monterrey, March 22, 2010. The University of Texas recalled all its exchange students in Monterrey as a result. Dario Leon/AFP/Getty Images hide caption

itoggle caption Dario Leon/AFP/Getty Images
Portraits of two university students killed in drug war crossfire in Monterrey

Portraits of two students at the Tecnologico de Monterrey University who were killed on March 19 in the crossfire of a shootout between the Mexican army and suspected drug gang members are displayed on campus in Monterrey, March 22, 2010. The University of Texas recalled all its exchange students in Monterrey as a result.

Dario Leon/AFP/Getty Images

But Doggett says the drug violence is putting Monterrey's business climate at risk.

Recently, gangs kidnapped the local transit police chief. In April, dozens of masked gunmen kidnapped six people from the Holiday Inn downtown. And gang members have taken to blocking traffic across Monterrey with hijacked vehicles whenever they want to create chaos in the city.

Mayor Hires 'Group of Tough Guys'

In the suburb of San Pedro Garza Garcia, which claims to be the richest neighborhood in Latin America, Mayor Mauricio Fernandez says Monterrey has a very close and complicated relationship with the U.S. For years Monterrey's proximity to the U.S. border helped the city boom, but now with the drug trade, this has become a huge liability.

"What are we doing wrong that we have all the killing here, but you have all the selling on your side," Fernandez says.

Fernandez's answer to the problem — at least for his suburb — was to try to drive all the criminals out of town.

He formed a gang intelligence unit. He hired what he says is a network or more than 2,000 informants and put out the word that he won't tolerate drug violence inside San Pedro. And he created what he calls a "group of tough guys."

"Their job was to intimidate or convince the organized crime that they couldn't be here. So I'd say, well, if we catch you, we let you know that you're not welcome, and if we catch you again — [at your own] risk. And they happen to leave," Fernandez says.

On the day he was sworn into office in November, Fernandez announced with glee that a notorious local gangster, "Black Saldana," was dead. But police didn't find Saldana's body until almost four hours later, hundreds of miles away in Mexico City.

"Everybody thought that I'd killed him. But it wasn't true. I didn't kill anyone," Fernandez says.

Fernandez says Saldana's murder on his first day in office just happened to be a coincidence. But he does add that extortion in San Pedro dropped off dramatically after Saldana's demise.

While extortion may have gone down in San Pedro, drug violence across the rest of Monterrey has increased dramatically in recent months.

Business leaders say high-profile murders, kidnappings and other gang activity are stifling foreign investment and hurting Monterrey just as it's poised to pull out of the global recession.

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