ROBERT SIEGEL, Host:
To the northern Mexican city of Monterrey now. The city has been hit with a wave of drug violence, 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 this year.
But killings, extortion and kidnappings associated with the drug trade are limiting new ventures, as NPR's Jason Beaubien reports.
JASON BEAUBIEN: At a modern auto parts plant in Monterrey, workers are building exhaust systems for General Motors. Around the corner, other workers are making manifolds for Ford. Then there's a section with a Volkswagen logo over it, where they're constructing tail pipes for VW.
Gustavo Canales is the operations manager of the plant.
M: The parts that we can make here are 80 percent that are shipped to GM plants in the U.S. Then we also ship to plants in GM here in Mexico, to Volkswagen in Mexico, and then we're also shipping to plants in Colombia from GM.
BEAUBIEN: The Mexican automotive industry, like the rest of the global car business, was hard hit in the economic downturn in 2009. The difference in Mexico is that the industry here has rebounded rapidly.
M: We currently are working three shifts on one of our wheels line that is making the exhaust system for the SRX Cadillac, a hot-selling car for GM right now.
BEAUBIEN: But just a year ago, this plant was only running a single shift, and that for only three days a week.
The welding is done by robots. Canales says they have a design team on-site that 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 at a fraction of the cost of American-made parts. Factory workers here earn about $8,000 a year, which is quite good by Mexican standards.
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 in Austin, says Monterrey is the most entrepreneurial, business-friendly place in Mexico. But right now, he says, U.S. firms, unless they already had some sort of connection to Monterrey, don't want to touch the place.
P: If people start worrying about whether or not 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 we go where we can get stuff done. And there are a lot of other countries that are safe options.
BEAUBIEN: He points out that his university, the University of Texas at Austin, pulled all of its exchange students out of Monterrey earlier this year after two students at Monterrey Tech 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. But Doggett says Monterrey's business climate is being put at risk by the drug violence.
Recently, gangs kidnapped the local transit police chief. In April, dozens of masked gunmen kidnapped six people from the Holiday Inn downtown. And organized thugs have taken to blocking traffic across Monterrey with hijacked vehicles whenever they want to create chaos in the city.
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.
M: What are we doing wrong that we have all the killing here, but you have all the selling on your side?
BEAUBIEN: 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 of 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.
M: Their job was to intimidate or to convince the organized crime that they couldn't be here. So we say, well, if we catch you, we let you know that you're not welcome, and if we catch you again, under your risk. And they happen to leave.
BEAUBIEN: 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.
M: Everybody thought that I'd killed him. But it wasn't true. I didn't kill anyone.
BEAUBIEN: Fernandez says Saldana's murder on his first day in office was 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.
Jason Beaubien, NPR News.
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