Category Archives: Mexico

(WSJ) Donald Trump Plans Trip to Mexico to Meet President Enrique Peña Nieto

(WSJ) Mexican president sent invitations to the Republican candidate and Democratic nominee Hillary Clinton.

Donald Trump is planning a quick trip Wednesday to Mexico to meet with President Enrique Peña Nieto, shortly before the Republican presidential nominee is slated to give a speech on immigration in Phoenix.

The trip, which Mr. Trump announced late Tuesday and which was confirmed by the office of Mr. Peña Nieto, follows an invitation the Mexican president sent Friday to both Mr. Trump and Democratic nominee Hillary Clinton, according to Mr. Peña Nieto’s office. The president’s office said the invitation “was well received by both campaign teams.”

The two men will meet in the Mexican President’s official residence, called Los Pinos, in the early afternoon and issue a statement immediately after. Neither will take any questions, according to a person familiar with the plans.

A trip to Mexico would represent a dramatic development on a subject that has been a controversial centerpiece of Mr. Trump’s campaign. He has vowed repeatedly that he will build a wall along the southern border of the U.S. to keep out illegal immigrants, and has said he will persuade Mexico to pay for it.

In an interview with CNN in July, Mr. Peña Nieto said there was “no way” Mexico would pay for a border wall.

Mr. Trump also has said he is opposed to the North American Free Trade Agreement, a pact that Mexico is party to and continues to support.

Mr. Trump set the stage for a showdown with the leadership of Mexico in his announcement speech last June, when he said the country was sending rapists and drug dealers across the border. Yet he also has pledged that he would find a way to have good relations with Mexico’s leaders, who, he has said, are outsmarting their American counterparts.

Mr. Trump’s speech Wednesday evening on immigration comes after more than a week in which he and his advisers have given conflicting explanations of his deportation policy. During the primary, he said he would expel all illegal immigrants from the country, but in recent days he has suggested focusing on those with criminal records.

On Tuesday morning, Mr. Trump sought to quash any speculation that he was also softening on his promise to build a wall “ From day one I said that I was going to build a great wall on the SOUTHERN BORDER, and much more,” he said on Twitter “Stop illegal immigration. Watch Wednesday!”

Many Mexicans were angered at the news of the meeting, in light of some of the things Mr. Trump has said about Mexico during his campaign over the past year.

“This is appeasement of the worst kind. Peña Nieto is like [Neville] Chamberlain to his Hitler,” said Alejandro Hope, a former Mexican intelligence official and security analyst, referring to the British prime minister who tried to appease Germany in the run up to World War II.

Mr. Hope said the visit—and ensuing potential photo op of both men shaking hands—undercuts Mrs. Clinton’s argument that Mr. Trump doesn’t have the temperament to be president.

“For Trump, this makes perfect sense. He polishes his image,” said Mr. Hope. “What is Pena going to get out of this? Half price on the wall?”

Mr. Peña Nieto and his aides had debated in the past how to respond to the real estate mogul, with many aides suggesting he take an aggressive stand against him, according to a person familiar with the meetings. But the president has said he should not take sides in a U.S. election and instead should appear above the fray, that person said.

But now the Mexican leader has inserted himself in the election through his invitation to both candidates, analysts said.

“I don’t know why Pena is doing this, especially now. It doesn’t help him at home, and brings him and Mexico into the middle of the U.S. election process (at least for a day); a fraught place for a foreign president to be,” Shannon O’Neil, a senior fellow at the Council on Foreign Relations in New York, wrote in an email.

Mexican officials are expected to try to use the occasion to get across Mexico’s views on immigration and trade, especially Nafta.

Mexican officials complain that the trade relationship has been distorted by both parties, with many Americans seeing Mexico and China as equally harmful for U.S. jobs. They emphasize that after 22 years of Nafta, the U.S. and Mexican economies have become tightly and beneficially joined.

“We want to project a positive image of Mexico based on objective data,” Mexican Foreign Minister Claudia Ruiz Massieu said in a recent interview. “Our bilateral relation has strengthened over the past 25 years…but in recent months stereotypes have emerged, stereotypes based on a biased view of the Mexican community and bilateral relations.”

Today, 32 U.S. states annually export at least $1 billion worth of goods to Mexico. U.S.-made components make up more than a third of every dollar in products Mexico ships back north, Economy Minister Ildefonso Guajardo said in a recent interview. U.S. components constitute only 3 cents of every dollar worth of products China exports to America, he said.

“Free trade isn’t the problem,” Mr. Guajardo said. “Today, the world competes in regions. Countries partner to set up production chains. Mexico shouldn’t be in the same basket as China.”

Some Mexicans suggested both politicians may need each other at a time when they are struggling. Mr. Trump lags behind in the polls and Mr. Peña Nieto has the lowest approval rating for a Mexican leader in two decades, largely due to a series of corruption scandals, tepid economic growth and rising violence.

(BBG) Smog-Hit Mexico’s $8 Billion Clean-Up Bid Heralds Bond Sale Rush

(Bloomberg) — Mexico’s push to reduce air pollution may set the stage for a surge in clean energy-related bond sales.

For the first time, the government will auction $8 billion worth of clean energy projects this year, according to Pricewaterhouse Cooper. The move comes as dangerous air quality
in vast industrial hubs across the nation has made cleaner energy a necessity. Earlier this year, some of the worst smog in a decade prompted Mexico City to impose a driving ban and factories to slash production.

While only one company in Mexico’s clean-energy industry has sold bonds in recent years, the notes have been among the most lucrative investments in the nation’s debt market. Wind farms located in southern Mexico known as Oaxaca II and Oaxaca IV have seen their $299 million of notes return 15 percent since March 30, when the Spanish construction company that owns them was among 10 firms awarded power projects worth $2.6 billion at an auction in Mexico. That’s the second-biggest gain in Mexico and twice the emerging-market average.

Claudio Robertson, who helps manage $4 billion at Investment Placement Group in San Diego, said Mexico’s burgeoning clean-energy industry will need to tap the bond market to finance projects.

“This is an industry that’s in diapers,” he said. “In Mexico, every lawmaker is voting for better air quality. This is going to be much more important than what it is today.”

(ZH) Peak Irony: Mexico Wants To Build The Wall To Stop Illegal Immigration

(ZH) It turns out that Donald Trump’s proposed border wall is not such a bad idea after all. Though Mexico’s current and former Presidents have both lambasted Trump for implying that a wall would curb immigration, it turns out that Mexicans like the idea.

There is one small caveat, however. Mexicans don’t want to build the wall on the U.S.-Mexico border, but rather, they want to stem the tide of immigration into their own country  by building the wall on their southern border with central America:

One of the largest newspapers along Mexico’s border with Texas is calling for a border wall with Central America, similar to the one being promoted by Republican Presidential Candidate Donald J. Trump.

The editorial board of El Mañana, one of the largest newspapers in the border state of Tamaulipas,  penned a piece called “Yes to the Border Wall … but in Mexico’s South.” The piece praises the idea of border wall, not on the border with Mexico, but on the border with Central America.

“Along the Mexican border peace and quiet came to an end, Central Americans played a large influence,” El Mañana’s piece claimed.

The Mexican border newspaper provides a controversial view on the Border Wall; which is one of the main topics in Trump’s campaign.

“Mexico’s southeast has two borders; one with Guatemala and one with Belize, that do not provide any benefit, but on the contrary only problems are brought by these crossing points that are being used for the new invasion. The one use by Central American’s looking for a way into the United States. ” El Mañana’s editorial board wrote.

One of the issues mentioned in the editorial piece points not only to the hordes of Guatemalans, Salvadorans and Hondurans that flock to Reynosa in an effort to get to the U.S., but also to the large number of Central Americans that are left in Mexico after deportation.

Full report at Breitbart

Eastern European countries are expanding their border fence networks to keep middle east refugees from crossing into their countries, a strategy that has cut illegal immigration by over 90% in those nations.

President Obama made the one in front of the White House even higher and more elaborate.

Prisons tend to build them, too.

The Mexicans want one.

And now even the Democratic National Committee has decided that fences work to keep out the riff-raff. They’ve built an 8 foot high, 4 mile long fence around their convention.

It seems like these days everyone wants to build a wall.

But according to former DHS chief Janet Napolitano, walls don’t work to keep people out and are ineffective immigration policy, so we’re not sure what all the fuss is about.

(JN) Grupo mexicano impugna reversão da subconcessão da Carris e Metro de Lisboa


(JNO operador de transportes mexicano Ado avançou com um pedido de impugnação da anulação dos contratos de subconcessão do Metro de Lisboa e da Carris assinados com o anterior Governo.

Prometeu e vai cumprir. O grupo mexicano Ado, que controla o consórcio espanhol Ado Avanza, vai mesmo avançar para os tribunais portugueses com um pedido de impugnação da decisão tomada pelo actual Governo português de anular a subconcessão das operações do Metro de Lisboa e da Carris que havia sido acordada com o Executivo liderado por Passos Coelho.

Em comunicado enviado às redacções a Ado Avanza confirma que mais pedir a impugnação da reversão da concessão dos transportes lisboetas decretada pelo Governo do PS.

O consórcio espanhol que em Junho de 2015 foi escolhido pelo Governo PSD-CDS para a subconcessão, por um período de oito anos, do Metro de Lisboa e da Carris, numa transacção avaliada em 1.075 milhões de euros, assinou os respectivos contratos em Setembro do ano passado, debaixo de fortes críticas dos partidos da oposição, da autarquia lisboeta e dos sindicatos.

Agora a Ado Avanza, lembrando que “o processo de subconcessão foi iniciado pelo Governo Português em cumprimento dos acordos económicos estabelecidos com a Comissão Europeia e com o Banco Central Europeu”, avisa que “não deixará de adoptar todas as medidas necessárias para defender os seus direitos, recorrendo, se necessário, a instâncias internacionais para que seja compensada pelos graves prejuízos causados”.

“Esta impugnação constitui um primeiro passo na defesa dos nossos direitos perante aquilo que consideramos uma arbitrariedade e um grave incumprimento da lei. A nossa empresa actuou, em todo o momento, com respeito institucional e realizou importantes esforços humanos, económicos e técnicos. Neste contexto, preocupa-nos a insegurança jurídica do investimento estrangeiro e as consequências que possa ter nas relações bilaterais entre México e Portugal”, diz Luís Fernando Lozano, Presidente da ADO Avanza.

Em Fevereiro, já depois de a nova administração da Carris e Metro ter decidido anular os referidos contratos com a Avanza, o grupo já tinha avisado que “vamos usar todos os meios para defender os nossos interesses, até os tribunais internacionais”. Este diferendo já assumiu mesmo contornos diplomáticos, com o embaixador mexicano em Portugal a considerar que as relações bilaterais entre México e Portugal serão penalizadas pela decisão de Lisboa.

(OBS) Professores mexicanos obrigados a cortar o cabelo por não aderirem a greve

(Observador) Um grupo de seis professores foi forçado a cortar o cabelo por não aderir à greve de professores. A greve dos professores começou em meados de maio. O vídeo está no youtube.

Um grupo de professores e administradores escolares foram obrigados a cortar o cabelo em público por se terem recusado a fazer greve, no México.

A greve de professores mexicanos, que teve início a 15 de maio, resultou em humilhação para alguns dos funcionários escolares que optaram por não fazer greve, como informa o The Telegraph.

Os professores que se recusaram a aderir foram obrigados a andarem descalços através da cidade de Comitan com cartazes ao pescoço onde se podia ler que eram “traidores do país”.

Depois da caminhada, os grevistas cortaram o cabelo a seis dos professores que se recusaram a protestar.

O ministro da educação mexicano, Aurelio Nuno, afirmou que vai fazer todos os possíveis para punir os responsáveis pela agressão.






+++ V.I. (FT) Mexico is heading for recession, forecaster claims


Is a  whole Continent apart from Argentina economically sinking…?


(FT) Mexico is about to plunge into recession for the first time since 2009, an economic forecasting agency has claimed.

The dire prediction runs counter to the prevailing market view. Although Mexican economic growth is slowing, most still expect to see expansion of at least 2 per cent this year.

A panel of 22 banks and other organisations polled in April by data analysts Consensus Economics found a median gross domestic product growth forecast of 2.4 per cent for 2016, with the lowest estimate 1.8 per cent.

In March the Bank of Mexico cut its growth forecast amid a “complex” economic outlook, but it still foresaw growth of between 2 and 3 per cent this year while the IMF also pencilled in 2.4 per cent growth in its April global economic outlook.

The forecast of recession comes from World Economics, which produces a family of sales managers’ indices or SMIs, based on replies from a panel of salespeople across the services and manufacturing sectors, which it claims is the most forward-looking data series available.

Although these SMIs are little known, World Economics’ parent company is Information Sciences, which developed the widely followed purchasing managers’ indices or PMIs, now owned by Markit.

The headline SMI reading for Mexico came in at just 47.3 in May and has been below 50 — the cut-off between an increase or decrease in activity — since February, as the first chart shows. All five sub-components — confidence, market growth, sales, prices and staffing — have also slumped below 50.

Mexico. Headline sales managers index

Ed Jones, chief executive of World Economics, said, as a result, that “recession looms”.

“Certainly we see Mexico going that way. In the last three to four months there has been negative sales growth. We equate sales to the level of output,” said Mr Jones, whose US SMI measure has been a reasonable predictor of US GDP growth.

“We are probably a good two to three months ahead of where the official data would be. For the next month or two [the Mexican SMI] is likely to stay in negative territory, so the recession [defined as two straight quarters of negative growth] is coming.”

Mr Jones expects Mexico to have to revise down its first-quarter growth figure of 0.8 per cent, a view shared by others.

Edward Glossop, emerging market economist at Capital Economics, “fully expects” a downward revision, particularly given data last week showing industrial production fell 2 per cent year-on-year in March, far worse than expected, alongside souring consumer confidence and a slide in president Enrique Peña Nieto’s approval rating.

Nevertheless, Mr Glossop predicts a recession “is some way off”. He forecasts that year-on-year growth will be revised down to 2.3 per cent for the first quarter (from 2.7 per cent), before edging higher as the year progresses, “which is by no means a disaster when you look around the region”, given that Latin America as a whole is tipped to endure its second straight year of recession this year.

“Though [Mexico] is growing at a very sluggish pace, it’s by no means at risk of recession in our view,” Mr Glossop says. “Retail sales are still growing at a very strong pace. We see that continuing for the next few months as inflation remains low and interest rates are accommodative.”

Carlos Capistran, Mexico economist at Bank of America Merrill Lynch, foresees a “mild deceleration” this year, with growth dipping to 2.25 per cent, rather than a recession.

“The services sector, which is the largest sector of the economy, is growing above 3 per cent. We expect [this] to moderate but it will remain close to 3 per cent.

Latam. Headline sales managers index

“This should be enough to help the economy to avoid a recession despite weak industrial production and a retrenching by the government,” says Mr Capistran, who says the peso “has been acting as a buffer, depreciating to help net exports and with a very low pass through to inflation, which is helping the services sector”.

Gustavo Rangel, chief economist, Latam at ING Financial Markets, also believes it is “highly unlikely that Mexico will experience recession”.

Mr Rangel concedes “that headwinds have increased”, with pressures mounting on government finances, the oil industry and manufacturing exports, but argues that “domestic demand remains resilient, anchored by credit growth, low inflation, rising remittances (in peso terms) and a steady drop in the unemployment rate.”

With service sector growth “helping offset a slump in industrial sector,” Mr Rangel says that “even though the balance of risks is skewed towards a slowdown, we don’t think there are convincing elements to suggest we are heading to a recession”.

Across Latin America as a whole, World Economics saw the recession deepening in May, with the headline SMI reading falling to 45.2, its fourth straight decline since hitting 49.8 in January and the 13th successive sub-50 monthly reading, as the second chart shows.ddgfghhjkiom

+++ V.I. (BBG) Mexico Warns, Leave the Peso Alone

…The next problem…?

(BBG) Mexico is tired of seeing the peso picked on. It’s depreciated as much as 13 percent against the dollar this year in intraday trading, making it the worst-performing major currency of 2016.

Weak economic fundamentals aren’t what’s sapping the peso’s strength. Inflation in Mexico is near a 47-year low, and annual growth is expected to accelerate for a third consecutive year, to 2.6 percent. The peso is vulnerable because it’s the most-traded currency in emerging markets, which makes it an ideal hedging instrument for speculators who are betting on the direction of other developing economies.

The peso’s daily trading volume of $135 billion a day is $15 billion higher than that for China’s yuan, the next-most-traded among developing countries, according to data from the Bank for International Settlements. The peso also trades on global markets 24 hours a day, five days a week. That’s true of only two other emerging-market currencies—the South African rand and the Turkish lira, both of which have far lower daily trading volumes. So if there’s bad news out of Brasilia on a Friday evening, after the markets there are closed for business, it’s the peso instead of the real that takes a beating. “The peso was
being used to hedge not only Mexico risk but everything else,” says Eduardo Suarez, a Latin America strategist at Bank of Nova Scotia.

Just days after the peso flirted with an all-time low of 20 to the dollar in February, officials swung into action. On Feb. 17, in a rare joint announcement, the central bank governor and finance minister said Mexico would scrap its system of predictable dollar auctions and start selling greenbacks directly to banks, at any time and in undisclosed amounts. (Dollar sales bolster the peso by removing some of the local currency from circulation.) “We are trying to anchor the value of the currency” to economic fundamentals, Minister of Finance Luis Videgaray said in an interview two days later.

That’s a polite way of telling speculators to back off. “What the government is saying is basically, ‘Hey, if you’re going to choose a currency as a proxy for emerging-market risk,
lemme just tell you, there’s a risk the central bank will be on the other side of your trade,’ ” says Benito Berber, senior economist for Latin America at Nomura Holdings in New York.

To drive home the point, Bank of Mexico Governor Agustín Carstens jolted the markets by raising the benchmark interest rate by a half-percent, to 3.75 percent, on Feb. 17—the first time the bank has raised rates outside of a scheduled meeting in at least 13 years. A higher interest rate makes it more expensive for speculators to borrow pesos to buy other assets. The volume of such trades has exploded thanks to high-speed computerized trading, which is a reason the peso has been at the mercy of events far beyond Mexico’s borders. “Mexico has drawn a line in the sand with high-frequency firms,” says Alejandro
Silva, a partner at Silva Capital Management in Chicago. “If you are a high-frequency firm, you have to constantly be wondering if someone is going to come in and intervene in the currency.”

The peso has gained as much as 5 percent since the moves. If investors thought Mexico’s economy in serious trouble, maneuvers of this type would have done little to slow the peso’s slide.

Not all of the peso’s weakness can be blamed on external factors, however. The price of oil, which provides one-fifth of public revenue, has tumbled, and the state-run oil giant
Petróleos Mexicanos posted a record loss in 2015, the 11th consecutive year in which it logged a drop in crude output.

Absent any signs of deeper trouble in the economy, the central bank’s rate hike and the new method for dollar sales should continue to buoy the currency. What they did was “very intelligent,” says Nova Scotia’s Suarez. “What is going to change is that the peso will no longer be the most bullied kid in the class.”

The bottom line: Mexican policymakers have unveiled measures to discourage speculators from using the peso as a hedging instrument.

V.V.I. (BBG) Mexico Finance Minister Warns Investors to Stay Alert for More

Please see my various Personal opinions on the price of oil, and on what I think is going to happen…

(BBG – click to see) Mexican Finance Minister Luis Videgaray told investors to expect the unexpected after this week’s unprecedented steps to save the peso from the world’s worst rout.

Surprise moves such as the ability to sell dollars in the spot market with no advance notice and raise interest rates whenever needed are a key element to counter speculators who pushed the peso to a record low this month, Videgaray said in an interview Friday. Stemming declines in the currency is key to keeping inflation expectations under control, protecting Mexico’s consumers and preserving economic growth, he said.

“We have reserves and a full set of tools on the monetary and currency side to intervene if necessary,” he said. “And that’s an important message we wanted to convey to the market. And it seems the market has listened.”

The currency strengthened as much as 0.8 percent after the minister’s comments, and has climbed 3.7 percent since Tuesday, the day before Videgaray and central bank Governor Agustin Carstens announced a surprise increase to the benchmark interest rate and plans to sell dollars directly to banks to support the currency. A plunge in global oil prices and a slowdown in demand for exports has weighed on Mexico’s peso, which has weakened 18 percent in the past 12 months and it’s still down 5.5 percent this year, the worst performance among the world’s most-traded currencies.

Videgaray said one of the effects of increasing the central bank’s overnight rate by half a percentage point to 3.75 percent was to make it “a little bit more expensive to short the peso” by raising the cost to borrow the currency. While the central bank said the decision isn’t the start of a tightening cycle, some analysts have speculated that Banco de Mexico may raise rates more if the surprise measures don’t staunch the peso’s decline.

The currency commission, a group comprised of central bank and ministry officials, will decide when to intervene with discretionary dollar sales, Videgaray said.

Videgaray said he’s determined to protect Mexico’s domestic economy from the effects of a weaker currency, and market intervention will be aimed at preventing inflation from eroding purchasing power. Consumer prices climbed 2.61 percent in January from a year earlier, faster than December’s 2.13 percent rate but still below the central bank’s target.

“We want to make sure that we prevent high-frequency speculation in a short period of time to devalue the currency away from fundamentals,” Videgaray said. “We did something very important from our economic policy framework, which is to keep inflation low and to allow for Mexican demand to continue to grow.”

Analysts had begun to voice concern about the weaker currency’s impact on consumer prices. Goldman Sachs Group Inc. warned this month that the currency’s “relentless” tumble risked sparking inflation.

Videgaray also announced Wednesday that the government will cut spending this year by 132.3 billion pesos ($7.28 billion), with 100 billion pesos of the cut coming from state-owned oil producer Petroleos Mexicanos.

Currency Hedge

The Mexican peso is the most liquid and easily tradeable emerging-market currency and is cheap to borrow relative to its peers, making it a favorite for investors looking to hedge their risk to all developing economies. The new intervention mechanism may make its use as a hedge less appealing, according to Bank of Nova Scotia.

Switching from a rules-based to a rules-free program “reduces the risk for the peso to be used as a proxy hedge for absolutely all the problems in the world,” said Eduardo Suarez, the firm’s Latin America strategist. Speculators “run the risk that Banxico will intervene, and you won’t know with how much, causing a nervous market reaction that could ruin your trade.”

+++ (JN) México diz que reversão das concessões da Carris e Metro afecta relações entre os dois países

(JN – click to seeO embaixador mexicano em Portugal fala de uma “importante preocupação” do seu Governo pela reversão das subconcessões da Carris e do Metro de Lisboa ganhas pela Avanza. 

A embaixada do México em Portugal realçou esta terça-feira, num comunicado, que o “repentino cancelamento”  do concurso público para a subconcessão da Carris e do Metro de Lisboa, ganho pela Avanza, do grupo mexicano ADO, “gerou uma importante preocupação do Governo do México e incerteza entre os investidores mexicanos, afectando as relações económicas  entre os dois países”.

O embaixador Alfredo Pérez Bravo, que participou num evento organizado pela Câmara de Comércio e Indústria Luso-Mexicana, expressou aos membros desta entidade “confiança de que esta situação de resolva brevemente”, de forma a que “se retome o bom curso que têm tido as relações entre os actores económicos do México e de Portugal”.

No mesmo comunicado, a embaixada sublinha que os avanços nas relações económicas entre os dois países foram realçados por Pérez Bravo no mesmo evento, onde o embaixador também salientou o crescimento nos últimos meses da presença de empresas portuguesas no México, “onde encontraram o apoio das autoridades mexicanas e segurança jurídica nos seus investimentos”.

O Governo de António Costa decidiu reverter todos os processos de subconcessão das empresas de transporte de Lisboa e no Porto. No caso da Carris e do Metro do capital, o concurso foi ganho pela Avanza, do grupo mexicano ADO, que tem criticado a decisão do Executivo de anular os contratos assinado e ameaça levar o diferendo para o tribunal arbitral internacional.

+++ V.I. (BBG) Why Trouble for Volkswagen Made in Germany Means Mexico Headache

(BBG – click to see) As Germany warns of a disaster for domestic employees ofVolkswagen AG, fallout from the company’s emissions-cheating scandal threatens to reach its largest producer of cars for the U.S.: Mexico.

VW has already cut Saturday shifts at its Puebla factory, the largest stand-alone plant making VW brand cars outside of Wolfsburg, where the company is based. That has led to increased concern among the estimated 15,000 workers that jobs may go next.

“Volkswagen messed with all of us,” said Alfredo Rodriguez, 29, who fears his lack of seniority at the factory makes him more vulnerable. The father of two boys 6 months old and 8 years old got a full-time contract only three years ago, and now helps install the wheels on the cars being built. “The thing that worries me most is we don’t know what’s coming.”

With VW refusing to provide details, business groups including the state’s employers association are concerned things will get worse at the VW factory and the plant being built by the carmaker’s Audi unit. There’s already a hiring freeze in place, according to the industrial chamber of commerce, and the company hasn’t said how it will handle a global recall of almost 11 million diesel autos with rigged emissions systems. About 20 percent of the plant’s 207,000 vehicles sent to the U.S. in 2014 included the engines at the core of the scandal.

“They’re going to have to lower production,” said Jose Quintana, president of
the state’s employers association known as Coparmex. “There’s a feeling of
nervousness in the state and within the local government because they’ve
continued to bet on Volkswagen and the new Audi plant.”

Volkswagen declined to comment about reports of a hiring freeze and said in an e-mail that it won’t comment on what it called speculation about possible repercussions at the Puebla plant. The company said in an Oct. 1 statement that there are no changes to the factory’s labor force.

Audi will open the factory in the second half of next year as planned and will
reach capacity of 150,000 units per year according to schedule, the brand
said in an e-mailed response to questions.

Bright Spot

The auto industry has been a bright spot in Mexico’s economy over the past two years, with carmakers from Kia to Mercedes setting up factories or production lines. Volkswagen has one of the longest histories in the country, where it began building the iconic Beetle for the U.S. market in 1967 and pumped out most of the 370,000 VWs sold to American consumers last year, including the most-popular model, the Jetta.

“This is going to have a snowball effect,” said Armando Soto, president of Kaso & Asociados, a Mexico City-based auto industry consulting company. “Auto exports could fall and of course the gross domestic product and performance of the economy of Puebla will be affected.”

70,000 Jobs

Volkswagen is more than just a plant for Puebla, located 138 kilometers (86 miles) east of Mexico City. The company accounts for about a quarter of the state’s gross domestic product. A vast industrial park of providers and a robust service sector that cropped up around the plant account for about 70,000 direct and indirect jobs, according to Horacio Peredo, president of the chamber of commerce known as Canacintra.

Five language schools run by a unit of the company offer classes in German, with some granting technical degrees; a restaurant-lined boulevard that serves as an entrance to the city was renamed Via Volkswagen; and a Volkswagen sports club equipped with a running track serves local residents, known as Poblanos.

Puebla Governor Rafael Moreno Valle, in a show of support for the embattled VW, said he’d buy 200 patrol vehicles from the automaker to help it pull through the crisis. Local resident Victor Manuel Melendez says he will still buy a diesel-engined Vento for his Uber business once Mexico concludes tests being done on thousands of diesel engines.

Closeness, Loyalty

There’s a “certain closeness, a loyalty,” said Quintana of Coparmex.

On one block near the city center, five of 11 cars parked on a recent day were VWs. Outside the carmaker’s plant on the Mexico-Puebla highway, below a giant VW insignia, five taco and quesadilla stands serve up fried food to thousands of workers who come and go each day.

One of those employees is Ernesto Mendez, who has worked as a technician there for 16 years. Dressed in a polo shirt beneath the blazing Puebla sun, the 57-year-old says he’s already feeling the pinch. The overtime he worked to boost his monthly salary of 10,000 pesos ($604) by 30 percent went away last week.

“Those of us who haven’t taken our vacation are being asked to take it right away,” he said. “They told us there won’t be any layoffs this year. But in January, who knows.”

Without extra pay, Mendez is no longer able to afford the lease on his car and is taking the bus to work. The model he had leased up until Monday: a Volkswagen Passat.