Just wanted to add:
If you owe money on your car (i.e. financing) don't take it out of the US. Also, as the OP found out the hard way, most insurance plans don't cover losses outside of the USA unless you buy extra supplemental insurance.
I personally would never drive a new-er car in mexico with cali plates, you are asking for getting pulled over for a 25 dollar bribe. If what I told you still hasn't stopped you from driving into mexico, you can buy cheap-o mexican car insurance on the US side of the border in san ysidro before you cross over into mexico.
The thing I hate about mexico, is the bribes. If someone is asking you for 25 dollars (whether its a visa or a parking ticket, or moving violation), you are paying a bribe...lol.