Photo credit: Factory in the Mirror by Ruthanne Reid
To anyone who’s been watching Mexico’s economy for the past few years, it will come as no surprise that it’s growing by leaps and bounds compared to other countries in the world that have been effected by the global economic downturn. Because of the Spanish-speaking country’s prowess in automobile manufacturing, both German and Japanese automakers are in a rush to build new factories and plants to take advantage of one of the world’s most efficient and skilled workforces, favorable tax laws and almost innumerable free-trade agreements.
Despite the global downturn in financial affairs, Mexico is doing well thanks to its automobile manufacturing industry. German automaker Audi has recently announced that they will probably be doubling production in their new Puebla plant, which will be operational by 2016. Honda recently invested $800 million in a new plant in Guanajuato, and announced in May of this year that an additional $470 million will be invested in a new transmission plant in the same state.
Mazda and Nissan have also heavily invested in manufacturing plants in Mexico recently, and all major auto firms that are manufacturing in the country are planning on increasing production. All of this means that there are plenty of opportunities for auto parts suppliers.
Honda, as seen above, decided in 2013 to invest $470 million dollars in a new transmission plant in order to meet their own auto manufacturing needs. The plant is expected to produce over 2 million transmissions, more than the 1.92 million they will be needing. The company explained its decision: it was simply more cost effective to manufacture the auto parts in the same country rather than transport them from elsewhere, even if the labor costs abroad were cheaper. Shipping costs are now incredibly high, and in order to save money and guarantee quality, it’s just best to make the parts in Mexico.
“We are establishing a production base with outstanding global competitiveness in CVT production in the same location as our new automobile plant in Celaya,” said COO of Honda North America Regional Operations Tetsuo Iwamura. “As we continue to advance our commitment to build products close to the customer, we appreciate the strong support we have received here in Mexico.”
Japanese auto parts suppliers are in a rush to set up operations in Mexico: along with selling their parts to the big auto manufacturers, they can also take advantage of the same things the auto manufacturers take advantage of: Mexico’s prized geographic location central to all markets in the Americas, free trade agreements with literally dozens of nations and trading blocs, and a business-friendly, tax friendly environment.
With German car makers, American car makers and Japanese car makers rushing to increase production capabilities, they will need car parts. While some suppliers are still relying on shipping to get their product to customers, they’d be much better off setting up shop in the same areas as their main customers in Mexico. The problem of shipping will be completely eliminated, and surplus items can easily be shipped to other markets in North, Central, and South America via Mexico’s excellent and reliable transportation infrastructure.