According to a recent report on the Wall Street Journal, Mexico’s auto industry manufacturing output rose 7.5% in the first seven months of 2014. These recent gains place Mexico’s auto industrial output ahead of Brazil, its closest rival in the region.
According to the same report, Mexico manufacturing of automobiles reached 1.86 million units produced so far this year. At the same time, Brazilian output decreased 17% during the same comparative time. Indeed, as USA Today recently reported: “Mexico is poised to pass Brazil this year as the world’s seventh-largest automaker, IHS Automotive predicts.”
Fausto Cuevas, general director of Mexico’s Auto manufacturers association (AMIA) told the Wall Street journal that Mexico’s current manufacturing trajectory – output is likely to reach 3.2 million cars produced in 2014. In particular, Cuevas noted, Mexico exports of autos to foreign markets looks particularly favorable.
Why is Mexico’s industry accelerating compared to regional rivals?
As the report outlines, a series of free-trade agreements play a significant role in the growth of Mexico’s auto sector, including the North American Free Trade Agreement (NAFTA). Mexico’s auto industry is accelerating due to Mexico’s access to lucrative foreign markets. Brazil, on the other hand, sell few autos into international markets due to its tightly protected domestic market. Just as antecedent, Brazil closed its border to Mexican auto exports during 2012 until reaching a quota deal.
In recent years, Mexico has exported up to 83% of its auto production. And those exports have been focused primarily on the United States, Canada, Argentina and Brazil. In contrast, Brazil sells 85% of its production domestically. In turn, Mexico is suffering in domestic market with historic lowest sales and not easy solutions on the horizon. However, Mexico has become so sophisticated at the production of autos that luxury production is now in ascendance in the country. And according, both BMW and Mercedes are planning to open manufacturing facilities in the country. Audi, another of Germany’s elite automakers, is already in the country as an independent facility from sister company Volkswagen. The report cites “Harley Shaiken, chairman of the Center of Latin American studies at the University of California, Berkeley, and an expert on auto industry labor issues” — who told USA today that Mexico has supplanted Detroit as a car manufacturing hub. Mexico is now “motor city south”, he said.
As USA today’s report outlined, Audi is deploying operations in Mexico to start in 2016. Then, Daimler/Renault-Nissan, followed by BMW in 2019, according to IHS Automotive. Most mainstream auto manufacturers are already in Mexico, the report outlined, including the major three US automakers. And they are expanding. VW, Honda and Mazda will expand in Mexico this year, and Kia will do so in 2016 in northern state of Nuevo Leon.
As a result of Mexico’s liberalized economy and expanding international markets for its auto exports, auto makers and supplier from around are likely to continue to enter the market rapidly.
As a result of Mexico’s burgeoning auto sector boosted by international markets and international investment, auto-sector production is projected to exceed four million units per year by the decades’ end.
A bright future for Mexico’s auto manufacturing sector
The Wall Street Journal reported on Mexican President Pena Nieto’s recent comments on the prospects for Mexico’s auto sector: “’The [Mexican] automotive industry, including parts makers, now represents 20% of Mexico’s manufacturing production and 26% of its exports.’” And these markedly positive market figures are something that ought to bolster confidence in Mexico’s economy among international investors, according to Nieto.
Let´s not forget recently approved reforms and plans that could catapult automotive industry even farther. Energy liberalization in force could mean cheaper energy and flexible strategy for plants. Telecom reform could mean better logistics and coordination between brands, OEMs, Ts and providers. Labor reform could mean better talent management. Finance industry reform could mean better financing for local suppliers. More trade agreements could mean global integration and attractive exports. Finally, all infrastructure and communication projects could connect everything to make Mexico the auto nation it plans to become.
Photo credit: 2009 Audi Q5 SE TDi Quattro by The Car Spy
Audi has decided to focus its budget on the creation of new models, plants, and technology in the coming years to catch up with its main competitor BMW. Of the $27.46 billion (20 billion euros) it plans to invest on global operations until 2018, the German automobile manufacturer has invested $1.3 billion in a 150,000 car plant in San Jose Chiapa, Mexico. With the plant’s cornerstone laid in May, the factor is bound to be operational soon to start the production of Q5 SUV come 2016.
Mexico has been one of the strongest contenders for Audi’s new assembly plant, mainly due to lower labor costs than the US. In addition, with a Mexican facility, Audi could easily export its vehicles to South America or Europe without being burdened by import and export taxes. That aside, Audi’s U.S. sales will no longer be controlled by European currency shifts while vehicle availability will improve, especially for models like Q5 and Q7 that are widely popular in the North American region.
Now Audi isn’t the first foreign automobile manufacturer to shift its operations to Mexico. Leading a list of top producers is BMW, which is currently deciding whether or not to also start an engine production facility in Mexico. Other companies which have set their roots in the country or plan to do so before 2015 are Nissan, Mercedes, Ford, and Hyundai. Some of these automakers actually re-opened their Mexican factories to enjoy the benefits Audi will reap and due to the high costs of labor and customs in their factories in China.
Due to these changes, Mexico has re-established itself as one of the leaders in automobile production and exports. With 234 bilateral agreements and 122 multilateral agreements, Mexican automotive products can easily access numerous markets across the world. In addition, in the light of upcoming energy reforms and the boom in the solar energy sector, Mexico is going to be able to provide energy to facilities at a fraction of the cost other countries charge.
However, there are a few hurdles that Mexico’s automobile industry faces and prevent it from rising from the eighth position among the world’s car manufacturing countries. The first of these is the never-ending drug war, which is one of the reasons executives are forbidden from visiting plants and facilities in certain parts of Mexico. Though Nissan and others say that they haven’t faced such issues, officials have made sure to tactfully place facilities so as to prevent drug violence and corruption from affecting operations.
Regardless, the Mexican automobile manufacturing sector will boost the country’s economy and even open a domestic market for the vehicles produced in its new plants. However, for the latter to happen, lending practices will need to be reformed and Mexican banks will have to come up with schemes for first-time buyers.
With the help of its new Mexican plant, Audi aims to sell at least two million vehicles and ultimately overtake BMW by the end of the decade.
Photo credit: Old Mercedes Benz by lusikkolbaskin
Mexico is the eighth largest automotive producer in the world. The automobile industry represents 3.6% of the country’s GDP, of which 14% is of manufacturing output. According to a fact sheet published through the US Embassy in Mexico City, production has increased by a record breaking 12.01% in 2012, which comes to around three million cars that year.
Mexico auto manufacturing world-class in sophistication
One of the factors behind this growth is the high quality of these factories. K. Alan Russell, CEO of TECMA Consulting, commented, “These plants are strikingly exceptional. The quality, the technology is really exceptional. You can be in any first-world country anywhere in the world when you walk in these plants and never guess that you are in Mexico.” Another reason is that the country graduates 90,000 engineers and technicians annually, which is more than in countries like Germany and Canada.
While announcing Ford’s $1.3 billion investment in its Hermosillo plant last year, former president Felipe Calderón had boasted about the Mexican laborers saying, “Mexico, besides being good at manual labor, is being very good in intelligence, operations, in our youth’s know-how when applied to work… [The Hermosillo workers] are demonstrating once more that our country has talent, preparation and innovation to generate the best quality and at the level of the best in the world.”
More luxury auto brands choosing Mexico
The Hermosillo plant has expanded since then and moved from manufacturing family cars to producing luxury vehicles. In fact, the latest 2013 Ford Fusion was actually built in the hot Mexican desert city just like its predecessor the Lincoln MKZ. The success of Ford’s Mexican-made luxury cars is driving brands like BMW and Audi to build in Mexico while Alfa Romeo has plans to start assembling some of its sports cars there. With these companies on board, Mexico’s car manufacturing output will grow 38% by 2016.
Renewed interest from US auto industry
Due to the rising labor costs and oil expenses, automobile companies in the US have shifted some of their operations south of the border. Though many companies like GM, Ford and Chrysler had already established their factories in Mexico two decades ago, it is now that they see major potential in their older investments. “Mexican auto factories and Mexican manufacturing offer First World productivity and quality at Third World wages,” commented University of California professor Harley Shaiken. “That is an unusual combination, and right now it is a defining combination.”
New Mexican infrastructure to support auto manufacturing
Mexican president Enrique Peña Nieto has announced that he will be spending $300 billion on developing the country’s infrastructure, of which $7.4 billion will be used for three trains to connect the capital with top Mexican cities in 2014. Through this venture, Mexico’s rail system will receive a necessary boost, allowing it to be more effective in transporting freight cargo around the country and across the border. With enhanced security measured added, rail will become the top transportation method for companies like those in the automobile industry.
The right legal framework
During last two decades, Mexico has been shaping its legal framework to push the growth of manufacturing industry, in specifics, automotive, aerospace and consumer electronics. Execution of the NAFTA was only the beginning. After that, Mexico has been polishing several legal provisions, liberalising the import of materials, tools and machinery for supporting the export market. As a result of that, many automotive, aerospace and consumer electronics companies have succeeded in Mexico under IMMEX, which is an incentive program for exports reducing import duties. One of the provisions for the new Customs Law is to make optional the assistance of a customs broker for imports and exports, which could bring on fastest operations for IMMEX operations, as long as they have sharp-trained people in foreign trade. Will Mexico keep that furious pace and enter into the top 5 automakers?
Photo credit: Latin for Lawyers; “2000 Famous Legal Quotations” by umjanedoan
The IBA Boston is happening this week, so I decided to write a brief post showing some business development opportunities for international lawyers that are happening in Mexico.
1. Transport and Infraestructure. Government has announced the construction of railways (México-Toluca, Transpeninsular and Querétaro-Ciudad de México). The construction of the airport of Lazaro Cardenas Port will be on tender, as well as an industrial park close to it. San Diego wants to expedite trips of international US travellers departing from Tijuana, with a special international bridge for that purpose only. The Mexican infrastructure plan will spend US$316 bn during next 6 years.
2. Internet Infrastructure. The first IXP (internet exchange point) is being installed in Mexico to increase local traffic. The 2.5 GHz Band was partially renewed to MVS (60 of 190 MHz). Under the recent telecom reform, foreigners can hold 100% capital on telecom companies. During Q3 of 2013, telecom industry grew 9.5%. Mobile broadband increased 49.7%
3. Automotive. Mexico has landed many plants for manufacturing vehicles and autoparts. Some like Audi are awarding contracts very soon. Mercedes and Infiniti are coming. BMW and Hundai could be next. State of Querétaro is attracting aerospace business as a public policy. Mexico is in the middle of an energy reform, which could bring on many other opportunities from that industrial demand.Opportunities for OEMs, Tier companies and related services are at sight.
Many other opportunities will come, but the sooner the development, the better the results could be. Do you think is worth it?
Photo credit: Tesla Autobots by Steve Jurvetson
I wrote a post some weeks ago about how Audi was luring the German carmakers Mercedes and BMW to Mexico. Auto News is reporting that Mercedes and Nissan are joining forces to manufacture a small luxury car at Nissan Plan in Aguascalientes, probably the CLA. Apparently, the joint venture will also manufacture the Infiniti Q30. This Plant represents a $2 B USD investment that will open later this year.
It seems that automotive industry trusts the installed capacity of Mexican manufacturing facilities, as well the quality of Mexican employees necessary for assembling luxury cars. On the treaties side, the conversations of Mexico to enter the TPP (Transpacific Partnership) are moving well, as well as the Pacific Alliance (Mexico, Colombia, Peru and Chile). The later expected to be signed by the end of year.
Mexico has been preparing for this; Government has a very attractive and auto focused regulation with export incentive programs like IMMEX, which allows carmakers and auto-part companies to temporary import raw material and tools without paying taxes, as long as they are exported or sold between IMMEX companies. This combined with the many treaties of Mexico, gives it the potential to build an auto nation.
Who do you think will move next? My bet is on BMW and could happen at Frankfurt Auto Show.