Photo credit: Tesla Robot Dance by Steve Jurvetson
Many experts have watched the development and evolution of Mexico’s economy. Her GDP has been steadily rising for the last few years and many of her people are being lifted from poverty. It is estimated that in the next five years Mexico could produce an annual manufacturing output of US $60 billion.
There have been a number of reasons for this growth. Mexico has established over forty trade agreements with countries around the world. They have also maintained low production costs which according to 2012 figures have dropped below the average production costs of Chinese factories. These costs look set to drop further as Mexico is continuing to establish a well-supported infrastructure which promotes manufacturing and trade.
Many automotive manufacturers are taking advantage of the potential gains from Mexican production. US companies are forging strong relationships and can appreciate the significant changes which have taken place in the region.
Mexico also represents an extremely large potential market of over 100 million consumers. This is estimated to be almost a third of the market in the US, so provides significant potential. The growth in the Mexican economy is opening up this market as towns and cities are established around manufacturing and trade.
Great examples of this are the towns which are building up around airports and airfields. Carriers are moving thousands of tons of cargo annually from Mexico to all over the world. This cargo varies from textiles to consumer electronics, perishables to luxury goods. Automotive parts also factor into this figure quite significantly.
The trade agreements and other bureaucratic processes have facilitated easier trade between Mexico and other countries around the world. While paperwork is still an issue and security measures for import and export remain tight, it can be a fluid process. This has allowed a number of businesses to cut their production costs and improve shipping and handling fees.
The current limitations and delays in air freight are largely due to the sheer number of goods coming in and out of smaller airports. The international airport in Mexico City, Benito Juarez, is limited by its current size and is restricted to grow further. The city has grown and developed around the airport which has left it almost at the center of one of the biggest cities of the world. This severely restricts the possibility for additional runways, terminals or even warehouse space.
Many US auto part suppliers have already become accustomed to the idiosyncrasies of Mexican customs paperwork and find the process straightforward without causing any noticeable delays. Officials have also made the effort to learn the importance of speedy import and export processes to assist trade. Even the limitation of reduced aircraft capacity can be managed by trucking freight over the border and flying it out of US airports.
During several years, Mexico has been adapting its legal framework to encourage manufacturing facilities for exporting, and implementing public policies for facilitating automotive plants. Currently, Automotive Decree and IMMEX Program rule the eligibility and benefits for automotive manufacturers. The most basic benefits are the import of raw material and machinery without paying import duties or sales tax, as long as the finished goods (parts or cars) are exported.
The general consensus is that Mexico is set to continue flourishing. Her manufacturing potential, infrastructure and trade agreements represent a renewed opportunity for all suppliers including auto part suppliers. Wise investors are taking full advantage and seeking out new traded relationships and investment agreements as early as possible.
A recent example of this trust in Mexican automotive industry is the Plant of Mitsubishi Electric. This Plant will be open in the central State of Queretaro with an investment of $70 M USD generating 500 jobs.
Other companies like BMW and Mercedes are considering setting up plants in Mexico, and companies like Toyota and Nissan are considering increasing their operations. While these operations are not yet confirmed, the truth is that Mexico has been attracting big automotive investments and some of these have big possibilities to happen in a spiral effect.
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Photo credit: Honda Civic 1,8 Type-S iShift by Dirk Vorderstraße
One of Mexico’s most strategic economic allies is Japan, and thanks to new rounds of talks and agreements, Japanese companies will be investing heavily in Mexico in the coming months. According to Ildefonso Guajardo, the Mexican Minister of Economy, who met with the Japanese Minister of Foreign Affairs, Japan is especially interested in investing in Mexico’s automotive sector.
“There are several Japanese companies analyzing new projects. Mazda is one of them and recently made an announcement; in addition several other companies in the auto parts industry join the assemblers to invest. Investment dynamics in Mexico is extraordinary”, Guajardo said in an earlier interview.
Guajardo also pointed out that trade exchange between the two nations grew by almost 40% in the past seven years, at a rate of 7% a year since 2005. Due to President Enrique Peña Nieto’s recent visit to Japan, the trade relationship has been re-launched, with Honda being one of the major companies to announce a major investment.
Honda, which was one of the first Japanese auto manufacturers to make cars in the United States decades ago, announced that it will be initially investing $470 million dollars to build a brand new transmission factory in Celaya. Honda also very recently invested in a brand new automobile manufacturing plant in the same city, and cars should be coming off the assembly line as early as 2014.
The transmission facility, the third in North America, will be operating by the second half of 2015, and should produce an average of 700,000 continuously variable transmissions per year. There will be approximately 1,500 people hired to work in the factory, as well.
“This will establish an efficient production structure that will maximize our Mexican and North American content,” Honda Executive Vice President Tetsuo Iwamura said at a press conference in Mexico City earlier this month with Guajuardo.
He further stated: “This will be Honda’s third transmission plant in North America and production will increase to 2 million transmissions per year, to support production capacity of 1.92 million automobiles in the region”. The transmissions made at the plant will therefore not only be for the cars manufactured in the adjacent factory; many will be exported to Honda’s other plants in North America and overseas.
Honda’s Celaya $800 million auto plant had been announced in 2011 and as mentioned above, production on the Fit subcompact models will start in 2014. Other major Japanese auto makers who’ve recently made large investments in Mexico include Mazda who is building a $650 million factory and Nissan who is building a $2 billion plant alongside their existing manufacturing facilities.
Honda and Japanese auto manufacturers aren’t the only foreign car firms looking to start or increase production in Mexico. Audi announced back in 2012 that it will be building its first North American plant in Mexico with an investment of approximately $2 billion. Volkswagen, which has long been established in Mexico, will also be investing a further $1 billion over the next three years.
It’s no secret that automakers like Mexico; there’s a hard-working, highly skilled labor force, an astounding lack of red tape, a business-friendly government, plenty of free-trade agreements with dozens of countries and trading blocs, and great transportation infrastructure to get products to market quickly and effectively. Japan’s interest in investing in Mexico shows absolutely no signs of slowing down and is only expected to grow for a long time to come.
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.
According to Audi CEO Rupert Stadler, Audi is on the path to strengthening already strong sales in the North American market with the laying of the foundation stone of automaker’s new plant in San José Chiapa, Mexico. “[This is] an important future element of the global Audi production network,” he stated recently in an Audi press release.
The new $1.3 billion Audi AG plant, set to become operational in 2016, will create 3,800 new jobs in the state of Puebla, where the plant will be located. This will be the first factory in the Americas for Audi, and the vehicles manufactured in the plant will be the automaker’s popular Q5 SUV.
While the plant at first was intended to manufacture 150,000 units, executives at Audi have stated publicly that the plant will be large enough for 300,000 units, and there could very well be production of a Q6 SUV along with the Q5 models.
The goal of Audi AG is to make North America one of their top three markets. Said Stadler at another press conference: “In 2020 every seventh Audi from our worldwide production will go” to North America, Stadler said in a speech at the groundbreaking ceremony in Mexico over the weekend. “Then we have reached our goal and strengthened America as a third pillar of our sales in addition to Asia and Europe.”
He further remarked at the laying of the plant foundation ceremony in Puebla: “With the production of one of our most successful models here in Mexico, we will give significant impetus to our global growth and supply the extremely popular Audi Q5 from here to the world market. By setting up a new car plant in North America, we are establishing a presence on another continent that is very important to us. In this way, we are strengthening our international competitiveness and consistently pursuing the Audi growth strategy.”
The plant will contain a paint shop, body shop, assembly line, and press shop. The 400-hectare facility will be the Audi’s most modern and technologically advanced, and Mexico presented many benefits to the automobile maker. The Mexican workforce is highly educated and famed for their strong work ethic, and the country’s well-developed infrastructure along with its numerous international free-trade agreements made it the ideal place for Audi to set up shop.
Furthermore, Mexico offers the best tax and business environment for automakers. “With Mexico, Audi has made the best choice to help it develop and secure its growth,” emphasised Mexico’s Economics Minister Ildefonso Guajardo Villarreal in the same ceremony celebrating the start of the plant’s construction.
Rafael Moreno Valle, Puebla’s governor, further stated: “Our country and the new Audi location in San José Chiapa in Puebla offer the best conditions for the successful development of the entire American market. We are proud that with Audi México, the first international premium manufacturer in the automotive industry is at home in our federal state.”
On a separate occasion, Stadler mentioned that no jobs at the Ingolstadt factory in Germany would be lost when production of the Q5 shifts to Mexico; the additional demand for production cannot be met at the existing German plants.