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 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.