MEXICO CITY — Mexico's automotive, truck and parts assembly industry is attracting massive foreign direct investment and setting production records every month.
Foreign direct investment (FDI) in the sector, including vehicle OEMs and suppliers, totaled $37.6 billion between 1999 and 2014 — 10 percent of the total FDI received by Mexico in that time, according to the country's association of light vehicle makers, Asociación Mexicana de la Industria Automotriz AC (AMIA).
“I've been in this business for 30 years and I've never seen a boom like this,” Leo Torres, Ford Motor Co. de México's purchasing and STA director, told delegates at an industry and logistics conference in Mexico City in June. “In 10 years Mexico's automotive industry has grown 65 percent.”
The sector is Mexico's largest generator of foreign currency. Its foreign trade surplus in 2014 was $49.7 billion, up from $15 billion in 2009, AMIA said. The sector accounts for 25 percent of the value of Mexico's manufactured exports.
Mexico is the world's seventh largest manufacturer of vehicles and the largest in Latin America. It's the fourth largest exporter of vehicles and ranks fifth among parts exporters. According to national parts industry association Industria Nacional de Autopartes AC (INA), Mexico exported $64.5 billion worth of parts in 2014, 11.6 percent up from 2013.
Light vehicle assembly in the country will increase from 3.4 million units in 2015 to 4 million-plus by 2017 and 5 million by 2020 — 20 percent more than predicted previously, according to Eduardo Solís, AMIA's president.
The country accounts for 3.7 percent of the world's production of light vehicles while 83 percent of its products are exported, said Mr. Solís at the industry and logistics event, organized by Chihuahua-based editorial and events company MexicoNow.
“North America is the winner,” Mr. Solís said. “In 2014 19 percent of all light vehicles produced in the Nafta region were produced in Mexico, compared with 7 percent in 1994.”
The United States, he said, produces 67 percent and Canada 14 percent. “Taking into account the new investments being made in Mexico, our forecast is Mexico will produce more than 5 million vehicles in 2020. That's a hard forecast.”
“OEMs say their plants in Mexico are among their most competitive,” he added. “Retaining this competitiveness is key to attracting more investment.”
Mexico has signed free trade agreements with an unprecedented four dozen countries. The most recent was signed in 2014 with Colombia, Chile and Peru. The four countries agreed to eliminate tariffs on 92 percent of trade between them.
But Mexico also needs the Trans-Pacific Partnership (TPP), a proposed regional regulatory and investment treaty being negotiated by the Mexican administration and the governments of Australia, Brunei, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam, Mr. Solís said. “It's key to getting into Asia. We see it as an opportunity.”
Although Mexico exports light vehicles to 100 countries, 80 percent of the total goes to the United States.
Mr. Solís told Plastics News, a sister publication of Tire Business, that plastic injection molding is an activity the automotive sector is anxious to develop in Mexico, along with machinery development, stamping, casting and forging.
Through June, 2015, Mexico produced 1,727,557 light vehicles — that is 8.1 percent more than in the same period in 2014 when it assembled 1,597,594, according to AMIA figures.
Ford's Mr. Torres said that “big investments will keep coming into Mexico” as countries like Germany withdraw from the business of producing lower priced parts and concentrate on more sophisticated engineering and manufacturing.
“The only country that competes with us on price is India,” he said, although he pointed out that the United States is one of Mexico's strongest competitors for investment.
The Mexican government “should align policies to maintain and generate more investment,” Mr. Torres said. “Academia should align its vision to improve industry's technical conditions.”
Improvements in infrastructure — including ports, railroads and highways — were also needed and utility prices should be reviewed, he added.
Thomas Karig, Volkswagen de México vice president for corporate relations, recalled the words of Volkswagen Group's former CEO Martin Winterkorn when he addressed the MexicoNow conference. In January 2014, Mr. Winterkorn announced that Volkswagen A.G. would invest $7 billion in North America by 2018, with “most of it in Mexico.”
Mr. Winterkorn's recent resignation in the wake of the diesel engine emissions scandal enveloping Volkswagen may have an impact on those plans. In mid-October the German auto maker said it will reduce spending on the VW brand's models, technology and production facilities by 1 billion euros ($1.1 billion U.S.) a year through 2019 from its previous plans. A spokesman declined to say what investment plans the company was referring to.
Volkswagen's Puebla complex, 80 miles southeast of Mexico City, is the only VW plant outside Europe that produces cars for global markets. Fifty percent of its production goes to the United States and Canada. Less than 20 percent stays in Mexico.
It has a production capacity of 2,500 vehicles a day. Total production in Puebla in 2014 was 475,000 vehicles. Production of the Tiguan SUV for world markets, except China, will start there in 2017. VW said it plans to invest $1 billion in retooling the complex and will make 130,000 Tiguans a year. An additional 2,000 full-time jobs will be created.
Mexico's road and highway infrastructure has improved significantly in the past 10 years but it has to keep growing, especially in the industrialization/urban centers around the automotive clusters, Mr. Karig said.
“Mexico is important to us not only because of the 50 years we have been here but because it is located in North America, and this is the one market in the world where VW expects to grow.
“Our strategy is to increase substantially the presence of VW in the United States and this can only be done with local plants.”
Volkswagen Mexico buys parts from 473 suppliers, 268 of whom are based in Mexico, 107 in the United States and 13 in Canada.
“Several factors make it strategically important to have most of your suppliers in Mexico,” Mr. Karig said. “One is the physical closeness and it is a must when you talk about just-in-time. So we have 30-40 suppliers close to Puebla.
“Only by maximizing Mexican content can VW comply with all the free trade agreements. All these agreements require Mexican value added.”
If Mexico reaches a production total of 5 million light vehicles by 2020, opportunities for suppliers in Mexico will increase, according to Mr. Karig, stating the obvious and adding that “competition in North America will get tougher.”
Engineering in Mexico is becoming increasingly important, according to the executive. “We have 900 engineers and most of them are trained in Mexico…. We've never had a situation where there's been a shortage of qualified people in Puebla.”
Five years ago Volkswagen initiated a five-year master's degree in automotive design and engineering in collaboration with the local UPAEP University (Universidad Popular Autónoma del Estado de Puebla). Between 50 and 60 graduate every year.
VW's engineering department in Puebla participated in the design of some models for the first time when it was involved in designing the Jetta A6. “But total design (of an automobile) in Mexico will never happen,” Mr. Karig said.
Total light vehicle assembly in Mexico through June 2015
(1st half of 2014 and percentage change in parentheses)
FCA 254,775 (243,262) (4.7)
Ford 235,668 (231,771) (1.7)
GM 342,325 (353,712) (-3.2)
Honda 90,260 (48,224) (87.2)
Mazda 101,915 (25,466) (300.2)
Nissan 414,108 (412,312) (0.4)
Toyota 41,741 (34,404) (21.3)
Volkswagen 246,765 (248,443) (-0.68)
Total: 1,727,557 (1,597,594) (8.1)
Companies building light vehicle assembly plants and locations in Mexico
Audi San José Chiapa, Puebla
BMW San Luis Potosí
In September 2015, Daimler and the Renault-Nissan Alliance laid the foundation stone of their 50-50 joint venture manufacturing complex in Aguascalientes — a project announced in June 2014. The partners will build small Mercedes-Benz and Infiniti cars at the facility, commencing in 2017 with the Infiniti. The first Mercedes-Benz vehicles will be assembled in 2018. The plant's initial production capacity will be 230,000 vehicles a year.
Stephen Downer is a Mexico-based freelance writer who covers that country and Latin America for Tire Business and its Latin America e-newsletter.