Firms leery of Trump victory, NAFTA's future

By Stephen Downer, Special to Tire Business

SILAO, MEXICO — Donald Trump's presidential election victory in the U.S. has shocked the Mexican business community, and none more so than the flourishing automotive cluster in the state of Guanajuato, central Mexico.

“There is concern, especially in the automotive industry, and we have to watch the situation very carefully,” Franco Herrera Sánchez, Guanajuato's under-secretary of investment promotion, told Tire Business Nov. 11.

Mr. Herrera was a guest of honor at a Pirelli Tyre S.p.A. ceremony marking the 10 millionth tire built by the Italian company in the Mexico state.

During his run for the White House Mr. Trump repeatedly threatened that if he won he would scrap — or attempt to renegotiate — the North American Free Trade Agreement (NAFTA), which was aimed at expanding trade between the U.S., Canada and Mexico and make the three countries more competitive in the global marketplace.

According to material on About.com, NAFTA was signed by President George H.W. Bush, Mexican President Carlos Salinas de Gortari and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993, then approved by the U.S. House of Representatives by a vote of 234 to 200 on Nov. 17, 1993, with the U.S. Senate approving the agreement three days later by 60 to 38 on Nov. 20.

President Bill Clinton finally signed NAFTA into law on Dec. 8, 1993, according to the website, and it entered into force Jan. 1, 1994, as one of President Clinton's top priorities.

Guanajuato, which has attracted $9.5 billion in Foreign Direct Investment (FDI) in the past four years, thanks to NAFTA, has the largest automotive industry cluster in Mexico. According to Herrera Sánchez, about 270 companies — from OEMs to suppliers — operate in the entity.

With the threats to continued trade under NAFTA a distinct possibility, sources said a Trump victory was the last thing they wanted. “But we're not rushing to conclusions,” said Herrera Sánchez. “We're just waiting. We have not received any cancellations.”

At a post-ceremony news conference Tom Grávalos, CEO and managing director of Pirelli subsidiary Pirelli Mexico, declined to comment to Tire Business on the Trump issue, explaining: “Anything said would be pure speculation.”

Earlier, however, he told Tire Business: “I don't think it (Trump's election) will have a meaningful impact (on Pirelli in Mexico). We do business all over the world.” Anyway, he added, “we elected a president, not a king….”

Pirelli built its first tire in Silao on Nov. 11, 2011, according to Mr. Grávalos. The 10 millionth is a 21-inch P Zero, which has special noise reduction features. “It's one of the most sophisticated tires made here (in Silao),” he said. “It's not unusual for a tire like this to lead to a noise reduction of three decibels” within a vehicle.

The P Zero is fitted to the Audi Q5 premium SUV — assembled at a plant in San José Chiapa, Mexico, inaugurated by the German auto maker in September. The Audi facility is about 270 miles southeast of Silao.

“Pirelli Mexico supplies 12 different assembly plants from here in Silao,” Mr. Grávalos told Tire Business separately. “Three of them are in Mexico. The rest are in North America, north of the border.”

The 1.5 million-sq.-ft. Pirelli complex in Silao produces about 12,000 tires a day. By the end of 2018, its output will be 21,000 daily and it will employ close to 2,000, Mr. Grávalos said.

A second plant being built by the tire maker in the same complex will contribute to the increased output. Pirelli plans to produce the first tires at the new plant in April 2017.

Stephen Downer is a Mexico-based freelance writer who covers that country and Latin America for Tire Business and its Latin America e-newsletter.