Mexico Solves Auto Industry Business Logistics
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Mexico offers creation of value for global automakersBy Sergio L. Ornelas, Editor MEXICONOW
A bit over four years after the disastrous 2011 Tohoku earthquake and tsunami that trembled Toyota, the world’s largest automaker just announced that it will build its first plant since the calamity in Mexico.
As a result of the great global recession, the natural disasters and quality problems, Toyota’s President Akio Toyoda, a grandson of the company’s founder, decided to set a three-year hold on new capacity investments that would expire in March 2016.
But after having exhausted all avenues to maximize the capacity of its existing plants, the surfacing of a positive outlook in most world markets and the pressure from competitors to gain market share, Toyoda San decided to lift the capacity freeze early and build a new plant in the State of Guanajuato.
The new Toyota plant in Mexico does not mean to be capacity growth for growth’s sake, but it is rather a long-term strategic move to improve its global marketing positioning and overhaul its production systems. Toyota is also expected to add new capacity in China as part of the overall plan dubbed Toyota New Global Architecture that will make its production lines simpler and leaner.
The new Toyota plant in Mexico will be the eighth auto assembly facility launched in the country in just five years, and it comes on the heels of new plants by Mazda, Nissan, Honda, Audi, Infinity/Mercedes Benz, BMW and Kia, not to mention multiple plant expansions of existing facilities by GM, VW, Nissan, Daimler and Ford, collectively exceeding US$20 billion. Please see Exhibit #1.
All of the above followed by an endless parade of suppliers from the U.S., Japan, Canada, Germany, France and South Korea that are investing billions of dollars more and creating thousands of jobs.
Mexico’s main competitors in attracting global automakers capacity are perplexed, particularly the six Southern states of the U.S. who were very successful up to 2011 in landing assembly plants with large incentives and a union-free labor environment. But they have lost against Mexico in the competition for the latest eight “greenfield” assembly plants.
Mexico is indeed on a roll in winning eight of the most coveted industrial location projects in the world.
But Mexico’s success in the global auto industry is not pure luck, and it is not either the result of a long-term specific planned strategy; it is actually something in between.
Mexico’s highly competitive auto industry model has been under development for many years and as early back as 2009, nobody had thought that Mexico would be in a position to produce over 5 million light vehicles on or before 2020.
But Mexico’s current auto industry model has evolved to clearly serve the “Business Logistics” needs of global automakers.
In its simplest form, logistics is the management of the flow of goods between the point of origin and the point of consumption. It involves the integration of information flow, material handling, packaging, inventory, transportation and warehousing.
There are specialized logistics fields, including: Inbound logistics, distribution logistics, after-sales logistics, green logistics, disposal logistics, emergency logistics, and even reverse logistics among others.
The term “supply chain management” came into use in logistics activities to reflect the importance of forming alliances and partnerships with the different links of the supply chain to streamline the flow of materials.
The term “Business logistics” is a broader notion that includes all of the above but also incorporates the concepts of security, risk, cost and customer satisfaction that are eventually reflected in the bottom line and the total cost of doing business in a project’s life cycle.
What is often referred to as the “seven rights” provides a good working definition of business logistics: “Having the right product (or service) at the right time in the right quantity in the right condition at the right place for the right customer at the right cost.”
For any organization, business logistics provides an opportunity for the firm to create a sustainable competitive advantage by having a system that fulfills the market’s needs better than the competition. For example, a firm that offers faster, more accurate, less expensive and more consistent delivery of products or services has an effective competitive weapon in the marketplace.
In the case of the global auto industry, automakers have found that Mexico’s model of business logistics provides a very strong competitive advantage.
Following we will review the main pillars that make up Mexico’s auto industry business logistics model.
Mexico’s auto-parts manufacturers boasted US$82 billion worth of exports in 2014, about 5.9% more than the previous year.
The new exports record volume allowed Mexico to overtake South Korea in the global race of auto parts manufacturing. Mexico now ranks #5 in the world in this league, just behind the leaders with China at the top followed by Japan, the U.S. and Germany.
Oscar Albin, Executive President of the Mexican Association of Auto Parts manufacturers said: “Having in Mexico the main auto parts manufacturers from around the world strengthens the Mexican production chain. It is interesting to note the origin of the auto parts manufacturers located in Mexico: A total of 29% are from the USA, 27% come from Japan, 19% are Germans, 18% are from France, and 7% come from South Korea and other countries. The fact that most of the main global auto parts manufacturers are here speaks highly of our sector.”
A reflection from the above data may be that since the U.S is the main export market for Mexico you would expect a larger percentage of auto parts manufacturers in Mexico to be from the U.S.
But they are not, simply because many of them are already within reach of Mexico from their home locations in the U.S. And herein we find that this seemingly negative factor for Mexico, it actually makes the supply chain in Mexico a lot stronger, because it is a regional supply chain, one that has a lot less risks of disruptions.
One can actually say that Mexico’s regional auto parts supply chain has a lot of redundancy with many back-up suppliers. It is a manufacturing environment that is much less prone to the problems that Japan experienced, for example, as a result of having single suppliers for airbags and vehicle electronic chips that may become incapacitated by quality problems or natural disasters; they can completely halt auto assembly production lines.
In order to assure Just-in-time (JIT) and Just-in-sequence (JIS) deliveries to OEMs in Mexico, the suppliers rely on two strategies: They may locate a manufacturing facility near the OEM, generally in what is regarded as a “supplier park”; or they may outsource a third party logistics provider (3PL) who keeps feeding the parts needed to the production lines from a near-by warehouse.
Few consumer products are as complex as automobiles; there may be 15,000 or more parts in each vehicle. To witness an auto assembly line running is comparable to a grand orchestra playing. Mexico’s auto parts supply chains have reached a world class level that is proven to deliver high productivity with minimal disruptions.
The latest piece in the growing landscape of Mexico’s auto parts sector is the recent announcement by Ford to invest US$1.3 in its Chihuahua engine plant to build two new diesel engines and another US$1.2 billion planned for a transmission plant in Guanajuato.
The main story behind the “German Grand Prix” of luxury vehicles (Audi, Mercedes and BMW) coming to Mexico seems to be the unrivaled trade relationships that the country has with 42 nations.
According to Rupert Stadler, Audi’s CEO, the firm plans to ship its Puebla output not only to the U.S. and Canada but also to European and Asian markets.
When Audi contemplated to build its new US$1.3 billion, 2,400 worker factory, the State of Tennessee was a major option since the site was ready alongside the VW’s plant in Chattanooga. But the U.S. does not have the ample network of free trade agreements that Mexico has, and this reportedly tipped the scale in Puebla’s favor.
Indeed, when Audi ships a US$60,000 vehicle from Mexico to Europe, the import tax is $0, whereas if it would ship from the U.S. it would be taxed with a 10% duty, and that is a huge difference in an industry that scrambles every dollar to reduce costs.
The fact that Mexico has free-trade agreements with countries that represent over 60% of the world’s GDP is a significant leverage over its competitors, and as a result, Mexico’s business logistics costs beat others in the bottom line analysis.
Mexico’s economic federal officials from the administrations of President Salinas (NAFTA), President Zedillo (Europe) and President Fox (Japan) need to be commended for their vision in implementing the main free-trade agreements, an unbeatable pillar of Mexico’s business logistics.
Mexico’s line operators, technicians and engineers are evidently among the most treasured assets in the auto industry.
On one hand we have the cost savings. For example, a line operator in the auto industry fully fringed cost for the employer is about US$7 per hour in comparison to over US$35 in the U.S., whereas an engineer’s salary in Mexico is approximately one third of his counterpart north of the border.
On the other hand, we have the proven quality, productivity and vocational enthusiasm of most workers on the production floor and engineering offices.
Something that is seldom mentioned in particular as one of Mexico’s significant competitive advantages, is the vocational culture that Mexican workers have for the auto industry and how it translates into profitability for the OEMs and suppliers.
Typically, Mexican workers, from the forklift operator to the R&D engineer are eager and proud to work for the auto industry. In contrast, in many other countries, including the U.S., Europe and Japan, workers are more likely to opt and seek the googles and apples for jobs.
This condition that may be regarded as “vocational love” for the auto industry makes for a very fertile ground for OEMs to induct and teach their manufacturing culture to their workforce.
Actually, OEMs prefer to hire workers fresh right out of school so that they are not influenced by other work environments. As a result, OEMs of all origins, be it from Japan, the U.S. or Germany, are able to effectively and rapidly develop a viable operation, a “transplant” that fits right into their global operations and culture, a new facility that reaches productivity gains and bottom line returns sooner than later.
Audi is currently training over 600 supervisors and engineers in Ingolstadt, Germany to learn the luxury automaker’s systems and intensive focus on quality. The 18-month overseas training programs deeply bond the careers and characters of the Mexican workers with Audi’s culture.
The easiness and effectiveness of this bonding process is evidently another significant advantage of the business logistics that Mexico offers global auto manufacturers.
Mexico produced a record 3.2 million vehicles in 2014, about a 10% increase over 2013. According to Eduardo Solis, Executive President of Mexico’s Automotive Industry Association (AMIA), global OEMs are set to produce 3.5 million units in 2015; and propelled by the new plant investments, they will likely reach a total of 5 million by 2020.
If anything, Solis is being conservative: Production in Q1-2015 was already 9.6% higher than Q1-2014 and exports increased a whopping 13.6% during the same period.
IHS, a global leading forecasting firm, agrees. They predict that Mexico, after overtaking Brazil for the #7 country world ranking in light vehicles production, will likely pass South Korea in 2020 to grab position #6, as shown in Exhibit #2.
Notably, according to this forecast, in 2020, Mexico’s light vehicle production (5 million) will equal about 40% of the then projected production volume in the U.S. (12 million)!
Mexico’s macroeconomic stability and the support of the federal and states’ governments have been important in providing operational assurance and infrastructure.
Long-gone are the days when Mexico’s currency automatically collapsed on Presidential changeovers. Today, multinational firms can plan their finances with a lot more confidence.
The bureaucratic environment is still far from perfect though. Mexico continues to exert an excessive burden of regulations that subtract points from the country’s ideal business logistics offering.
By the same token, security continues to be an issue and it is a source of extra costs in the operations of auto-parts makers and OEMs.
At the state level, the individual entities make an extraordinary effort to provide land reserves and costly on-site infrastructure for the automakers. Although challenging their budgetary constraints to the limits, they get a pay-back as experienced by the states of Guanajuato, Puebla, Tlaxcala, San Luis Potosi, Chihuahua, Sonora, Nuevo Leon, Queretaro and Baja California.
Albeit painfully slowly, infrastructure for rail, ports, highways, border-crossings and airports continues to improve. The cost of physical logistics in Mexico is now reasonable and from this point on it will only improve.
Unlike some unions in the U.S., Mexico’s labor organizations are generally cooperative and non-intrusive with auto industry manufacturers.
The current collective bargaining environment in Mexico is no longer centralized in a single powerful union, and a “healthy equilibrium” has been accomplished between the unions, the workers and the companies to minimize production disruptions for labor relations reasons.
There are still other important challenges to overcome to improve Mexico’s business logistics formula such as the lack of mold and tool makers and Tier-2 and Tier-3 parts suppliers.
Mexico also has a dormant after-market (spare and add-on parts) that has hardly reached its US$25 billion potential revenues. Because of the lack of norms, it is currently flooded with sub-par Chinese imported parts and used parts from the millions of old and recycled vehicles in Mexico.
And last but not least, we of course have the domestic market which represents the biggest challenge for the auto industry of Mexico. Even though domestic sales in 2014 grew at a notable rate of 6.8% over 2013, the volume is far from the real market’s potential.
The 1,135,000 units bought by Mexican consumers in 2014 equate to about 9.5 new vehicles sold for every 1,000 inhabitants. Industry leaders contend that since Argentina and Brazil, with similar economies to Mexico, have about 17 new units per 1,000 people, it follows then that Mexico’s current sales level should logically be higher.
Both AMIA and AMDA (Mexico’s Auto Distributors Association) place most of the blame for the disproportion in Mexico’s market on the likely lawlessness process to import used cars, which have inundated Mexico’s turf with over 7.5 million junk units since 2005.
Through a series of legal, lobbying and customs actions, the associations have fought the disorderly imports and have managed to lower them to about 450,000 imported used units in 2014 from over 700,000 per year just a few years ago.
And during 2015 as a result of the elimination of most import legal loopholes and the proper enforcement of NAFTA regulations, used car imports from the U.S. continue to recede.
As predicted by the associations, the reaction in Mexico’s domestic market for new car sales is already materializing as evidenced by a volume of 306,000 units sold in Q1-2015 which had a significant improvement of 21.9% from Q1-2014.
An enhanced and growing domestic market means nothing but great news to automakers in Mexico. It is truly a new market with a very likely potential to grow from 1.1 million units in 2014 to 1.7 million in the next few years.
The global auto industry is demanding supply chains that are both lean and resilient. The industry is in a constant need of cost reductions through productivity but at the same time it cannot afford disruptions, thus, it needs redundancy and flexibility.
Mexico couldn’t be in a better position to satisfy these needs: Its unique package of business logistics with ideal location, redundant supply chains, ample and competitive labor and engineering, stable economy, supporting governments, free trade agreements and proven experience is the best you can find in the world today.
Ask Toyota, Honda, Nissan, Mazda, Ford, Chrysler, GM, VW, Kia, Mercedes Benz, BMW and Audi.
A bit over four years after the disastrous 2011 Tohoku earthquake and tsunami that trembled Toyota, the world’s largest automaker just announced that it will build its first plant since the calamity in Mexico.
As a result of the great global recession, the natural disasters and quality problems, Toyota’s President Akio Toyoda, a grandson of the company’s founder, decided to set a three-year hold on new capacity investments that would expire in March 2016.
But after having exhausted all avenues to maximize the capacity of its existing plants, the surfacing of a positive outlook in most world markets and the pressure from competitors to gain market share, Toyoda San decided to lift the capacity freeze early and build a new plant in the State of Guanajuato.
The new Toyota plant in Mexico does not mean to be capacity growth for growth’s sake, but it is rather a long-term strategic move to improve its global marketing positioning and overhaul its production systems. Toyota is also expected to add new capacity in China as part of the overall plan dubbed Toyota New Global Architecture that will make its production lines simpler and leaner.
The new Toyota plant in Mexico will be the eighth auto assembly facility launched in the country in just five years, and it comes on the heels of new plants by Mazda, Nissan, Honda, Audi, Infinity/Mercedes Benz, BMW and Kia, not to mention multiple plant expansions of existing facilities by GM, VW, Nissan, Daimler and Ford, collectively exceeding US$20 billion. Please see Exhibit #1.
All of the above followed by an endless parade of suppliers from the U.S., Japan, Canada, Germany, France and South Korea that are investing billions of dollars more and creating thousands of jobs.
Mexico’s main competitors in attracting global automakers capacity are perplexed, particularly the six Southern states of the U.S. who were very successful up to 2011 in landing assembly plants with large incentives and a union-free labor environment. But they have lost against Mexico in the competition for the latest eight “greenfield” assembly plants.
Mexico is indeed on a roll in winning eight of the most coveted industrial location projects in the world.
But Mexico’s success in the global auto industry is not pure luck, and it is not either the result of a long-term specific planned strategy; it is actually something in between.
Mexico’s highly competitive auto industry model has been under development for many years and as early back as 2009, nobody had thought that Mexico would be in a position to produce over 5 million light vehicles on or before 2020.
But Mexico’s current auto industry model has evolved to clearly serve the “Business Logistics” needs of global automakers.
Business logistics
In its simplest form, logistics is the management of the flow of goods between the point of origin and the point of consumption. It involves the integration of information flow, material handling, packaging, inventory, transportation and warehousing.
There are specialized logistics fields, including: Inbound logistics, distribution logistics, after-sales logistics, green logistics, disposal logistics, emergency logistics, and even reverse logistics among others.
The term “supply chain management” came into use in logistics activities to reflect the importance of forming alliances and partnerships with the different links of the supply chain to streamline the flow of materials.
The term “Business logistics” is a broader notion that includes all of the above but also incorporates the concepts of security, risk, cost and customer satisfaction that are eventually reflected in the bottom line and the total cost of doing business in a project’s life cycle.
What is often referred to as the “seven rights” provides a good working definition of business logistics: “Having the right product (or service) at the right time in the right quantity in the right condition at the right place for the right customer at the right cost.”
For any organization, business logistics provides an opportunity for the firm to create a sustainable competitive advantage by having a system that fulfills the market’s needs better than the competition. For example, a firm that offers faster, more accurate, less expensive and more consistent delivery of products or services has an effective competitive weapon in the marketplace.
In the case of the global auto industry, automakers have found that Mexico’s model of business logistics provides a very strong competitive advantage.
Following we will review the main pillars that make up Mexico’s auto industry business logistics model.
The supply chain
Mexico’s auto-parts manufacturers boasted US$82 billion worth of exports in 2014, about 5.9% more than the previous year.
The new exports record volume allowed Mexico to overtake South Korea in the global race of auto parts manufacturing. Mexico now ranks #5 in the world in this league, just behind the leaders with China at the top followed by Japan, the U.S. and Germany.
Oscar Albin, Executive President of the Mexican Association of Auto Parts manufacturers said: “Having in Mexico the main auto parts manufacturers from around the world strengthens the Mexican production chain. It is interesting to note the origin of the auto parts manufacturers located in Mexico: A total of 29% are from the USA, 27% come from Japan, 19% are Germans, 18% are from France, and 7% come from South Korea and other countries. The fact that most of the main global auto parts manufacturers are here speaks highly of our sector.”
A reflection from the above data may be that since the U.S is the main export market for Mexico you would expect a larger percentage of auto parts manufacturers in Mexico to be from the U.S.
But they are not, simply because many of them are already within reach of Mexico from their home locations in the U.S. And herein we find that this seemingly negative factor for Mexico, it actually makes the supply chain in Mexico a lot stronger, because it is a regional supply chain, one that has a lot less risks of disruptions.
One can actually say that Mexico’s regional auto parts supply chain has a lot of redundancy with many back-up suppliers. It is a manufacturing environment that is much less prone to the problems that Japan experienced, for example, as a result of having single suppliers for airbags and vehicle electronic chips that may become incapacitated by quality problems or natural disasters; they can completely halt auto assembly production lines.
In order to assure Just-in-time (JIT) and Just-in-sequence (JIS) deliveries to OEMs in Mexico, the suppliers rely on two strategies: They may locate a manufacturing facility near the OEM, generally in what is regarded as a “supplier park”; or they may outsource a third party logistics provider (3PL) who keeps feeding the parts needed to the production lines from a near-by warehouse.
Few consumer products are as complex as automobiles; there may be 15,000 or more parts in each vehicle. To witness an auto assembly line running is comparable to a grand orchestra playing. Mexico’s auto parts supply chains have reached a world class level that is proven to deliver high productivity with minimal disruptions.
The latest piece in the growing landscape of Mexico’s auto parts sector is the recent announcement by Ford to invest US$1.3 in its Chihuahua engine plant to build two new diesel engines and another US$1.2 billion planned for a transmission plant in Guanajuato.
Free trade agreements
The main story behind the “German Grand Prix” of luxury vehicles (Audi, Mercedes and BMW) coming to Mexico seems to be the unrivaled trade relationships that the country has with 42 nations.
According to Rupert Stadler, Audi’s CEO, the firm plans to ship its Puebla output not only to the U.S. and Canada but also to European and Asian markets.
When Audi contemplated to build its new US$1.3 billion, 2,400 worker factory, the State of Tennessee was a major option since the site was ready alongside the VW’s plant in Chattanooga. But the U.S. does not have the ample network of free trade agreements that Mexico has, and this reportedly tipped the scale in Puebla’s favor.
Indeed, when Audi ships a US$60,000 vehicle from Mexico to Europe, the import tax is $0, whereas if it would ship from the U.S. it would be taxed with a 10% duty, and that is a huge difference in an industry that scrambles every dollar to reduce costs.
The fact that Mexico has free-trade agreements with countries that represent over 60% of the world’s GDP is a significant leverage over its competitors, and as a result, Mexico’s business logistics costs beat others in the bottom line analysis.
Mexico’s economic federal officials from the administrations of President Salinas (NAFTA), President Zedillo (Europe) and President Fox (Japan) need to be commended for their vision in implementing the main free-trade agreements, an unbeatable pillar of Mexico’s business logistics.
The workers
Mexico’s line operators, technicians and engineers are evidently among the most treasured assets in the auto industry.
On one hand we have the cost savings. For example, a line operator in the auto industry fully fringed cost for the employer is about US$7 per hour in comparison to over US$35 in the U.S., whereas an engineer’s salary in Mexico is approximately one third of his counterpart north of the border.
On the other hand, we have the proven quality, productivity and vocational enthusiasm of most workers on the production floor and engineering offices.
Something that is seldom mentioned in particular as one of Mexico’s significant competitive advantages, is the vocational culture that Mexican workers have for the auto industry and how it translates into profitability for the OEMs and suppliers.
Typically, Mexican workers, from the forklift operator to the R&D engineer are eager and proud to work for the auto industry. In contrast, in many other countries, including the U.S., Europe and Japan, workers are more likely to opt and seek the googles and apples for jobs.
This condition that may be regarded as “vocational love” for the auto industry makes for a very fertile ground for OEMs to induct and teach their manufacturing culture to their workforce.
Actually, OEMs prefer to hire workers fresh right out of school so that they are not influenced by other work environments. As a result, OEMs of all origins, be it from Japan, the U.S. or Germany, are able to effectively and rapidly develop a viable operation, a “transplant” that fits right into their global operations and culture, a new facility that reaches productivity gains and bottom line returns sooner than later.
Audi is currently training over 600 supervisors and engineers in Ingolstadt, Germany to learn the luxury automaker’s systems and intensive focus on quality. The 18-month overseas training programs deeply bond the careers and characters of the Mexican workers with Audi’s culture.
The easiness and effectiveness of this bonding process is evidently another significant advantage of the business logistics that Mexico offers global auto manufacturers.
Miscellaneous attributes and drawbacks
Mexico produced a record 3.2 million vehicles in 2014, about a 10% increase over 2013. According to Eduardo Solis, Executive President of Mexico’s Automotive Industry Association (AMIA), global OEMs are set to produce 3.5 million units in 2015; and propelled by the new plant investments, they will likely reach a total of 5 million by 2020.
If anything, Solis is being conservative: Production in Q1-2015 was already 9.6% higher than Q1-2014 and exports increased a whopping 13.6% during the same period.
IHS, a global leading forecasting firm, agrees. They predict that Mexico, after overtaking Brazil for the #7 country world ranking in light vehicles production, will likely pass South Korea in 2020 to grab position #6, as shown in Exhibit #2.
Notably, according to this forecast, in 2020, Mexico’s light vehicle production (5 million) will equal about 40% of the then projected production volume in the U.S. (12 million)!
Mexico’s macroeconomic stability and the support of the federal and states’ governments have been important in providing operational assurance and infrastructure.
Long-gone are the days when Mexico’s currency automatically collapsed on Presidential changeovers. Today, multinational firms can plan their finances with a lot more confidence.
The bureaucratic environment is still far from perfect though. Mexico continues to exert an excessive burden of regulations that subtract points from the country’s ideal business logistics offering.
By the same token, security continues to be an issue and it is a source of extra costs in the operations of auto-parts makers and OEMs.
At the state level, the individual entities make an extraordinary effort to provide land reserves and costly on-site infrastructure for the automakers. Although challenging their budgetary constraints to the limits, they get a pay-back as experienced by the states of Guanajuato, Puebla, Tlaxcala, San Luis Potosi, Chihuahua, Sonora, Nuevo Leon, Queretaro and Baja California.
Albeit painfully slowly, infrastructure for rail, ports, highways, border-crossings and airports continues to improve. The cost of physical logistics in Mexico is now reasonable and from this point on it will only improve.
Unlike some unions in the U.S., Mexico’s labor organizations are generally cooperative and non-intrusive with auto industry manufacturers.
The current collective bargaining environment in Mexico is no longer centralized in a single powerful union, and a “healthy equilibrium” has been accomplished between the unions, the workers and the companies to minimize production disruptions for labor relations reasons.
There are still other important challenges to overcome to improve Mexico’s business logistics formula such as the lack of mold and tool makers and Tier-2 and Tier-3 parts suppliers.
Mexico also has a dormant after-market (spare and add-on parts) that has hardly reached its US$25 billion potential revenues. Because of the lack of norms, it is currently flooded with sub-par Chinese imported parts and used parts from the millions of old and recycled vehicles in Mexico.
And last but not least, we of course have the domestic market which represents the biggest challenge for the auto industry of Mexico. Even though domestic sales in 2014 grew at a notable rate of 6.8% over 2013, the volume is far from the real market’s potential.
The 1,135,000 units bought by Mexican consumers in 2014 equate to about 9.5 new vehicles sold for every 1,000 inhabitants. Industry leaders contend that since Argentina and Brazil, with similar economies to Mexico, have about 17 new units per 1,000 people, it follows then that Mexico’s current sales level should logically be higher.
Both AMIA and AMDA (Mexico’s Auto Distributors Association) place most of the blame for the disproportion in Mexico’s market on the likely lawlessness process to import used cars, which have inundated Mexico’s turf with over 7.5 million junk units since 2005.
Through a series of legal, lobbying and customs actions, the associations have fought the disorderly imports and have managed to lower them to about 450,000 imported used units in 2014 from over 700,000 per year just a few years ago.
And during 2015 as a result of the elimination of most import legal loopholes and the proper enforcement of NAFTA regulations, used car imports from the U.S. continue to recede.
As predicted by the associations, the reaction in Mexico’s domestic market for new car sales is already materializing as evidenced by a volume of 306,000 units sold in Q1-2015 which had a significant improvement of 21.9% from Q1-2014.
An enhanced and growing domestic market means nothing but great news to automakers in Mexico. It is truly a new market with a very likely potential to grow from 1.1 million units in 2014 to 1.7 million in the next few years.
Conclusion
The global auto industry is demanding supply chains that are both lean and resilient. The industry is in a constant need of cost reductions through productivity but at the same time it cannot afford disruptions, thus, it needs redundancy and flexibility.
Mexico couldn’t be in a better position to satisfy these needs: Its unique package of business logistics with ideal location, redundant supply chains, ample and competitive labor and engineering, stable economy, supporting governments, free trade agreements and proven experience is the best you can find in the world today.
Ask Toyota, Honda, Nissan, Mazda, Ford, Chrysler, GM, VW, Kia, Mercedes Benz, BMW and Audi.
