By Michael Hissam
Get ready for Mexican auto production to reach 5 million a year.
Dr. Eduardo Solis, president, Mexican Automotive Industry Association, made that prediction recently during MexicoNow’s Industrial Location and Logistics Summit.
Supporting his claim are production estimates resulting from four plants that will be going online in Aguascalientes, Puebla, San Luis Potosí and Nuevo Leon.
Suppliers, he said, would be wise to keep an eye on this chapter of the Mexican Auto Industry. Make sure your bookmark says, “Competitiveness.”
Why does demand for Hecho en Mexico keep growing?
I am quite positive that it is competitiveness. Mexico has kept a straight line of growing its competitiveness. Part of the competitiveness of Mexico has reached has to do with the fact that Mexico has free trade access to 40 countries. Deterring tariffs is an important element of entering a country.
When it comes to production, Mexico is gaining competitiveness. This a statement by the major OEM’s in Mexico that their plants in Mexico are among the top three plants in the world in competitiveness. Nissan has stated that its plant in Aguascalientes is number one for competitiveness in the world. For Mexico, keeping its pace in productivity, keeping its pace in maintaining an edge in competitiveness is critical for attracting more and more important projects.
What is the opportunity with Trans Pacific Pact for Mexico’s auto industry?
Mexico is the fourth-largest exporter in the world. For Mexico TPP is key; it is opening new markets. Market access for the Mexican industry is vital for its future growth and in this case TPP, as was the case for the agreement with Colombia, Chile and Peru.
Mexico has to continue opening new sites to send our products. TPP has an important new element. It is the door to getting to Asia. We have to remind ourselves that we have a Free Trade Agreement with Japan that Mexico can successfully trade with these new countries that are part of the TPP and that are currently importing vehicles from around the world. We see the TPP as an opportunity.
Where is the “disconnect” in the thinking that some equate a trade agreement with unemployment?
It is not a disconnection. It just depends on what sector you are talking about. If they see a sector that has kept itself closed and is only competing with imports and does not have opportunities for export then an argument like that may be in the air. For the automotive industry that argument is absolutely invalid, we are the fourth largest exporter in the world. In any event other countries see Mexico as a major, powerful platform for production export.
We have five major elements on why Mexico. Number one is absolutely location, why the OEM chooses Mexico for manufacturing and as a platform for exports. Number two is no doubt this network of trade agreements we just talked about: market access is key. A country that exports 83 percent of what it manufactures has to have market access in the world.
One must recognize that currently 83 percent of what we export is directed to the United States and Canada, nevertheless we are exporting to 100 countries around the world today. Number three is supply chain; having this powerful supply chain that can effectively support and industry like ours is vital.
The fourth element is that our workforce is young and eager to learn. The human resources for this industry both for technicians and engineers are also fundamental. The fifth element is our government that partners with this industry. Keeping economic stability is an important element for development and, of course, partnering with the investors to allow for the soft landing of their investments in Mexico. These are the five major elements on why Mexico.
What does the data tell you about NAFTA country vehicle production? What is the verdict?
Mexico has absolutely made a tremendous win in this region. Interesting enough, I would say that this success has come together with the partnering of both the United States and Canada because for every vehicle that Mexico manufactures 40 percent on average is parts and components from the United States and Canada themselves.
This is a joint success. This is a success that has been evident when we see the numbers. Back in the year 1994, we used to manufacture 7 percent of the total NAFTA production of vehicles. Today we manufacture 19 percent of total manufactured vehicles in North America and that percentage is growing.
How is Mexico going to get to 5 million units production?
As you have witnessed announcements of new investments from Audi in Puebla and Mercedes in Aguascalientes, BMW in San Luis Potosí, and Kia in Nuevo Leon. Those are plants that we did not have before, these are thoroughly green field plants that soon within the next two, three and four years are going to be producing vehicles from these sites.
That allows us to say from 2014 through 2020 we are going to be growing 70 percent in production. We are going to go from 3 million vehicles manufactured in Mexico to more than 5 million. That of course brings challenges and those challenges we have to meet. We have to meet these challenges working in the area of human resources, working in the area of logistics and of course supply chain.
I told you two years ago that in the year 2017 we were going to be in 4 million. We are in 2015 and we are going to be 3.4 in 2015. For 2016 we do not know but I keep my forecast that in the year 2017 we are going to be over four. But now with these new green field projects I am positive that in the year 2020 we are going to be over 5 million.
If I am a member of the auto parts sector, what should I be doing now to prepare for Dr. Solis’ prediction of 5 million?
Watch for these new projects because demand from Tier I’s is going to be growing at the same pace. If the OEM’s are growing 70 percent, so it goes the demand for auto parts over the next years. We better prepare ourselves with keeping the pace with this kind of growth.