The Mexican automotive and auto parts industries are being considered as “strategic” for Japanese companies like Nissan, Mazda, Toyota and Honda that recently started or announced operations in Mexico.
In general, Mexico offers an attractive business climate, legal certainty, one of the largest free trade agreement networks in the world, and highly developed industry locations that offer very competitive costs. Mexico has stood out in Latin America as a producer and exporter of sophisticated manufactured automotive products.
Honda de Mexico, S.A. de C.V. (HDM) inaugurated in 2014 its new vehicle production plant in Celaya, Guanajuato at an event attended by Takanobu Ito, president & CEO of Honda Motor Co., Ltd. The plant began operations in 2014 with production of the Honda Fit subcompact model and required an investment of US$800 million.
“Considering the needs of the Mexican market, which is expecting continued growth in the future, and also serving as a global production base for the North American region and beyond, we decided to make the Fit the first product to be produced here,” Takanobu Ito said.
Honda established its first Mexican manufacturing operations in September 1985. Two years later, Honda de Mexico started motorcycle import sales and, in March 1988, began production of motorcycle products and automobile service parts in El Salto, Jalisco. Automobile production began in 1995 with the Accord and, in 2007, production switched to the CR-V. The auto plant in El Salto has an annual capacity to produce 63,000 automobiles.
Honda de Mexico, S.A. de C.V. (HDM) also is under the construction of a new Honda transmission plant in Celaya, near the City of Guanajuato. The new plant will be located adjacent to the new automobile plant that began mass production of the all-new 2015 Honda Fit.
With an initial investment of US$470 million, the transmission plant will begin producing continuously variable transmissions (CVTs) with an initial annual production capacity of 350,000 units. Honda plans to more than double annual output of CVTs produced in Celaya to approximately 700,000 annually in the coming years, when employment is expected to reach 1,500 new associates. In addition to supporting HDM auto production, the plant will provide transmissions to Honda auto plants outside Mexico.
By establishing a production base for CVT manufacturing in the same location as the new $800 million automobile plant, Honda de Mexico will operate a highly efficient production structure that maximizes local content in Mexico, the rest of North America and globally. Honda will employ approximately 4,700 associates in Celaya when the auto, engine and transmission plants are in full operation.
Nissan opened the first phase of a US$2 billion manufacturing complex in Aguascalientes, Mexico. The new plant is Nissan’s third in Mexico and will raise the company’s output in the country to more than 850,000 vehicles annually from 680,000 today, an increase of 25 percent.
During the opening ceremony, Carlos Ghosn, president and CEO of the Renault-Nissan Alliance, highlighted Nissan Mexicana’s position as a global benchmark for the corporation. “The investment in our third vehicle plant in Mexico leverages the world-class manufacturing capabilities of the Nissan Mexicana team and is aimed at satisfying the high demand for Nissan vehicles produced in Mexico throughout the Americas and beyond. It will help consolidate our leadership in the domestic market and strengthen our growth plans globally.”
In 1966, Mexico became the first country to manufacture Nissan cars outside of Japan. Currently, Nissan produces approximately 1 out of every 4 cars made in Mexico.
With an investment of US$770 million, Mazda Motor started the operation of its plant at Salamanca Guanajuato, which produces the Mazda 3 model, at a rate of 140,000 units annually. By this year 2016, it will start production of the Mazda 2, with a total volume of 230,000 units per year will be reached. In this volume they are already considering the 50,000 units produced for Toyota Mazda.
All the above operations mentioned generate 4,600 direct jobs. Yamanushi Takashi, President of the Board of Mazda Motor Corporation said that this operation has been very important for the company in the process of reorientation of the company worldwide. “This operation will be the pride and the spearhead of the company, with the highest technology.”
Kunijiro Nakamura, CEO of Sumitomo (partner of Mazda in Mexico) said he is proud of production of these models, without problems and delays that have happened in other international operations. “The operation in Mexico has the exact location for the international activities of Mazda and Sumitomo to create a bridge between Guanajuato and Japan and to other markets”.
Toyota said recently it plans to spend $1 billion to build a new plant in Guanajuato in central Mexico where it will make its next-generation Corolla — a move that underscores the automotive industry’s motivation to invest heavily in Mexico to build new auto plants in recent years.
The new plant in Mexico will employ about 2,000 workers and will have an annual production capacity of about 200,000 cars. It also is the automaker’s first new plant in three years. Production of the new Corolla is expected to begin in 2019.
Japanese companies are beginning to consider Mexico beyond its automotive sector, as structural reforms, especially in energy, show opportunities for new investments. Other companies that have important investments in Mexico from Japan are Japanese Companies active in Mexico include: Mitsui & Co. and Tokyo Gas. There are also Takeda Pharmaceutical Company, Aida Engineering; Isuzu Motors; Amano Enzyme and Kinugawa Rubber Industrial. Others are Yokogawa Corporation and Panasonic.
In addition there are Sony, Panasonic, Mitsubishi Heavy Industries; Mitsubishi Electric; Toto and Nippon Express. They all have important operations in Mexico. Japan is the main source of FDI for Mexico from the Asia-Pacific region and inExhibit 1 we can see Japanese Investment in Mexico. In 2005, Mexico and Japan implemented their Economic Partnership Agreement to facilitate trade, investment and bilateral cooperation. The Japan-Mexico Economic Partnership Agreement (EPA) promotes liberalization of trade and investment, as well as promoting a freer flow of persons for business purposes between the two countries.
The Agreement also aims to promote a comprehensive economic partnership. This includes a competition policy, improving the business environment and bilateral cooperation in such fields as vocational education and training and support for small and medium enterprises. The Agreement contributes to making the most of the economic complementarity between Japan and México. In this way it strengthens dynamic bilateral economic relations.
After ten years of implementation, the EPA has become the cornerstone of the Mexico-Japan economic relationship. The governments of the two countries have recognized the importance of the agreement as a key area of the bilateral relationship. Mexico and Japan continue to promote bilateral trade, investment and cooperation.
Mexico and Japan have signed 14 agreements for their bilateral relationship. Among the mechanisms for dialogue between Mexico and Japan we have the Economic-Financial Group. Their objective is to boost economic and financial cooperation working along with the Mexico-Japan Business Committee. They get together to discuss important points in the Economic Partnership Agreement.
The Prime Minister of Japan, Shinzo Abe, concluded an official visit to Mexico back in 2014. During his two-day visit to Mexico, the Prime Minister met with President Enrique Peña Nieto, attended the 31st COMCE-KEIDANREN plenary meeting and both leaders witnessed the signing of 14 agreements that have strengthen the political, economic, business and cooperation aspects of the bilateral relationship. This was the fifth time the two leaders have met during the current administration.
Exhibit 2 summarizes the Trade Balance between Mexico and Japan. It shows that commerce between the two countries reached its maximum level in the year 2012 (US$20.27 billion) which is the first time that trade has passed the US$20 billion stat. The bilateral commerce historically has been negative from Mexico.
Important factors in the trade balance between Mexico and Japan are revealing. Take, for instance, the fact that during the 14 year time span from January 1999 to December 2014, total exports from Mexico to Japan increased from US$776 million to US$2.61 billion. And at the same time, imports from Japan to Mexico also showed an impressive growth from US$5.08 billion (1999) to US$17.54 billion (2014).
Total commerce between the two countries and reciprocal action brought in US$20.15billion during 2014 in trade between the two partners and has consistently been with sustained growth or similar figures, especially from the period since 2006, with the exception of the year 2009. And another interesting detail is that in 2014 commerce stats increased 4.3% over the numbers of 2013.
The relation of Mexico with the Nippon Country is of great relevance, especially, when it comes to cooperation with the Asia-Pacific region and important stages like the G20 and the United Nations.