Mexican automotive industry sets pace for economy

Editor’s Interview

Profound. Far beyond the obvious.

That summarizes the power the Mexican automotive industry has on the country’s economy. The supporting data speaks volumes: 3.5 percent of total GDP; 19.8 percent of the manufacturing industry GDP; impacts on more than 23 industrial sectors, more than 13 percent of total industrial labor.

Dr. Eduardo Solis, president, Mexican Automotive Industry Association, put meaning to the data at the MexicoNow Auto Industry Conference in Puebla.

He added gravitas reporting nearly 21 percent or nearly $862 billion total foreign direct investment came of the automaker or auto parts sectors.

If one single industry could affect the economy in Mexico, automotive would be the obvious:

In terms of your economic data, what does that tell you about Mexico’s ability to compete in this industry?

When you have an industry like ours where 84 percent of what we manufacture today is going to somewhere in one hundred different markets, different countries out there, you necessarily have to always think about competitiveness. Competitiveness is the key in our industry, making sure that we have the best of the best in the engineers, the best of the best in the technicians, the best of the best in the supply chain. World class engineering base, world class technicians and world class supply base is the key for us. I think that in order for us to keep the pace and grow further we need to maintain our world class basis that we have to grow.

Much concern has been expressed as to the value of the Mexican-supplied vehicle content. What can you tell us about the percentage content supplied or added domestically in Mexico? What trend do you see?

As the new numbers that we see from INEGI (National Institute of Statistics and Geography) are telling us, more than 60 percent of the value content of vehicles in Mexico on average comes either from suppliers in Mexico or from value added by the OEM.

Let’s look at the impact of Mexico concerning new vehicle sales in the U.S. For every 10 new vehicles hitting the streets in the United States how many are made in Mexico?

Out of every 10 vehicles that are sold in the United States, one out of those 10 will be Mexican. 

You’re taking a look on the economic side. You indicated that the national trade is negative, yet you’re saying the auto trade is positive. What does automotive mean for Mexico’s economy?

It is the key for the economy. Economic stability in Mexico is due not only to public finances but also its trade balance. Trade balance in Mexico today as a whole, as a nation, is somewhere close to minus $1 billion. The automotive industry contributes to US$38 billion positive net. That means if you consider our imports and our exports, US$38 billion will be the trade balance of the automotive industry. If you consider the fact that we have as a nation a US$1 billion deficit or US$1 billion negative in our balance, the automotive industry ends up being critical to our economic status.

How important are research centers and test tracks to the development and the sustainability of a dynamic auto industry in Mexico?

I will certainly have to partition your question into two. One is manufacturing. Manufacturing in Mexico is going with a tremendous dynamic, achieving record high numbers of production, record high numbers of exports. As I see 2014 -- and of course it will all depend how the economy behaves in these important markets for us -- I see production and exports yet growing. I see Mexico achieving numbers like 4 million vehicles manufactured within the next five years.

Yet, that doesn’t mean that we will be growing at that pace in the high end of the value chain which is R&D for example. We are growing in our R&D centers, in our testing centers and we have to make the specific to continue attracting that kind of investment. I see Mexico well in position to grow in the area of R&D, to grow in the area of testing. Testing centers in Mexico and R&D centers in Mexico are areas where Mexico is important for the future needs of North America.

You refer to the age pyramid in the United States and Canada working against the engineering centers. Please explain.

When you take the average age at an important engineering center in the United States, the average age of the engineers in that center is somewhere close to 57 years old. In the engineering centers in Mexico the average age is 27 years old. There is a 30-year difference in average age of the engineers in these centers. It wouldn’t be important if it wasn’t not the fact that 25 percent of the engineering base in some of these centers will be retiring in the next five years. They do have a problem. You can imagine an engineering center that has 5,000 engineers, and if they tell them that 1,000 will disappear within the next five years. This is an opportunity for Mexico because of the quality and of course the age pyramid in Mexico which is primarily younger people entering into the job market.

Over the years, you have been very concerned about the salvage product coming down from the United States. You call them garbage cars. Has there been any progress in diminishing that problem during the past year?

Yes. As you know some of these cases are being reviewed by the Supreme Court. Finally in the midst of July the Supreme Court declared three of the amparos (extraordinary recourse) were unconstitutional and they had a decision against these amparos. This is basically a legal loophole which allows marginal traders in Mexico to continue to import garbage cars.

We need to have five of those decisions against five amparos in order to create jurisprudence. In October we had yet another one and also against the amparo, so we have four. We are hoping that the Supreme Court will analyze within the next few weeks yet another amparo. Hopefully and finally we will have five which is what we need in order to create jurisprudence against these importers. 

This is a major issue. For us it is very important what has happened this year and hopefully within the next weeks we will have some good news from the Supreme Court.