Mexico’s auto-parts sector primes for OEM investments, business
While Mexico’s vehicle manufacturers measure annual output in millions, Mexico’s auto parts industry deals with billions of components in the process. It becomes obvious that fortunes for the auto parts manufacturers and assemblers ride on the success of the vehicle side of the equation.
That road has been rocky for the past four years or so. However a look through the windshield looks to a better situation ahead, as long as global economic and petroleum policies stay on track. Oscar Albin, president of the Mexican Auto-parts Association, INA for its Spanish-language abbreviation, expressed optimism for his industry, buoyed by planned investments in his country by foreign OEM’s.
The north american auto industry points to very strong results for 2011. How would you rate 2011 in terms of growth and success for the autoparts industry in Mexico?
Oscar Albin: In fact 2011 was a great year for the automotive industry in Mexico, the auto parts area is not an exception. We broke our retail record $66 billion (U.S.) dollars versus the $57 billion we had in 2010. That represents an increase of 16 percent, 2011 versus 2010. For 2012 we are forecasting a marginal increase of 2 percent going from $66 billion to $68 billion dollars on production.
You talk about a strong picture in Mexico. What has changed over the past year or so in the types of auto parts that are imported into Mexico for further processing or assembly?
What has changed over the past years is that more high engineering, high tech components have been integrated in Mexico and one example is some large companies, worldwide companies have been established in Mexico to build transmissions for the Mexican market and export as well. Those kinds of auto parts promote a high investment and promote a large increase of Second Tier and Third Tier suppliers.
You mentioned in your first answer the dollar amounts of sales, of course that was very, very impressive, but when you take a look at a trade balance when it comes to the auto parts industry in Mexico, what do you sense or what do you forecast for 2012 for the trade balance for the auto parts industry?
Our balance is being very positive in the last years, more now than in 2009 but today we have a potentially $12 billion (U.S.) for positive balance of trade in the auto parts components.
When it comes to employment, the employment in the mexican auto parts sector today, how does that compare with four years ago and i say four years ago because that’s the time considered the beginning of the great recession?
We have to take in mind first that 90 percent of the employment in automobile sector is in the auto parts itself. At the end of 2011 we reported 600,000 employees in the sector of auto parts. That is the recorded figure and that is 13 percent more than 2010 and 28 percent more than 2009 when we saw the big recession, and employment was down to 400,000 jobs.
Europe and South America have become growing destinations for mexican auto exports. To what extent is the auto parts sector in Mexico participating in this growth?
Since Mexico opened free trade agreements with South America and Europe, the opportunities to produce the vehicles and auto parts in Mexico, not only for our primary customer, that is the United States and Canada, it’s been increasing very significantly.
Europe has been growing in the past. We consider that it is going to be a lower number for 2012 and 2013 because of the economic situation in Europe. South America is growing very consistently, especially Brazil and Colombia, Argentina also. Our exports to South America are very positive and we are very enthusiastic that vehicles and our auto parts are very competitive on quality and cost to South America.
Some of the big news out of Mexico in the auto industry centers on investment by the japanese, that is Nissan, Honda, Mazda. What prospects does that offer to the mexican auto industry?
That equals the large opportunity to produce the components for those vehicles that are going to be built in Mexico. Between Nissan, Honda, Mazda they are going to produce around 700,000 more vehicles than what we are producing today, when they are going to be on full production. That will represent, if we consider like a fifty, sixty percent of the vehicles will be made with Mexican parts, a big, big boost for the auto parts industry in the year 2013 and 2014.
You mention a big boost for the Mexican auto parts industry. To what extent do you forecast that more japanese auto parts manufacturers will invest in Mexico, and if so what must the mexican auto parts industry do to participate in this growth?
Mazda, Honda they will bring some new players into Mexico. We are going to be facing new names in the Mexican auto parts rainbow that we have today. Nissan, they already have a large supply base and most of them are going to enlarge their current capabilities and current capacities in order to offer the product in Mexico.
There are going to be two kinds of investments, one in completely new suppliers with new names in Mexico and another one that maybe is going to be the most important one is going to be an expansion of an existing capacity of the Mexican auto industry.
You talk about growth, you talk about investment, and you talk about new players. What additional demands on quality and technology as we move into 2012 are being placed on the mexican auto parts industry?
Mexico’s auto industry is on the top of the quality and productivity levels. We are comparable with anyone in the world. Really I believe that any of the new factories are going to bring anything new that are not being used today in the auto part industry. Our suppliers have been well trained for in the last 10, 14 or 15 years and now we are as good as any other one. We are using the top standards for quality and training that we have today.
I don’t believe that these new investments are going to give any new way of manufacturing to our supply base. We are on the top right now. Anything new, we welcome.
You report about a very positive economic situation and welcoming new growth in your industry. Yet there is one serious issue: the violence we have seen in Mexico. From your perspective as the leader of the auto parts industry in the country, to what extent do you feel that violence has affected the ability of the mexican auto parts industry to grow as well as attract additional foreign direct investment?
It’s a point that we have been showing and asking to the government to resolve. I can mention today that some products that are being built in Mexico for export to the United States to Midwest assembly plants are more expensive to deliver the product from Mexico to the Midwest, especially high cost components like radios for example, a highly demanded product in the black market. The transportation and logistics are more expensive to move radios from Mexico City to the Midwest than from China to the Midwest. Today the patrol and the insurance that the suppliers have to buy in order to ensure the trucks are being positioned to a very risky condition by the logistics. So definitely it’s a weakness that Mexico as a country has, and it has to be resolved in the next years.
Taking a look at the progression of the auto parts industry in Mexico, how close is Mexico to becoming a full service auto parts producer, that is; design, tooling, production and the day when it will not have to import as much raw material or as many components. What can you tell us about that?
At the beginning Mexico was just a sales and marketing country to sell import vehicles. Then we transformed into a manufacturing site. Today I will say we are a bi-polar auto industry, that we have sales and marketing and manufacturing, strong manufacturing factories in Mexico.
The first step is to transform those companies — I’m talking OEM’s and suppliers — into engineering centers. We are on the beginning of that. Several of the OEM’s have been growing in their engineering staff very intensively. For example Ford, they have 1,000 engineers working in Mexico. Chrysler has 700. GM has another 600, Volkswagen and Nissan as well. Today those engineers are fully dedicated to the engineering changes on the vehicles.
The next step is going to be to work on engineering on the vehicles that are on the design process. We are not in that step yet but we will come, definitely we will come. In five to 10 years our young engineers will have the capability to be awarded the engineering for design.
This year in Mexico, as well as with the United States, is an election year. Both countries will elect presidents. Because it is an election year, how would you describe investment prospects for the auto parts industry in Mexico?
Definitely in a normal condition the election year is a conservative investment year for the industry in general. But in this particular year for Mexico we have, like you mentioned before, the three large investments already announced: Nissan, Honda and Mazda. They are going to be our arrowhead to promote several other investments for auto parts in 2012 and 2013 in Mexico. I think the Nissan, Honda, Mazda investments in front are going to be the real value to continue with investment in Mexico 2012 even if it is an election year.
Taking a look at the political realm, china’s auto parts exports to the U.S. have recently targeted by U.S. legislators as a major threat to U.S. jobs, but Mexico has not been mentioned in those concerns. From your viewpoint to what extent do you believe the U.S. has finally realized that jobs in Mexico auto parts industry are North American jobs and do support employment in the U.S. as well?
I believe the U.S. North American citizens consider the Mexican vehicles as North American vehicles. It is clear that for Mexico, their main export country is the United States. But the United States at the same time is our largest importer of record for goods and components and vehicles as well. I believe we sought a free trade agreement 20 years ago that is working very positive on both directions and is being stronger with the times.
I think the United States and Mexico have to come stronger together against some other regions and countries and protect our region against those countries that are definitely looking for our market.
Your association is known as ina through its abbreviation. Let’s take a look at Ina’s main objectives and programs to complete 2012 and move into 2013
For the association what is most important is to increase our portfolio of services to our associated members. Also we want to increase our association member base. Today we have representation of almost sixty to seventy percent of the automotive industry, but we consider that the balance should be on board in order to be totally represented and have more leverage to accomplish our goals.