That boom coming from North America’s southernmost state isn’t just gunfire
by David Agren on Monday, March 18, 2013 11:50am
A new truck rolls off the assembly line every minute at the GM factory in the conservative Catholic heartland of Mexico’s Guanajuato state. The factory in Silao, set in the shadow of a giant Christ statue considered the geographic centre of the country, produces so many trucks that GM has expanded its workforce by more than 60 per cent since 2008 and has plans to hire even more. The nearby Volkswagen plant just opened a $550-million engine plant and Toyota has announced plans for a facility down the road.
Manufacturing activity is mushrooming across Mexico, mirroring an upswing in the overall economy. The country produced more than 2.8 million cars last year, while factories in border towns like Tijuana and Ciudad Juárez churn out everything from plastic toys to plasma TVs. Manufacturing is now moving back from China—almost as fast as it fled Mexico a dozen years ago—as Asian salaries and shipping costs continue to rise. “This has nothing to do with Mexico,” Ed Juline, head of Guadalajara-based Mexico Representation, a business consultancy, says of the trend. “It has everything to do with China.”
Ten years ago, wages in Mexico were six times higher than those paid in China, but the gap had narrowed to 40 per cent by 2011, according to an International Monetary Fund report. Geography also works in the country’s favour, as companies take advantage of its easy access to U.S. and Latin American markets, where economies are expanding, demanding Mexico’s autos, appliances and advanced electronics.
But manufacturing is just one part of the picture, as Mexico moves from mess to can’t-miss status, the hottest of the emerging markets. “This is Mexico’s moment,” said new President Enrique Peña Nieto, summing up the sentiment at his December inauguration. Indeed, the Mexican government is projecting growth of 3.5 per cent this year—better than Brazil, which investors are suddenly bearish on after a decade of adulation. In Brazil, a credit bubble appears set to burst and demand for its commodities is diminishing.
The scenario has created a collective giddiness among elites and investors unseen since the early 1990s, when Mexico prepared to enter NAFTA and appeared poised for First World status, only to suffer a calamitous peso crash. Last year, investors poured $80 billion into Mexican securities—five times more than went to Brazil, according to the Banco de México. But external factors also benefit Mexico, especially as the BRIC countries lose their lustre.“Brazil is a mess,” says Manuel Molano, adjunct-director of the Mexican Institute for Competitiveness, a Mexico City think tank, “China is decelerating, India’s growth has been stalled for three years, Russia is nothing special.”
Peña Nieto is pledging structural reforms to the energy, tax and social security systems—measures his party previously opposed. The reforms, he says, will generate six per cent economic growth, tripling the rate of the past dozen years. He’s formed a pact among the three main political parties to pursue his agenda and has already struck deals to overhaul labour laws and an education system that allowed teachers to sell their positions like personal property. “He’s a smart political negotiator,” says Molano. His administration is “resourceful in convincing people.”
The story doesn’t begin with Peña Nieto. For three decades, government policies have been geared to suppressing spending and controlling inflation that had climbed to triple digits. The central bank’s interest rate and inflation both now hover around four per cent, while central government debt is low, amounting to approximately 28 per cent of GDP. (It’s around 36 per cent in Canada.)
Remarkably, the raging drug war has done little to dampen enthusiasm for Mexico. “A pile of 49 headless human bodies on a roadside is apparently less scary than an interest rate cut,” says Ulysses de la Torre, a blogger who focuses on emerging markets.
How much the “boom” benefits average Mexicans remains to be seen. Almost half (46 per cent) say their economic condition actually deteriorated over the previous year, according to a recent poll, and many expect little improvement in the short term, says Federico Berrueto, director general of polling firm Gabinete de Comunicación Estratégica. Fully 59 per cent of Mexicans now work in the informal economy. “The average person sees unemployment, that ends don’t meet, that their salary is low,” says Berrueto. When compared to the perspective of international investors, “it’s two distinct worlds.”
Keywords: Manufacturing, Automation, Discrete, Process, Export, FDI, Mexico, Mexican Market, Market Research Study, Economy, Growth
Mexico is a significant market for manufacturing and automation products. Mexicans are the hardest workers in the industrialized world, China included. The OECD—the Organization for Economic Cooperation and Development, of which the United States is a member—studied working trends in three dozen countries, including paid and unpaid work. Mexicans topped the list, and exceeded the United States in both categories.
In 2011, Mexico received almost 20 billion dollars of Foreign Direct Investment (FDI), consolidating Mexico as one of the top recipients of FDI among emerging economies in the world. Mexico’s manufacturing industry and the financial services sector are top among the most preferred investment targets. Among the manufacturing sectors, the main recipients are automotive, iron & steel, beverages, and chemicals.
“Mexico has signed 11 Free Trade Agreements with 43 countries, including the United States, Canada, the European Union, and Japan, some of the largest and most lucrative markets in the world. Mexico actively participates in world trade. It is the 10th largest exporter and importer worldwide, accounting for 2.5% and 2.6% of the world’s total exports and imports, respectively. Mexico is a land of manufacturing opportunities,” according to Steve Clouther, the principal author of ARC’s “Automation Systems Market Outlook for Mexico”.
In contrast to the widening crisis in the euro zone, Mexico can point to 17 years of macroeconomic stability, low inflation, manageable debt, an open economy, and increasing competitiveness. The gross domestic product expanded 3.9 percent in 2011, and there are forecasts suggesting that by 2050 it could be larger than that of France. Mexican factories are exporting record quantities of televisions, cars, computers, and appliances, replacing some Chinese imports in the United States and fueling a modest expansion.
The automotive industry is a very strategic industry for Mexico. In 2011, the automotive sector accounted for approximately 4 percent of the Mexican GDP and 20 percent of Mexico’s manufacturing GDP. According to the ranking of 40 countries by the International Organization of Motor Vehicle Manufacturers (OICA), based on car production, Mexico ranked eighth globally. The aerospace industry is another very strategic industry for Mexico. From an automation perspective, GMC and drives account for the largest investment, followed closely by PLCs, IPCs, and panels.
In 2010, Mexico was the seventh-largest oil producer in the world, and the third-largest in the Western Hemisphere. State-owned Petroleos Mexicanos (Pemex) is one of the largest oil companies in the world. Mexico is consistently one of the top three exporters of oil to the US, along with Canada and Saudi Arabia.
The Distributed Control System (DCS) sector is by far the largest automation technology for the process industries, especially oil & gas. All of the major DCS suppliers have a strong presence in Mexico.
Leading Automation Technologies
The DCS and SCADA sector accounts for more than a third of the revenues, and PLCs, IPCs, and Panels account for another fifth.
If you’ve ever been to Mexico City, chances are you’ve sat in an old Volkswagen Bug taxi, painted in muted red and gold, stuck in Mexico City’s notorious traffic.
“Here we call them ‘Donkeys,’” says Victoriano Luna, a taxi driver who has been driving a Bug for 32 years. “A horse can run fast, but it doesn’t endure. A donkey does endure, just like this car.”
Volkswagen first came to Mexico in 1967, when it opened a plant in Puebla, a few hours drive from Mexico City. For decades, the Bug was the biggest-selling car in the country.
Today, the Peubla plant has expanded to become the largest auto factory in North America, employing 18,000 people. It’s a state-of-the-art facility full of industrial robots and blinking computer equipment. The plant has the capacity to produce 2,500 cars a day, in popular models such as the Jetta and Golf.
After rolling off the line, the cars are packed into trains and shipped off to retailers. Most of them are sold abroad. Mexico is now the eighth biggest auto producer in the world, as well as the world’s fourth biggest exporter, according to the Mexican Automotive Industry Association.
In 2012, the country produced almost 3 million cars, a national record. Experts say those numbers are on track to keep growing.
“Mexico is becoming quite an automotive powerhouse,” says Thomas Karig, a vice president at Volkswagen Mexico. Karig says Mexico is an attractive place for car companies to set up shop for several reasons: a great location for exporting to North and South America, an open trade policy, and experience in the work force.
Last September, Audi, a Volkswagen subsidiary , announced the construction of a new plant nearby. They’ll be assembling the luxury Q5 SUV. Eduardo Solís, president of the Mexican Automotive Industry Association, says it’s a watershed moment for the country.
“There is an important element here where Mexico is, currently in the automotive industry, associated with good quality, with good products,” says Solís. “We have been scaling up in the value chain.”
VW Factory in Puebla, Mexico (Photo: VW Mexico)
Until recently, Mexico’s economy was based on low-paying, labor-intensive industries like textiles. About a decade ago, those industries started fleeing to China or Central America, where it’s even cheaper to operate. But now, Mexico is growing big-time in better-paying industries, like autos, aerospace, and technology, which require better-educated workers.Hector Muñoz, a 48-year-old technician at Volkswagen, is a living example of that change. Muñoz comes from a family of street vendors, and scored a job at Volkswagen after an uncle got him interested in fixing up cars.
After 20 years working on the VW line, he makes 12,000 pesos a month. That comes out to only about $30 US a day, but its six times minimum wage in Mexico, putting him squarely in the country’s middle class. Thanks to this job, he’s been able to put his kids through college. Two of them are now engineers, a fact he’s really proud of.
“Before there weren’t as many opportunities as there are now,” says Muñoz. In my case, being at Volkswagen has really encouraged me to push my kids to learn more, to get better educations.”
There are a lot of others like Muñoz. According to the World Bank, 17 percent of Mexico’s population joined the middle class between 2003 and 2009, now making up almost a quarter of the population.
But there’s a long way to go – half of Mexico still lives below the poverty line. Victor Piz, editor of Mexico’s chief financial newspaper El Financiero, says those people are being left out this high-tech boom.
“I think the main problem in Mexico is the distribution of revenue coming into the country,” says Piz. “None of it goes into the pockets of Mexico’s poor. This wealth doesn’t matter to them because they’re not receiving any benefit from it.”
Piz also warns that Mexico could have a problem sustaining its recent growth – almost 4 percent for two straight years – because it relies too heavily on one trading partner, the US. Mexico has free trade agreements like NAFTA with 44 countries, but still overwhelmingly exports to its neighbor to the North.
“When the United States turns off its engines, inevitably, Mexico also has to turn off its engines as well,” says Piz.
Today, Mexico City traffic is no longer a sea of VW Bugs. There are the gleaming Lexuses of the wealthy, and the Nissans of the country’s middle class – not to mention the mini-buses that transport the working poor. But taxis are still being made in Mexico. New York City’s brand new taxi fleet is currently in production at a Nissan plant in Cuernavaca.
This story was produced in collaboration with reporter Javier Risco and Round Earth Media’s Mexico Reporting Project.
Toyota Motor Corp. (7203)’s plan to source cars from Mazda Motor Corp. (7261)’s Mexican plant starting in 2015 highlights global automakers’ growing reliance on the Latin American nation for quality production as well as lower costs.
Mexico’s vehicle output is on pace to reach a record 2.86 million units in 2012, according to researcher LMC Automotive. More is on the way, as Honda Motor Co. (7267) is building its first large Mexico assembly plant, Nissan Motor Co. (7201) adds a third factory, Ford Motor Co. produces midsize sedans and Volkswagen AG (VOW)’s Audi opens the country’s first luxury vehicle plant in 2016.
“Across a range of industries, every single company in America that I’ve talked to will tell you that either their best plant or one of their top plants is in Mexico,” said Jeff Liker, an engineering professor at the University of Michigan. “They can build quality and they can deliver on time.”
From Japanese carmakers seeking relief from the strong yen to German and U.S. rivals eager to expand exports to the rest of Latin America, Mexico is evolving from its traditional role as a source of low-cost labor. Automakers are focusing investment within about 300 miles (483 kilometers) of Mexico City to take advantage of the nation’s newfound reputation for quality.
Mexico’s trade agreements covering 44 countries also make it an attractive export platform to ship cars to South America, Asia and Africa as well as the U.S. and Canada.
“Mexico has more free trade agreements than the U.S.,” said Sean McAlinden, a labor economist with the Center for Automotive Research in Ann Arbor, Michigan. “They have a free trade agreement with the EU that saves them a 10 percent tariff that’s applied to U.S.-built vehicles. If you’re going to build a world car like Q5 or an Infiniti, Mexico is where you’re going to do it.”
Central Mexico “will definitely be the hottest growth area with respect to North American vehicle production this decade,” Michael Robinet, managing director of consultant IHS Automotive, said in a telephone interview from Northville, Michigan. “The shift to Mexico is not only trying to feed the U.S. and Canadian markets, it’s more of a global production play.”
Automakers have announced $7.8 billion in Mexican investments in the past 24 months, McAlinden said.
Mazda agreed to build a Toyota-branded subcompact car based on the Mazda2 hatchback at a $500 million plant the Hiroshima, Japan-based company is building in the central state of Guanajuato. The factory will supply Toyota with 50,000 units of the vehicle annually when production begins in mid-2015.
“As with all other regions where we have manufacturing operations, we’re confident this new vehicle produced in Mexico will be of the highest quality,” said Steve Curtis, a spokesman for Toyota’s North American unit.
Ford (F), seeking to win midsize sedan sales in the U.S. from Toyota’s Camry, this year began building a revamped Fusion sedan in Hermosillo, Mexico. The company has said it will also produce the car with looks evocative of an Aston Martin in Flat Rock, Michigan, next year. Ford in March said it planned $1.3 billion in upgrades for Hermosillo.
Toyota has operated a small Tacoma pickup factory near Tijuana, Mexico, that’s far from the center of the nation’s automotive supplier base.
Along with supplying vehicles for the U.S. and Mexican markets, the plant also helps the Toyota City, Japan-based company comply with a national rule requiring major automakers to have at least 50,000 units of local production capacity or face import tariffs.
Toyota’s manufacturing agreement with Mazda “is just catch-up,” said Liker, who also teaches efficient manufacturing techniques to companies. “They have too little capacity in Mexico, compared with many other competitors,” he said by phone last week from Mexico City.
Toyota “tends to take a very long-term view when it makes a decision like this, so I would expect this plant to eventually become a joint-venture between the two,” Liker said.
Honda has a small factory in El Salto, Mexico, that assembles CR-V compact SUVs for sale in the U.S. and Mexico to comply with the country’s trade rules. While that facility can produce only about 60,000 vehicles annually, the $800 million plant Tokyo-based Honda is building in Celaya is to have capacity to produce 200,000 Fit small cars annually.
The yen’s persistent strength relative to the dollar has forced Japan’s automakers to shift more production outside of their home market to maintain competitive pricing in the U.S., where Toyota and Honda generate most of their profits.
The Japanese currency traded at 79.50 yen to the dollar on Nov. 12, up 3.7 percent from two years earlier and a 27 percent jump from 109.41 yen in 2007.
Toyota has a history of manufacturing tie-ups in North America. The company previously operated a joint-venture factory in California for 25 years with the former General Motors Corp. that ended with the U.S. company’s 2009 bankruptcy.
Since 2007, Fuji Heavy Industries Ltd. (7270)’s Subaru plant in Lafayette, Indiana, has built Camry sedans for Toyota under contract. Toyota has since increased its equity stake in Fuji Heavy to about 16.5 percent.
While Toyota and Mazda haven’t built vehicles together in the past, the two carmakers have had a technology-sharing agreement on hybrid-electric systems, said Jeremy Barnes, a spokesman for Mazda’s North American unit in Irvine, California.
While the two Japanese automakers share no equity ties, Toyota may take a position in Mazda, said Liker, who specializes in research about the largest Asian automaker.
“I wouldn’t be surprised,” he said. “I don’t know that that’s a plan. That certainly has been the pattern in the past.”
Ford formerly held a controlling interest in Mazda. The Dearborn, Michigan-based automaker began selling its Mazda stake in 2008 and now holds about 2.1 percent of Mazda shares, according to data compiled by Bloomberg.
While Mexico’s automobile plants have competitive labor costs and quality levels that are “equal to and in some cases greater than” those of U.S. plants, automakers can incur other costs that cancel out the benefits, said Ron Harbour, a manufacturing analyst and partner at New York-based consulting company Oliver Wyman.
One source of added cost comes from shipping cars to international markets. Another is drug-related violence, which, according to the Mexican newspaper Milenio, has claimed 57,449 lives since President Felipe Calderon took office in December 2006.
“You can wash away a good chunk of that labor savings with the logistics cost, particularly today when fuel costs have gone up, the cost of containers, the cost of security,” Harbour said in a telephone interview from Detroit.
“You now have to protect the trucks and trains, which can be looted,” he said. “There’s all kind of costs that come in addition to the labor savings.”
Violence in central Mexico is lower than in much of northern Mexico. Honda and Mazda both chose the central state of Guanajuato for their plants. Audi chose the state of Puebla, southeast of Mexico City, to assemble its Q5 sport-utility vehicle for the global market. Parent company Volkswagen has produced cars in Mexico since 1967.
Bolstered by the new wave of investment, Mexico’s light- vehicle production probably will rise 34 percent to 3.83 million by 2017, according to LMC. The researcher’s 2.86 million vehicle estimate for this year would make Mexico the world’s eighth- largest auto producer.
“We could easily outpace the numbers we have by 2017 with another new plant or two announced, if that were to be the case,” said Jeff Schuster, an analyst at LMC. “In the past, you saw the Detroit brands moving in there and putting up additional facilities. Now it’s the South Koreans, the Japanese and the Europeans all looking to expand in Mexico.”
While domestic sales in Mexico remain lower than the 2006 peak, auto exports rose 12 percent to a record 1.98 million units in the first 10 months of the year, the Mexican Automobile Industry Association said Nov. 7.
The U.S. accounted for 63 percent of shipments, followed by the rest of Latin America, at 16 percent, and Europe taking 9 percent of Mexican-built autos. Vehicle exports to Africa more than quadrupled to 26,608 while shipments to Asia rose 83 percent to 38,194.
Veracruz, Mexico, was the busiest vehicle port in North America last year, handling 753,685 units for such companies as Ford, Nissan and Volkswagen, according to Finished Vehicle Logistics, a London-based publication specializing in automotive distribution. About 588,000 of the vehicles were exports.
More automakers, including Seoul-based Hyundai Motor Co. (005380) and Munich-based Bayerische Motoren Werke AG, may locate plants in Mexico, Schuster said.
Hyundai doesn’t have current plans for a Mexican vehicle- assembly factory, said Chris Hosford, a spokesman for the company’s U.S. unit in Costa Mesa, California.
BMW hasn’t announced plans for building vehicles in Mexico while analyzing potential production sites globally, said Elizabeth Solis, a spokeswoman in Mexico City. The company said last month it will invest 200 million euros ($254 million) in a factory in Brazil to open in 2014.
“Very recently, there’s been a combination of updating facilities and bringing in new ones to modernize the manufacturing,” Schuster said. “Additional global training has brought the workforce in line from a quality standpoint and a process standpoint. And then obviously because of the cost benefits, now we’re seeing a big push into Mexico once again, from really all directions.”
Foreign manufacturers to make greater use of nation as base to export vehicles
- By NACHA CATTAN AND BRENDAN CASE
- Bloomberg News
Workers assemble a Volkswagen Beetle at the firm’s Puebla, Mexico, plant. Car firms announced $5.3 billion in new investments in Mexico from January through April. (Susana Gonzalez / Bloomberg)
Mexico will boost annual auto output by 1 million vehicles within three years, a 38 percent jump from last year, as foreign manufacturers use the country as an export base, said Carlos Guzman, head of the nation’s investment promotion agency.
Investments already announced by carmakers will allow Mexico, the world’s fourth-largest auto exporter, to increase annual production from last year’s 2.6 million units, Guzman, president of ProMexico, said in an interview. Surging car and aerospace sales will help Mexican exports climb by about 15 percent this year to a record of around $400 billion, he said, surpassing a $350 billion high last year.
Mexico’s economy is proving resilient as its auto industry booms, with both vehicle production and exports reaching their highest levels in the first seven months of the year for any January to July period, the nation’s Automobile Industry Association said. New plants announced by companies such as Mazda Motor Corp., Nissan Motor Co. and Audi AG will help the nation close the gap with Korea, the biggest exporter after Germany and Japan, Guzman said.
“Other companies are exploring the possibility of opening facilities in Mexico,” Guzman said. “We expect a very good period of five to seven years in Mexico in terms of growing exports” for cars, he said.
Manufacturers are opening new plants in Latin America’s second-largest economy as wages in China rise and higher oil prices increase costs for Asian companies looking to tap consumers in the U.S., the world’s largest economy.
Car companies announced $5.3 billion in new investments from January through April and $2.8 billion last year, according to the Economy Ministry. Pirelli & C. SpA and Nippon Steel Corp. have said they plan to open new parts plants focused on the auto industry.
Mexico’s gross domestic product beat economists’ forecasts for growth in the second quarter, expanding 0.9 percent from the first three months of 2012, an annualized rate of 3.5 percent, as exports increased 5.8 percent from a year earlier.
Mexico may not be breaking records at London’s Olympic Games but back home it is racking them up. On Monday, the country’s vehicle manufacturer’s association, Amia, reported that production in July reached 238,146. That is the largest number of vehicles Mexico has ever produced during that month. It is also 17.7 per cent higher than last July’s figure.
Between January and July, meanwhile, total production was 1.7m vehicles, 13.4 per cent higher than during the same period last year, and the highest production figure Mexico has ever reached during those months.
The increase comes as Mexico is quickly turning into one of the world’s most important vehicle manufacturers. Ford, Mazda, Nissan, VW and a host of other world-class names in car production are sinking billions of dollars into Latin America’s second-largest economy in a bet that it will consolidate and expand its role as the region’s manufacturing base for export.
A staggering 84.6 per cent of the July production went for export, about 67 per cent of the total heading north to the US market. There were also important increased of exports to Europe and to Asia – though there was a drop in exports to Latin America, which almost certainly was the product of the trade spat over vehicles with Brazil earlier this year.
Manufacturers see Mexico as a good export base mainly because of its prized geographical location, which includes a 2,000 mile border with the US, but also because of its open economy and trade agreements with more than 40 countries. Even during the worst moments of the financial and economic crisis, and in stark contrast to Brazil and other Latin American nations, Mexico resisted the temptation to adopt protective trade measures.
But they have also understood that the country has a rich heritage in manufacturing and, with its young and skilled labour force, provides good prospects for finding sufficient and trained labour. In large part, that helps to explain why there has been so much stability in wages in Mexico compared with its competitors.
By contrast, manufacturers in China increasingly complain of the difficulty of finding people to fill posts, and wage inflation in that country over the last few years has largely eroded the once-huge advantages it offered over Mexico.
Don’t be surprised to see Mexico smashing quite a few more vehicle manufacturing records between now and the end of this year.
|As companies expand their capabilities, Mexico’s advantages — and proximity to its biggest export market — will become evident and its manufacturing base will expand even further.|
It wasn’t too long ago that Mexico, like the rest of North America, was beginning to believe that China would eventually capture all the manufacturing to be had. It was true that many companies fled Mexico for the lower labor costs of China.
In a report released in August of 2011, The Boston Consulting Group (BCG) noted that by 2015, wages in Mexico would be significantly lower than in China, pointing out that in 2000, Mexican factory workers earned more than four times as much as Chinese workers. The report notes, “After China’s entry into the WTO in 2001, however, maquiladora industrial zones bordering the U.S. suffered a large loss in manufacturing. Now that has changed. By 2010, Chinese workers were earning only two-thirds as much as their Mexican counterparts. By 2015, BCG forecasts that the fully loaded cost of hiring Chinese workers will be 25 percent higher than the cost of using Mexican workers.”
And, according to a report from Maquila Reference, “Manufacturers producing goods for the U.S. market are reconsidering their manufacturing options in China, and looking at Mexico’s dual benefits of low-cost labor and reduced tariffs under various NAFTA clauses.”
Reshoring to Mexico
Mexico’s GDP is expected to rise 4 percent in 2011, despite the country’s problems with drug cartel violence, which hasn’t seemed to slow foreign direct investment (FDI) in new manufacturing facilities in just about all regions of the country. That’s because Mexico has a low inflation rate and debt levels, and a huge population of young people standing ready to meet employment demands of the big multinational companies. That has put Mexico on par with China and other LLC (low labor-cost) countries in Southeast Asia, particularly since labor costs — as well as other manufacturing-related costs — are rising in Asia.
Another recent Boston Consulting Group study notes that “wage and benefit increases of 15–20 percent per year at the average Chinese factory will slash China’s labor-cost advantage over the United States,” and that will create an attractive incentive for work to return to not only the United States but to Mexico as well. “BCG’s research projects that over the next five years, the fully loaded cost of Chinese workers in the Yangtze River Delta, which includes Shanghai and the provinces of Zhejiang and Jiangsu, will rise by an annual average of 18 percent, to about $6.31 per hour.”
Therefore, Mexico — like the United States and Canada — is seeing a rebound of its manufacturing base in a trend that is being called “reshoring.”
Mexico’s Largest Industry Sectors
While a lot can be said for the huge variety of industries that boast manufacturing plants in Mexico, the big focus is on the automotive, aerospace, and medical device industries.
Automotive: For the automotive industry, Mexico’s more than 1,100 Tier 1 manufacturing companies have been busy even in the face of “lackluster” sales of vehicles in the United States. Multinational Tier 1 suppliers include companies such as Delphi, Magna, Visteon, Johnson Controls, and many others with multiple manufacturing facilities throughout Mexico.
According to a report from Maquila Reference, Mexico became the largest supplier of auto parts to the United States in 2008. Additionally 80 percent of vehicles produced in Mexico are exported to the United States, and 11 out of every 100 autos sold in the United States are made in Mexico. Auto production in Mexico is expected to reach 2.4 million units annually by 2014 — with a projected growth rate of 5.5 percent per year — and account for 18 percent of Mexico’s manufacturing GDP, while generating 56,000 jobs.
Among the major automotive OEMs are Ford, GM, and Toyota, which have established manufacturing facilities along the northern border — the Northern cluster — in Baja California, Sonora, and Chihuahua. The Maquila Reference report notes that Baja California is a “preferred destination for the North American, European, and Asian automakers, with more than 60 foreign automotive companies in the region.”
Ford Motor Co., for example, established its Stamping and Assembly plant in Hermosillo, Mexico, the capital city of the state of Sonora, in 1986. Today the plant, which sits on a 279-acre site, has 1,650,307 square feet of manufacturing space and produces cars such as the Ford Fusion hybrid, Ford Fiesta, the Mercury Milan and Milan hybrid, and the Lincoln MKZ.
Tier 1 supplier TRW Automotive Holdings Group, manufacturer of safety systems, announced in November 2011 that it would open a new facility in the state of Queretaro, Mexico, to produce a range of advanced brake systems. Queretaro is located in the East-Central region that borders the western edge of Texas. According to TRW’s release, the 150,000-square-foot facility will manufacture hydraulic control units for a variety of electronic stability control systems, and brake actuation units including boosters and master cylinders. Production at the new plant is expected to begin near the end of the first quarter of 2012, with an estimated total employment of 450 when full production is reached.
Aerospace: Mexico’s aerospace industry sector has seen a big increase in growth over the last five years, according to a CCN Mexico Report, prepared by Cacheaux, Cavazos & Newton, LLP. Investment in the aerospace industry has exceeded $3 billion over just the last three years. According to data from the Mexican Aerospace Industry Federation, in 2011, $800 million will be added to that total, and over the next five years the sector is expected to create 35,000 jobs. Currently more than 190 aerospace companies call Mexico home, and employ approximately 190,000.
A report from Geo-Mexico notes that the number of aerospace companies in Mexico is expected to grow from 232 in 2010 to more than 350 in 2015. Exports of aerospace parts were worth $3.1 billion in 2010, and that is expected to jump to $5.7 billion by 2015. About one-half of all the jobs in the aerospace industry are in the Northern Border region, specifically in Baja California, Tijuana, and Mexicali, all of which border southern California.
One of the leaders of the growth in the aerospace sector is Canadian firm Bombardier Aerospace, which recently announced that it would build the aft fuselage for its new Bombardier Global 7000 and Global 8000 business jets, as well as major composite structures for the Learjet 85, at its Queretaro, Mexico, facility. Currently, Bombardier builds the Global 7000 and 8000 business jets at its Toronto, Ontario, facility. The company opened its business park in Queretaro in 2006, and has since enticed many of its suppliers to join them there. Bombardier Aerospace President and Chief Operating Officer Guy Hachey noted in a report in Aviation Week that the company is “ramping up in Mexico to about 2,500 employees by the end of 2012.”
Many of these heavy industries attract numerous suppliers into Mexico. In September 2011, Fridley, Minnesota-based Incertec — a specialty plating, metal finishing, and engineering solutions company — announced that it purchased the assets of CRS Aerospace in Empalme, Sonora, in order to establish manufacturing operations in Mexico. This will allow Incertec to provide cost savings and geographical efficiencies to customers in the aerospace, electronics, connector, and medical device industries.
“In the industries we serve, precision is critical,” states Tim Meador, CEO and president of Incertec. “By adding this location, we can provide manufacturers doing business in Mexico the same consistency, quality, and delivery provided by our U.S. location.”
Medical Device: Baja California is also home to a medical device manufacturing cluster, with more than 65 plants in the area dedicated to medical device manufacturing and responsible for 35,000 jobs, according to Maquila Reference.
Companies in the region include Cardinal Health; Medtronic; ICU Medical, Inc., among others, with 91 percent of medical device investments coming from the United States. These facilities are FDA, CE, and ISO 13485 certified with clean rooms ranging from Class 100 to 100,000.
Some 233 companies comprise Mexico’s medical device industry, with an estimated value of approximately $3.4 billion, contributing 0.4 percent of Mexico’s GDP. Of the medical devices manufactured in Mexico, 92 percent are exported to the United States.
An Educated Work Force
Mexico has a vibrant and well-educated work force, with an average age of 29. A report from the Organization for Economic Co-operation and Development states that 50 percent of Mexico’s citizens age 15–19 are enrolled full-time or part time in an educational program. Each year, some 90,000 engineers graduate from one of Mexico’s many universities. The country’s university system also includes technical and trade schools. The Technology University of Mexico has schools in Atizapan, Cuitlahuac, Ecatepec, Marina, and Sur.
One of the largest university systems is the Monterrey Institute of Technology, one of the largest private, nonsectarian co-educational multi-campus universities in Latin America. With over 90,000 students among 33 campuses in 25 cities in its high school, undergraduate, and post-graduate programs, the Monterrey Institute is one of the finest systems in Mexico.
Mexico’s Vocational Education Training (VET) system offers three levels of vocational and trade school training that includes Training for Work courses that can be completed in three to six months, consisting of 50 percent theory and 50 percent practice, and preparing students for entering the work force.
The Technical Professional baccalaureate program consists of 35 percent general studies and 65 percent vocational studies; 360 hours of practical training is required to obtain this degree. The technological baccalaureate that comes with the title Professional Technician is offered by both state governments and the federal government, and similar to an engineering degree. All of these programs offer excellent collaboration between the schools and employers, giving ready access to a trained and skilled work force.
A Changing Landscape
BCG noted that Mexico “has the potential to be a big winner” when it comes to supplying North America. “It has the enormous advantage of bordering the United States, which means that goods can reach much of the country in a day or two, as opposed to at least 21 days by ship from China,” the report said. “Goods imported from Mexico can also enter duty-free, thanks to NAFTA.”
Nonetheless, changes might alter the landscape and create incentives for U.S. companies to bring some manufacturing back from Mexico. For example, Ford Motor Company recently announced that due to its new national labor agreement with the UAW, it plans to move production of the Ford F-650 and F-750 medium-duty trucks from Escobedo, Mexico, to its Ohio Assembly Plant in Avon Lake. This marks the end of a decade-old Blue Diamond Truck, LLC joint venture between Ford and Navistar International, which currently manufactures Ford F-650 and F-750 trucks in Mexico for customers across North America.
But even as some manufacturing is migrating back to the United States from Mexico, other manufacturing is headed there. In October 2011, Whirlpool Corp. announced that it will close its Fort Smith, Arkansas, side-by-side refrigerator manufacturing facility in 2012 and shift that work to its manufacturing facility in Ramos Arizpe, Mexico. And although Nissan plans to boost capacity at its U.S. plants in Tennessee and Mississippi, it also plans to build a new plant in Mexico, according to a January 2012 company announcement. The new plant — which will be Nissan’s third in Mexico — will reportedly have the capacity of producing 175,000 vehicles a year, and employing 3,000 workers.
The winds of manufacturing continue to shift, as companies seek manufacturing sites that offer the best of all worlds: low labor costs, high quality, good infrastructure, access to markets, reduced shipping time and costs, and educated, skilled work forces. Mexico can fill much of that bill.
August 29, 2011
TOKYO (Aug. 29, 12:45 p.m. ET) — Flush with new-factory announcements from Mazda and Honda, Mexico is bracing for an influx of Japanese suppliers.
About 40 Japanese parts makers are in talks to set up shop to feed assembly plants there, says Raul Urteaga, a trade minister at the Mexican Embassy in Tokyo. And Mexico expects 40 percent of overall investment in the auto sector to come from Japan in the next two years.
Japanese carmakers are rushing to Mexico, in part to tap low-cost labor.
But with auto exports from Japan hammered by the yen’s exchange rate, Mexico offers an even bigger plus: preferential trade access to 45 countries, including the United States, Latin American nations and members of the European Union.
Mexico gives Japanese carmakers an export base with one foot in North America and another in the booming markets of South America, where Japanese brands are racing to play catch-up and chip away at the Detroit 3’s lead — especially in Brazil, the region’s biggest market.
Combined auto sales in the countries with which Mexico has free trade agreements totaled just under 40 million vehicles in 2009, Urteaga notes.
Mexico is the world’s ninth-biggest auto-producing nation. Chrysler Group, Ford Motor Co., General Motors, Honda Motor Co., Nissan Motor Co., Toyota Motor Corp. and Volkswagen AG built 2.26 million vehicles in 2010.
About 82 percent of those were exported.
Since June, Mazda and Honda have announced plans to build assembly plants there. Mazda’s is scheduled to open in 2013, with capacity for 140,000 vehicles. Honda’s, which will be its second vehicle plant in Mexico, is scheduled to open in 2014 with output of 200,000 units, mostly small cars.
Others may join them.
According to published reports, Toyota Motor Corp. and Suzuki Motor Corp. also are considering plants in Mexico. Toyota makes only 55,000 Tacoma pickups at its plant just south of the California border. And Suzuki abandoned North American production after pulling out of its CAMI joint venture with General Motors in Ingersoll, Ontario.
Many carmakers will bring their suppliers from Japan, Urteaga said. That’s because they need to fulfill local content levels to take advantage of free trade agreements.
To export to the United States, for example, a Mexico-built car needs 62.5 percent local content. For the European Union and Brazil, half the parts need to be locally supplied.
Entire contents copyright 2011 by Crain Communications Inc. All rights reserved.
When all eyes are focused on China, it is easy to overlook Mexico.
For the last decade or so, the common view has been that China’s vastly cheaper labour and greater production capacity are too much to handle for Mexico’s manufacturing export sector.
But a research note on Tuesday by RBC Capital Markets comes as a timely reminder that in the battle for market share of US imports, Mexico is far from beaten.
Indeed, Mexico’s share of that market, the world’s largest, finished 2010 at about 12.5 per cent – the highest in a decade. At current trends, Mexico could even overtake Canada within the next five years or so to become the US’s second-largest source of imports.
One reason, as RBC points out, is that while Chinese wages were roughly 300 per cent cheaper than those of Mexico a decade ago, wage inflation in China and wage stagnation in Mexico have combined to close the gap to almost zero.
A second reason is simply that China is a lot further away than Mexico. That may not matter in a world of cheap energy, but today’s rising transport costs give Mexico an edge, particularly when it comes to heavy and bulky items.
Factor in Mexico’s skilled labour force and the effects of the North American Free Trade Agreement (Nafta), which shield the country from the potential threat of protectionism, and it is little wonder that foreign companies keep going to Mexico.
As if proof were needed, Mazda, the Japanese car manufacturer, announced last week that it would invest $500m in a car-assembly plant with a capacity of 100,000 units a year.
RBC’s bottom line? “Mexico is becoming more attractive for manufacturing, particularly that aimed at the US market.”
By Craig Howie, AOL Autos
It used to be pretty obvious which cars were built in the U.S. (Detroit’s Big Three of Ford, GM and Chrysler) and which weren’t (everything else). Then in the 1980’s the Japanese started building cars here, which made for some interesting arguments about what constituted an “American” car. But in today’s global economy, it’s even harder to answer the question: Is your car made in America?
Many consumers looking to buy an American-built vehicle are having a hard time finding one that’s assembled here with 100-percent American-built components. That’s because it’s actually impossible, at least if you’re talking about buying a car from the major carmakers.
Made In U.S.A. (Partly)
For example, while Jeep’s Patriot may be built in Belvedere, Ill., its transmissions originate in Mexico, Japan and Germany. Similarly Ford’s Michigan-assembled Mustang may be as American as mom, Marines, and apple pie, but its transmissions come from China, France, the U.K., and Mexico. Chrysler’s PT Cruiser isn’t even built in the U.S. – it’s assembled in Toluca, Mexico, though its transmission is U.S.-sourced. GM, meanwhile, builds its Chevy Camaro in Canada and its GMC Sierra pickup in Mexico.
Confusing? Yes. But that’s not the start of it. BMWs are now built in the U.S. and so are some Mercedes vehicles (in Spartanburg, South Carolina, and Vance, Alabama, respectively). With Japanese carmakers having established multiple assembly plants across the U.S. and American car companies operating plants in Canada and Mexico lines are blurred further.
So what makes a car American? It’s a rancorous debate that’s sure to rumble on, but consumers can make up their own minds based on information that’s appeared on the labels of every new car for sale for years. This states where the vehicle was assembled and where the engine and transmission originated.
Mark Birmingham, an industry analyst at the Center for Automotive Research, said consumers who want to buy American primarily should look at where the vehicle is assembled, as often that indicates a large presence not just in manufacturing.
“There is something to be said for buying a Detroit ‘Big Three’ label,” he said, “in the sense that all of administrative, development and white-collar work is indirectly supported.”
Who Builds What Where?
Ford’s Fusion, Fiesta, and Lincoln MKZ models are built in Mexico, while the Edge, Flex, Lincoln MKX, and Lincoln MKT are built in Canada. Other North American models are built in the U.S.
According to NHTSA documents provided to AOL Autos, Ford’s compact Focus is assembled in Wayne, Mich., with 90 percent of its parts sourced from the U.S. and Canada, but its transmission originates in Germany. While the Taurus is assembled in Chicago, Ill., about 65 percent of its parts are of U.S. origin. But its engine and transmission are both built in the U.S.
The F-Series pickup truck, that most iconic of domestic vehicles, is assembled in Kansas City, Missouri, and Dearborn, Michigan, but with just 55 percent of parts made in the U.S. or Canada. More than 15 percent of its parts come from Mexico, although all of its engines and both transmission systems are built in the U.S. Some transmissions for the Mustang (assembled in Flat Rock, Michigan) come from China.
GM vehicles assembled in Canada include Chevrolet’s Camaro, Equinox and Impala and the GMC Terrain, while vehicles built in Mexico include Cadillac’s SRX and Escalade EXT, Chevrolet’s Aveo, HHR, Silverado, and GMC’s Sierra. GM vehicles built in the U.S. include Buick’s LaCrosse, Lucerne and Enclave, Cadillac’s CTS, DTS and STS-V, Chevrolet’s Cruze, Corvette, Malibu and Tahoe, and GMC’s Yukon.
According to figures from IHS Global Insight, of the GM vehicles assembled domestically, several Corvette engines are built in Canada, with several transmission variants originating in Mexico. Its Chevrolet Silverado (assembled in Fort Wayne, Indiana) carries U.S.-built engines across all models, but several transmissions are built in Mexico. For the Cadillac CTS assembled in Lansing, Mich., several engines originate in Canada and Mexico, and the transmissions for various models in the CTS range come from Japan, France, Mexico, and the U.S. Some engines for GM’s Chevrolet Cruze, assembled in Lordstown, Ohio, come from Szentgotthard, Hungary.
Chrysler says about 61 percent of the components it uses for its Chrysler, Dodge and Jeep lines come from the U.S., while about 20 percent come from Mexico and Latin America, about 10 percent from Canada and just under 10 percent from the rest of the world. It maintains large production facilities across the U.S., but also builds its 300 and Dodge Challenger and Charger, in Canada, and the PT Cruiser in Mexico.
Of the Big Three’s foreign competition, Toyota, Honda, Hyundai and Kia all proudly trumpet their domestic-built credentials. (Honda was the first Japanese carmaker to build a car plant in the U.S., in Marysville, Ohio., in 1979, and more Honda vehicles are now built in the U.S. than in Japan.) Toyota builds its Camry and Avalon models in Georgetown, Kentucky, its Sienna and Highlander in Princeton, Indiana, and has large plants in Huntsville, Alabama, and San Antonio, Texas. Hyundai builds the Sonata and Elantra in Montgomery, Alabama, and shares a plant in West Point, Georgia, with Kia, which recently celebrated the 100,000th Sorento rolling off that line.
Nissan and VW both have longstanding ties to Mexico, with plants in Aguascalientes and Cuernavaca (Nissan) and Puebla (VW). Nissan assembles its small cars like the Versa in Mexico and its larger truck and SUV lines in Smyrna, Georgia. VW imports all its vehicles into the U.S., though it will be opening a new plant in Tennessee.
Mercedes-Benz assembles its ML-, R- and G-Class vehicles in Vance, Alabama, with a U.S./Canadian parts content of 62 percent, but both its engines and transmissions are unsurprisingly sourced from Germany. BMW, meanwhile, assembles its X-series SUVs in Spartanburg, South Carolina, with mostly German componentry.
Electric carmaker Tesla’s bodywork is completed by Lotus in England, and then shipped to California for assembly. It will jointly develop electric cars with Toyota at the NUMMI plant in Northern California.
It’s a little surprising that some excellent automotive products are born of such a mix and muddle of production systems. But today’s intertwined global economy – and car market – ensures that no matter where it comes from, today’s cars mostly are built to high standards.
Otherwise, Americans wouldn’t buy them.