Investment Properties Mexico
Toll Free USA/Canada (866) 751-7955

Read. Learn. Invest. Grow

Mexico Trumps Japan in Global Auto Industry; Vehicle Exports Hit $30 Billion

23 February, 2014

*UPDATED*  The automotive industry in Mexico hit a six-year high in 2013,with exports reaching an impressive $30 billion,allowing Mexico to officially surpass Japan to become the world’s second-largest auto exporter to the U.S.

“Passing Japan as a U.S. supplier has been in the works for quite some time,” IHS Automotive analyst Guido Vildozo told Bloomberg. “Mexico may pass Canada next year.” 

This Latin American superpower is now a major hub for the global auto industry,which provides Mexico’s number one source of foreign cash,trumping oil,remittances and tourism,in that order. In 2014,automakers will continue to expand production as billions of new investment dollars pour into new and existing facilities.

“Domestic sales may reach as many as 1.15 million vehicles this year,beating the 2006 record high of 1.14 million,” writes Bloomberg. “Auto output in Mexico climbed 1.7 percent last year to a record 2.93 million.”

According to the Federal Reserve Bank of Chicago,Mexico is currently responsible for at least 20 percent of the total light vehicle production in North America and is the fourth-largest auto exporter in the world. The nation’s low production costs and export-friendly environment,combined with the rising cost of shipping goods from Japan and China,have prompted many of the world’s largest auto manufacturers to set up operations in Mexico,which is a more efficient production hub.

“Mexico is becoming one of the best places to manufacture cars,” Audi’s COO Joe Jacuzzi told Business Insider.

Exports have more than quadrupled since the signing of the North American Free Trade Agreement (NAFTA) in 1993. Today,this includes more than just small compact vehicles,with the Lincoln MKZ already in production here and Audi’s next-gen Q5 SUV scheduled to begin production at a new plant in San Jose Chiapas by late this year. 

“Trade agreements with 40 countries worldwide,as well as favorable trade terms with major markets such as Brazil,and a cost of labor 20 percent that of the U.S. have converged to make Mexico a major auto exporting nation,” writes Motor Trend. “In addition to the Detroit three and Volkswagen,which have had operations in Mexico going back several decades,the Japanese automakers have recently made significant investments in the market,with the most recent examples being Mazda and Honda.”

As one of Mexico’s fastest-growing industrial sectors,the automotive industry is expected to continue expanding throughout 2014 and beyond,which also means thousands of new jobs for Mexico’s increasingly skilled workforce. In fact,Bloomberg Businessweek reports that Ford Motor Company’s Mexico facility has nearly tripled its local engineering staff since 2010,totaling almost 1,000 new employees,a number of whom subsequently filed for 40 U.S. patents,proving that the nation’s workforce is keeping up with and even surpassing the latest cutting edge technology. According to data from UNESCO,Mexico had nearly 580,000 students enrolled in engineering programs by the end of 2011; a number that was higher than Germany and Brazil.

“The Mexican auto industry is about to go on a $10 billion factory building spree,” writes Reuters. “Mexico is building more auto plants than the United States or Canada through 2020.”

Recent announcements for new and expanded auto manufacturing facilities in Mexico include a new $120 million engine factory for Mazda,an assembly plant for BMW,a new $2 billion plant for Nissan Motor Co. that is expected to work with Infiniti,Mercedes-Benz and Daimler,a $1.25 billion investment by Daimler in two existing plants,a new $800 million transmission plant for Honda and plans for Volkswagen to invest $7 billion in new and existing facilities in Mexico.

“Mexico is becoming the export hub for the Americas – not only North America,but also South America,” Nissan CEO Carlos Ghosn told Reuters. “We like Mexico because it allows us to be competitive. It’s not only about cost,it’s also about quality and responsiveness – the capacity to respond to variation in the market very quickly.”

According to Michigan-based research firm IHS Automotive,Mexico will build one in every four vehicles in North America by 2020,the vast majority of which will go to the U.S. However,auto exports to destinations other than the U.S. are expected to rise at a much faster rate as Japanese and German automakers lead the trend to move operations to Mexico.

“It’s certainly a low-cost place to produce and there’s a lot of comfort with the caliber of the workforce in Mexico,” stated Ron Harbour,partner and manufacturing analyst at consultant Oliver Wyman. “In the late 80s and early 90s,what was coming in from Japan was overwhelming compared with what we thought about from Mexico back then. Obviously,things have changes.”

Like this story? Like Investment Properties Mexico on Facebook.