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Mexico Automotive Industry Overtakes Brazil, Production to Outpace China

10 August, 2014

In recent years the automotive sector has expanded by leaps and bounds in Mexico, overtaking Brazil in the first half of 2014, which is just one more step toward fulfilling predictions by Ferrari’s CEO and other industry leaders that Mexico will soon outpace China in production and manufacturing. 

“Mexico is the next China,” stated Ferrari North America CEO Marco Mattiacci in a discussion last year with Burgess Yachts CEO Jonathan Beckett and Gotham Jets CEO Gianpaolo De Felice, according to Mexico Today.

And now his prediction is one step closer to becoming a reality as Mexico’s auto industry officially overtakes Brazil in the region. Throughout the first seven months of 2014, export-driven production of cars and light trucks rose 7.5 percent in Mexico compared to the same period last year, while Brazilian output of cars and light trucks has declined by more than 17 percent.

“This reflects a tendency that we have been seeing this year,” stated Fausto Cuevas, general director of Mexico’s automakers association (AMIA), in an interview with the Wall Street Journal. “The panorama is favorable in the international markets.” 

The rise in production and manufacturing in the nation’s automotive sector is partially the result of hundreds of billions in new investment dollars that have poured in to Mexico recently, which has also led to an increase among related industries. For example, in 2013 automakers spurred a more than $3 billion boom for steel that is made in Mexico, as suppliers work to keep up with growing demand, while researchers expect Mexico’s tire market to hit at least $8 billion annually by 2018.

In addition,Latin America’s two largest economies are Brazil (still holding tenuously to the number one spot) and Mexico (currently at number two but quickly closing the gap), but with Mexico exporting 85 percent of its production in recent years and Brazil selling about 85 percent of what it produces to Brazilians internally, it’s no wonder analysts predict that Mexico will soon overtake Brazil as the largest economy in Latin America.

“With international auto makers and their supplier firms now pouring into Mexico, government and private analysts expect the country’s car and light-truck production to rise to about four million a year by the end of the decade,” writes the Wall Street Journal. “The automotive industry, including parts makers, now represents 20 percent of Mexico’s manufacturing production and 26 percent of its exports.” 

Furthermore,Mexico’s economy is expected to grow by at least 3.6 percent this year, which is nearly twice its performance in 2013, while Brazil’s economy is expected to grow by only .9 percent this year. VW,Honda and Mazda already have new plants in Mexico, which is bumping up production numbers, and a new Audi plant will open in Mexico next year that will produce 150,000 luxury SUV’s annually, followed by a new Kia plant in 2016, while BMW and Nissan-Daimler are working together on a plan that will produce and export hundreds of thousands of luxury vehicles in Mexico by 2020.

“This proves that Mexico is a trustworthy country for national and international investments,” stated President Enrique Pena Nieto in early July when he announced the BMW and Nissan-Daimler partnership.

In fact,USA Today reports that Mexico is quickly becoming a worldwide manufacturing hub for luxury vehicles, as Mercedes-Benz, Audi and BMW have all announced plans for plants in Mexico. Lower wages and Mexico’s impressive portfolio of free trade agreements (more than any nation in the world) are helping attract the attention of the biggest international automakers, and output is expected to increase by 60 percent between 2013 and 2020. 

“Moving into the auto industry’s top echelon, luxury car manufacturing, is also an important accomplishment because of finicky levels of quality required, such as tight gaps between body panels, and more complex engineering in the product,” writes the USA Today.

So what does this mean for investors and consumers worldwide? By 2020 more than one in four cars being sold in the U.S. will be made in Mexico, up from less than one in five last year, so expect to see billions pouring in to the sector and new opportunities for growth throughout the industry and North America.

Topics: Industry