Mexico has been busy hammering out new deals and luring investors to the nation’s booming auto industry and recent weeks have revealed a number of new agreements with major automakers to build even more cars in Mexico, prompting Forbes to predict that Mexico will soon be “America’s car capital.”
“Seemingly overnight Mexico’s automotive output has soared, bolstered by a flood of investment from foreign-based carmakers, including Nissan,Honda,Volkswagen and Mazda,” writes Forbes. “With $19 billion in new investment, production has doubled in the past five years to an estimated 3.2 million vehicles in 2014.”
Boasting some of the world’s most liberal free trade agreements, with 44 countries,Mexico is making the most of its position as the ideal export base for automakers from the Americas,China,Europe and Japan. By comparison, the U.S. has free trade agreements with only 22 countries. In recent weeks, Infiniti, Mercedes-Benz, Hyundai-Kia, BMW and Toyota have all discussed plans to build cars in Mexico, while Audi is already more than halfway through construction on a new $1.3 billion factory.
“Toyota Motor Corp.,the last of the world’s major automakers without a full assembly plant in Mexico, is scouting for possible factory sites,” writes Forbes. “In addition,Mazda will produce about 50,000 cars a year for Toyota at its new factory in Guanajuato.”
Automakers are attracted to Mexico’s young workforce, which has an average age of 24. In addition, Mexico’s dollar-dominated currency provides European carmakers with a natural hedge against fluctuating exchange rates, and the rise of the yen against the U.S. dollar has made it an even more attractive option for Japanese carmakers.
“I can export duty free to North America,South America,Europe and Japan,” said Volkswagen of Mexico Vice President of Corporate Affairs Thomas Karig. “There’s not another country in the world where you can do that.”
What this means for the immediate future is that Mexico – currently the world’s eighth largest auto producer, is expected to surpass Brazil this year and to reach number six by 2020, with an annual production rate of at least 4.7 million vehicles. Much of the manufacturing and production activity is located in Aguascalientes, a major railroad hub located near the large population centers of Mexico City,Guadalajara and Monterrey, just 450 miles south of the Texas border and just a few hours’ drive from major ports, making it the ideal place for shipping vehicles anywhere in the world.
“Mexico has become a superpower in cars,” shared Eugenio Madero, chief executive of Sanluis Rassini North America, a supplier of suspension components that has benefitted from the boom. “Just go to the ocean, and in seven days you’re in China. If you ship from Europe, you have to go through the Mediterranean and the Red Sea.”
What’s more, foreign automakers must agree to purchase at least 62.5 percent of their auto parts in North America, including the U.S.,which is benefitting not only Mexico, but all of its neighbors as well, creating a “bonanza” for fledgling suppliers and global parts giants alike. For example,Magna International opened its first plant in 1991 to supply Volkswagen’s facility in Puebla, which is now the corporation’s second most productive plant in the world.
Since the signing of the North American Free Trade Agreement (NAFTA) in 1994, major automakers have been consistently investing in Mexico, installing new state-of-the-art technology in new plants, making them comparable (or superior) to plants in the U.S. and Canada.
“Having the option of investing in any country, this shows the confidence global investors have in the present and future of Mexico,” shared President Enrique Peña Nieto.