The North American Free Trade Agreement (NAFTA) turned 20 years old in 2014, as Mexico’s auto industry emerges as a “clear winner” according to a variety of sources, including the latest Scotiabank Global Auto Report. The sector’s continued impressive growth since NAFTA’s introduction is creating a huge boost for Mexico’s already stable economy, providing a better wages for workers and is also improving the bottom lines for major global auto companies – and their shareholders.
“Vehicle production in Mexico has more than tripled,” stated Scotiabank’s Senior Economist and Industry Specialist Carlos Gomes. “Exports of motor vehicles and parts have increased an average of 12 percent annually since 1994.”
According to Mexico’s Economy Minister Ildefonso Guajardo Villarreal, the nation has already set new records in 2014 in terms of production, exports and sales in its automotive sector. According to Villarreal, Mexico produced 3.3 million vehicles between January and November of this year, which is an increase of about 240,000 compared to the same period in 2013.
“While the U.S. is Mexico’s biggest market, exports to Canada and China have seen the strongest growth recently,” Villarreal told CNN. “Mexico is also experiencing strong domestic demand for cars. Auto sales in 2014 are on track to hit the highest level in ten years.”
One major advantage for automakers in Mexico is the ability to simultaneously manage multiple sites of production, allowing each plant to specialize in producing specific vehicles or platforms. Mexico’s wide range of manufacturing hubs also permits corporations to select the production location that will provide the greatest tax and trade advantages.
In addition, consultant AlixPartners reported this year that Mexico has surpassed China to become the world’s cheapest country for manufacturing, especially for products intended for the U.S. market, and even the Detroit Free Press called Mexico a “fantastic place for manufacturing automobiles,” citing the nation’s low wages, excellent trade relationships and superb geographic location. Mexico also has free trade agreements with 43 other nations, which places it in a unique position to become a global manufacturing powerhouse in the coming years.
Mexico & North America
There are plenty of great reasons Forbes has predicted that America’s car capital will soon be Mexico. According to IHS Automotive,Mexico already accounts for nearly 18 percent of North American auto production, and that number is expected to hit at least 25 percent over the next five years as billions of new investment dollars pour in to factories throughout the country’s main industrial areas.
“Mexico has joined Germany,Japan and the U.S. as one of the heavyweights of production,” stated IHS Analyst Joe Langley.
In addition, each vehicle built in the U.S. now contains at least $4,000 worth of Mexican-made parts, while the auto industry accounts for more than 20 percent of Mexico’s total foreign receipts and Mexico became the largest auto parts exporter to the U.S. back in 1998. Since then, auto parts exports from Mexico have continued to gain U.S. market share and now account for at least 34 percent of the total number of U.S. auto parts imports.
“Mexico is becoming a key hub for auto exports and is expected to quickly grow in global auto significance,” write researchers from Wood Mackenzie, an industry consultancy group. “The opening of the first luxury car plants by Audi, Nissan-Infiniti, Mercedes-Benz and BMW in the coming years demonstrates automakers’ confidence in Mexico’s capability.”
Automakers and a wide variety of related industry suppliers are pouring new investment dollars into Mexico, with a variety of companies breaking ground on new factories or ramping up production in existing facilities. Here are some of the most recent developments:
This December General Motors announced plans to spend at least $3.6 billion in additional investment dollars over the next four years in its production facilities in Toluca,Ramos Arizpe, Silao and San Luis Potsi, Mexico (the auto giant has already spent $1.4 billion here since 2012). The decision shows GM’s continued confidence in Mexico’s stable economic future and the move will effectively double the corporation’s production in the country, creating up to 45,000 new jobs.
GM currently has 14 factories and 15,000 employees in Mexico, where it builds the Chevy Aveo, the Cadillac SRX and a variety of engines and transmissions. Starting in 2017 the Chevy Equinox will also be manufactured at GM’s plant in Ramos Arizpe, Mexico. Last year GM produced 647,000 vehicles in Mexico – a number that is expected to increase dramatically this year and in the future.
Kia Motors Corp.,which is a subsidiary of Hyundai Motors, revealed this fall that it will build it’s first assembly plant in Pesqueria near Monterrey, Mexico,to be completed by the first half of 2016. The South Korean automaker will invest upwards of $1 billion in the new manufacturing facility, which will produce 300,000 vehicles each year. Kia’s presence in Mexico means that nearly all of the major global automakers are now represented in Mexico. The new Kia plant is most likely to produce Forte compact cars and Rio subcompacts, followed by the Soul.
“Kia’s commitment expands on Mexico’s automaking prowess,” writes Bloomberg. “The nation’s output is poised to surpass 3 million vehicles this year for the first time.”
As one of the last remaining automakers without a full assembly plant in Mexico,Toyota Motor Corp. is looking to join the party and is scouting the country for possible new factory sites, according to a recent report by Bloomberg. Although Toyota already has a limited presence in Mexico, producing about 50,000 cars a year at one of Mazda’s facilities and building pickup trucks at a plant near Tijuana. According to Reuters, a top Toyota exec said the company was re-examining plans to break ground by 2016 on a new production facility in central Mexico that will produce the Corolla, but the final decision will likely come in early 2015.
Volkswagen & Audi
Leading German auto manufacturer announced in late November that it will invest around $106 billion in new production facilities over the next five years, and this includes building a new Audi plant in Mexico, which will begin production by early 2016.
When Honda redesigned the Fit for North America, the company turned to Mexico for its increasingly skilled workforce and favorable export rules, opting to build a new $800-million factory near the city of Celaya in Guanajuato state. The first Honda Fit rolled off the assembly line earlier this year and serves as a poignant symbol of the nation’s status as an emerging superpower in the global automotive industry. Honda also opened a new plant in Mexico this November.
Korean-based bus manufacturer Daewoo will also enter the Mexican market in 2015, with plans to build a new $30 million production plant in Ciudad Sahagú, which lies about 92 kilometers northeast of Mexico City. Daewoo has reportedly partnered with Hildago-based American Coach de Mexico, which has existing facilities in the area. The new plant will be fully operational in 2015 and will initially employ nearly 200 workers. Daewoo is hoping to capture a large portion of the market in Mexico’s growing adoption of Compressed Natural Gas (CNG)-fueled public transportation vehicles.
“We predict we will sell 300 units in our first year,” shared Adán José Lecona Guizar, director general of Daewoo Bus Mexico. “We are betting on the urban bus being powered by a compressed natural gas engine. Daewoo has a wealth of experience in natural gas, which will be our competitive advantage in Mexico.”
Mazda began building the Mazda3 sedan at its new plant in Guanajuato, Mexico, earlier this year for the U.S. market. The auto giant has sold nearly 180,000 vehicles in Mexico since it first entered the market there in 2005 and plans to expand production to include the Mazda2. The Japanese-based manufacturer also began operations at a new $120 million engine machining factory this fall where it will make approximately 230,000 SKYACTIV engines per year.
“You can go to the west to ship cars up to Vancouver, or Seattle, or you can go to the east coast to ship cars to New York,New Jersey or Europe,” shared Jim O’Sullivan, president and CEO of Mazda North America. “Or, we have a rail facility there and can send cars right into Texas.”
Nissan& Daimler AG
Nissan opened a new $1.3 billion plant in November following an announcement earlier this year that it will begin working with Daimler AG to jointly produce Infiniti and Mercedes-Benz models in Mexico. Other milestones this year for Nissan includes the launch of LEAF, its 100-percent electric vehicle, which is now offered for sale in Mexico, as well as the production of its 12-millionth engine at Nissan Mexico’s Aguascalientes powertrain plant.
“The plant is currently preparing two extra lines to produce two new engines,including a hybrid version for the United States,” writes Automotive Fleet. “This year,the powertrain plant will produce 834,000 engines for local consumption,in addition to those used by after sales.”
Auto Industry Suppliers
Auto industry suppliers also benefit from the upswing in manufacturing that is occurring right now in Mexico, with a variety of new investment announcements coming out in recent months in this growing support sector. For example, upon opening its new $1 billion plant in early 2016, Kia is expected to attract an additional $1.5 billion in new investment dollars from its suppliers. Also, Brembo, an Italian manufacturer of automotive brake systems, will invest $39 million in a new aluminum caliper plant in Nuevo Leon, while Axalta Coating Systems will invest $10.5 million in Mexico to expand its capacity to produce resins used in the manufacture of transportation coatings, and Sanluis Corporacion, which is the largest supplier of suspensions for U.S. light vehicles, showed the biggest gain of all 120 publicly traded Mexican companies in 2014
“For investors looking to play the auto sector in Mexico, Sanluis is the best option,” shared Bolsa analyst Homero Elizondo in an interview with Bloomberg this October. “There’s still significant upside for the stock. It’s still relatively cheap versus its peers and it’s backed by good fundamentals.”
In addition,Federal Mogul opened a $15 million piston ring plant in Mexico this October, while Mexico’s Alfa, which manufactures car parts and other items, reported its second-quarter revenue rose nearly three percent this year thanks to auto parts sales, and the nation’s automotive expansion is also sparking opportunities for the plastics industry, as well as opening up a huge window of new opportunities for Tier 2 and Tier 3 suppliers.
“Mexico’s auto industry has launched a long-term effort to develop a national network of Tier 2 suppliers,” writes Auto News. “If Mexico can source more parts and raw materials at home, that means more jobs and tax revenue.”
Benefits for Mexican Workers
Finally, although U.S. factories have increased output since sales have rebounded,IHS analysts found that Mexico’s automotive plants are adding jobs and increasing production capacity at a much faster rate. As a result, factories are looking to increase wages in Mexico as more car manufacturers flood the country, which will help to farther bolster the nation’s growing middle class. According to a report by the Latin Post, the recent boost to Mexico’s economy has led to support from both the liberal Party of the Democratic Revolution and the more conservative National Action Party for increasing the nation’s minimum wage.