New automotive clusters established in the state of San Luis Potosí

San Luis Potosí’s automotive manufacturing industry has had a notable impact on the economy, generating 8% of its GDP and dominating the state’s several sprawling industrial parks. The first automotive company entered the state in 1968 and in the years since, the number of such companies with operations in San Luis Potosí have increased rapidly. In 2006, 83 automotive companies were active in the state, a figure that had expanded to 235 by June 2019, according to the Secretariat of Economic Development ( Secretaría de Desarrollo Económico, SEDECO). Many of these companies have centralised operations around the capital city of San Luis Potosí, where all but seven are based. Many are drawn by the state’s strategic location and logistical connectivity. “We are working to make this region one of Mexico’s most dynamic in order to take advantage of the proximity, competitiveness and concentration of manufacturers and providers,” Héctor Soto, director-general of the Automotive Cluster of San Luis Potosí, told OBG.

Overcoming Disappointment

In January 2017 Ford Motors cancelled plans to build a $1.6bn assembly plant in San Luis Potosí on the back of uncertainty surrounding US President Donald Trump’s vague assertions on the imposition of taxes on automotive imports to the US. The same day, the company announced it would instead build a $700m facility in Michigan that would create 700 jobs. The San Luis Potosí facility would have created 2800 jobs, but the small-car production originally planned for the cancelled plant was moved to an existing Mexican plant. “We were initially shocked, but the bitter taste went away quickly once we saw that investment continued to flow into our state,” Soto told OBG. “The companies that were here already continued to consolidate and grow. We have turned the page and are continuing to move forward.”

Success Stories

In spite of this headline-grabbing setback, the state has had a number of notable investments in recent years. General Motors (GM) opened a 347-ha assembly plant in the city’s industrial zone in 2008 that employs 1800 people and produces the Chevrolet Trax and GMC Terrain. It required an initial investment of $650m and has the capacity to manufacture 160,000 vehicles a year. The plant continues to grow, with $87m invested in 2015 to expand production capacity. This investment has paid off: at the end of 2018, GM replaced Nissan as the largest vehicle producer in Mexico – the first time the former reached this position.

In June 2019 German automotive giant BMW opened a 300-ha assembly plant – its first in Mexico – that will produce up to 175,000 units per year of the BMW 3 Series. The $1bn plant directly employs around 2000 people and production began in April 2019. Company officials told the media at the time of the opening that they expect the plant will supply more than 40 markets worldwide starting in 2020. “The BMW plant raised the bar and set new expectations for growth,” Soto told OBG.

Beyond direct vehicle manufacturing, other areas of the automotive segment have flourished. Tyre manufacturer Goodyear built a $550m facility in San Luis Potosí that began production in 2017. The plant manufacturers around 6m tyres per year, including the brands Goodyear Eagle F1 and Goodyear Wrangler All-Terrain Adventure.

Melting Pot

By nationality, Japanese firms make up the largest number of companies in the state’s automotive sector, with 47 companies accounting for 20% of all firms. Japan is followed by the US, which has 40 companies, making up 17% of all automotive manufacturing companies in San Luis Potosí. Even so, East Asian firms – and Japan in particular – are a strategic focus for San Luis Potosí. Since a cooperation project led by the state’s automotive cluster began in 2017, 13 Tier-1 and 22 Tier-2 businesses have joined the scheme. The state is also looking beyond its traditional sources of investment to the EU. “While no individual European country is among the top investors in the sector, the EU as a whole is the second-most important investor in San Luis Potosí,” José Antonio Montes, director of economic planning and competitiveness at SEDECO, told OBG. In addition to the BMW plant, German manufacturer Gestamp opened a new $86m facility in the state in March 2019 to manufacture engineered metal components for the automotive industry. Domestic investment has also been a key source of revenue, with 34 Mexican automotive firms operating in the state, or 14.5% of the total.

State Collaboration

The Automotive Cluster of San Luis Potosí was established in 2015 and acts as a bridge between the public and private sectors. As of 2019 the organisation had 74 members, up from 60 in 2017, according to Soto. “Using other successful clusters from across Mexico as examples, we aim to attract 100 members and encourage the companies that join us to be active,” he told OBG. The state’s cluster is also working with its counterparts in other regions. In June 2019 the organisation signed an agreement with auto clusters in Chihuahua, Nuevo León, Coahuila, Guanajuato, Querétaro, Mexico State, Puebla and Tlaxcala. The alliance identified four strategic focuses: human capital, national integration, providers and the supply chain, and innovation and technology, the latter of which will focus on Industry 4.0 and the internet. Soto sees this as a crucial next step in consolidating the development of the sector. “This agreement allows us to have true collaboration between clusters. It also allows us a platform to assess the competitiveness of the sector for the whole country, rather than each state individually,” he explained. The governments of five states in the Bajío – Aguascalientes, Querétaro, Guanajuato, San Luis Potosí and Jalisco – are also working to align their policies in a way that facilitates development.

Harnessing Academia 

The San Luis Potosí automotive cluster is also working to build the state’s human capital. In June 2019 it signed an agreement with the Michigan-based Automotive Industry Action Group, which will allow San Luis Potosí to professionalise its operations and train more people in business administration. The cluster is also working to increase the involvement of academia in the automotive sector. With increasing foreign direct investment arriving in San Luis Potosí and the requirement for innovative engineering solutions more pressing than ever, one of the most significant challenges for the sector is the development of skilled professionals and the promotion of innovation and high-quality education. Soto says that he is aiming to break down barriers between academia and industry while ridding the relationship of mutual misconceptions.

“We need to get to a point where we have a strong link with academia and can improve the employability of graduates,” he told OBG. The first meeting between academia and industry under these auspices will take place in October 2019.

During this meeting, companies will lay out their needs alongside the ways in which academia may be able to assist in eliminating the existing skills gap. The cluster is also hoping to create an orientation guide detailing the area’s academic offerings tailored to companies that have operations in the area and those looking to invest to underscore how the workforce already has relevant experience.

The cluster’s efforts have been buoyed by the fact that the state’s higher education offerings have notably improved in recent years. A campus of the Instituto Tecnológico y de Estudios Superiores de Monterrey has operated since 1975, the bilingual Universidad Tecnológica Metropolitana de San Luis Potosí opened in August 2017, and in 2020 a new campus of the New Mexico State University will open, furthering international cooperation.

Challenges Ahead 

It is expected that the US-Mexico-Canada Agreement – a continent-wide trade agreement that will replace North American Free Trade Agreement – currently under negotiation will give Mexico notable competitive advantages, first by providing the country with access to one of the world’s largest consumer markets and second, through the stipulation that 75% of a product’s value must be added in the region. In order to take full advantage of the agreement, however, intra- and interstate logistics, connectivity and infrastructure will need to be improved. “We need to be well informed, agile, and intelligent,” Soto told OBG, highlighting the opportunities for other segments. “While previously automobile manufacturers dominated industry, it is clear now is the time for companies that produce automotive parts to take advantage of value-chain regulations,” he explained. The state is also in a strong position to weather the switch to hybrid and electric cars. In order to capitalise on this, it will be necessary to address the challenges related to human capital and the infrastructure deficit.

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The Report: Mexico 2019

Automotive & Aerospace chapter from The Report: Mexico 2019

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