While Mexico is on the right track in terms of growing your automaker industry, overcoming deficiencies in the supply chain remains a key factor for further growth.
During the last two decades and steadily, Mexico has gone from being a country with a stagnant auto industry to a producer of cars and trucks globally competitive. The sector is growing at a rate much faster than the economy as a whole, which had an increase of 1% over the past year.
In 2013, Mexico produced about 3 million cars. This figure is expected to increase to 4 million over the next five years, according to the Mexican Association of the Automotive Industry.
The increase in production will be supported by investments by OEMs. Nissan opened a new assembly plant in Aguascalientes, a state located within Mexico, in November 2013 also in the center of the country, Mazda and Toyota (in joint venture) and Honda plan to open factories in Guanajuato light vehicles while Volkswagen and Audi are investing in facilities in Puebla. Among other automakers currently operating in Mexico Ford Motor Company, which has recently expanded its operations in Baja California Norte and Fiat are counted.
Advantages of labor costs
The flood of new investment comes at a time when the Mexican manufacturing industry becomes increasingly competitive, especially compared to China. While Mexico has historically benefited from its proximity to the world's largest economy, now is really eroding the advantages of labor costs in Asia.
A study widely cited by the Boston Consulting Group (BCG), published in 2013, reported that in 2012, unit labor costs in Mexico (ie wages adjusted for productivity of workers) competed even with China. According to BCG, this trend will continue, with widespread expectations that unit labor costs in Mexico to become 30% cheaper than China by 2015 While this figure may seem a bit exaggerated, the overall change is undeniable. During recent years, the labor cost advantage of China on Mexico has been declining and may even disappear altogether in certain industries.
However, some important challenges remain. Mexico's auto industry is being affected by the same problem that most Mexican manufacturing: deficiencies in the supply chain. Manuel Cedillo, a researcher at the National Auto Parts Industry, industry association, told OBG that while OEMs and Tier 1 manufacturers, most of whom are foreigners, have proliferated among Tier 2 and 3, most of whom are Mexican, have failed to keep pace with production. As a result, many of the plants of OEMs and first tier component assembly in Mexico buy goods from Asia and the USA
Luis Minutti, director TRW brake and steering plant in Queretaro, told OBG that imports virtually all of its components from overseas, an expensive process and time consuming. It also believes that through a local party supply could save 10% in customs and transport matters. Many raw materials, moreover, also be imported from abroad. For example, purchase Minutti aluminum bars from Germany.
However, as the industry matures, domestic suppliers are beginning to emerge. Governor of Puebla Rafael Moreno Valle Rosas, told OBG that the presence of auto parts manufacturing plants 1 and 2 level was an important factor in the decision to Audi for the establishment of facilities for a value of $ 1.3 billion in the Mexican state. The German automaker will assemble the SUV Q5 at the plant, which is expected to inaugurate its operations in 2016.
Minutti, meanwhile, began to seriously explore the possibility of obtaining supplies of domestic parts and materials for the end of 2013 this date and the beginning of 2014, the capabilities of several providers in Querétaro Minutti evaluated and trusts that will be able to claim their first orders for components made in Mexico for the first half of 2014.
Existing gaps in the chain of Mexican supplies have not deterred investors, which may indicate that the equipment manufacturers consider that the chain will continue to develop over the coming years. Further integration of the Mexican automotive industry provide another card for the competition for foreign investment in the region.
Automakers eye Mexico for expansion
While Mexico is on track for continued growth in Its automotive manufacturing industry supply chain Overcoming deficiencies Remains a key to further expansion.
Over the past two decades, Mexico has Steadily Transformed from an auto industry backwater to a globally competitive car and truck producer. The industry is growing at a much faster pace than the economy as a whole, Which expanded by 1% last year.
In 2013, Mexico produced acerca 3m cars. This figure is expected to Increase to 4m over the next five years, According to the Mexican Association of the Automotive Industry, an industry association.
The growth in production will be supported by investments from international OEMs. Nissan opened a new assembly facility in Aguascalientes, central Mexican state, in November 2013 Also in the center of the country, Mazda and Toyota (in a joint venture) and Honda plan to open light vehicle plants in Guanajuato, while Volkswagen and Audi are investing in facilities in Puebla. Other automakers active in Mexico include Ford, Which STI recently expanded operations in Baja California Norte, and Fiat.
The spate of new investments comes at a time When Mexican manufacturing is becoming more competitive, Especially Compared to China. Mexico has always benefitted From its proximity to the world's largest economy but today it is eroding Also Asia's labor cost advantage.
A Widely cited 2013 study by the Boston Consulting Group (BCG) Reported That in 2012 Mexico's unit labor cost (that is, wages adjusted for productivity worker) pulled even with China's. According To BCG, the trend is to continue in September, With unit labor costs in Mexico expected to be lower than 30% in China by 2015 While This May be inflated figure, the overall shift is undeniable. For years, China's labor cost advantage over Mexico has-been shrinking and May have disappeared altogether in Un certain industries.
However, challenges REMAIN. Mexico's auto industry is afflicted With the same problem as much of Mexican manufacturing: deficiencies in the supply chain. Manuel Cedillo, a researcher at the National Auto Parts Industry, an industry association, as Told That OBG OEMs and tier 1 manufacturers, all of Which are almost foreign, Have proliferated, tier 2 and 3 suppliers, most of it Which are Mexican, Have not Been reliable to keep up. As a result, many OEM and Tier 1 assembly plants in Mexico purchase components from Asia and the US.
Luis Minutti, controller of a TRW steering and brakes plant in Queretaro, OBG Told That He imports virtually all of His components from abroad, a costly and time-consuming process. That I reckons by sourcing parts locally, I Could save 10% on Customs and transport. Many raw materials from abroad Also must eat. Minutti purchases of aluminum bars from Germany, for example.
However, as the industry matures, domestic suppliers are starting to emerge. The governor of Puebla, Rafael Moreno Valle Rosas, OBG Told The Presence of tier 1 and tier 2 auto parts manufacturers was an Important factor in Audi's decision to set-up STI $ 1.3bn facility in the Central Mexican state. The German automaker will assemble Q5 SUVs at the plant, Which is expected to launch operations in 2016.
Minutti, for His part, Began seriously exploring the Possibility of sourcing parts and materials locally in late 2013 In late 2013 and early 2014 I EVALUATED the capabilities of several suppliers in Querétaro, and have hopes to place orders for His First Mexican-made components in the first half of 2014.
The current deficiencies in the supply chain Have not deterred investment, Which May Indicate That OEMs believe the supply chain will continue to mature in coming years. Further integration of the Mexican auto industry would Provide yet another card in the competition for foreign investment.
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