Insights into Automotive Manufacturing in Mexico
By Doug Donahue
How the automotive manufacturing industry in Mexico grows will go a long way to explaining overall growth of the sector in North America. It seems a dubious claim to make at first, but an analysis of the facts is illuminating. According to the study “Doing Business in Mexico, Automotive Industry,” from leading global consultancy Price Waterhouse Coopers (PwC) the Mexican automotive industry is the eighth-largest in the world (through 2011) with a total of 2.68 million units produced and eighth in exports, with 2.14 million vehicles exported. In the past two years, Mexico has moved up one spot per year in the productivity rankings of the leading global car-producing countries.
The report calls the automotive industry in Mexico “among the most dynamic and competitive in the world,” further adding that “the automotive industry was the driving force behind the recovery, and now continues to lead the growth of the Mexican economy.”
PwC describes the importance of the auto industry to Mexico as “beyond question,” accounting for 3.6% of the country’s gross national product (GNP) and 20.3% of the manufacturing industry’s GNP, as well as the principal generator of foreign currency. The automotive manufacturing industry in Mexico is one of the nation’s largest employers, accounting for more than 509,000 formal jobs (direct and indirect), with many positions for skilled workers. The industry offers some of the best pay and training opportunities in the country, helping it attract some of the most qualified technical and professional personnel.
Culture of Creativity in Automotive
While the appeal of automotive manufacturing in Mexico is obvious in some respects – lower wages than in North America, closeness to US and European markets, lack of tariffs due to the North American Free Trade Agreement (NAFTA) – there remains a lack of awareness about the industrial tradition and high-quality, skillful work performed by well-trained engineers and designers within the automotive industry in Mexico. For example, several Mexican-based companies within the automotive sector have been awarded the prestigious Shingo prize – the equivalent of the Nobel Prize for manufacturers.
Leading world automotive manufacturers don’t need much more persuading of the value of Mexican producers. The US Big Three, BMW, Mercedes, Volkswagen, Renault, Toyota, Honda and Mazda all have automotive production presence south of the border. The willingness of these leading global brands to establish extensive manufacturing in Mexico and commit to long-term presence in the country for production of their top models says a lot about their confidence in the skill and quality of Mexican automotive workers.
According to PwC’s “Doing Business in Mexico, Automotive Industry,” “It is not a secret that over the last few years, the “three greats” [GM, Ford and Chrysler] have accelerated the relocation of US production plants to Mexico and invested copious amounts to build new plants and expand existing facilities; they have also chosen their Mexican operations as the most suitable manufacturing platform for the production and exportation of some of the new and most important product lines.
And while the Mexican automotive manufacturing landscape has become more competitive, with firms fighting each other for valuable foreign exchange Dollars, Euros and Yen, the industry has adapted to the ongoing recession, by better diversifying its composition of exports. Focusing exclusively on the US market was too risky, so Mexican auto manufacturers are expanding their gaze to include more exports to Latin America, Africa, Asia and Europe; in fact, Canada is the second-leading recipient of Mexican-manufactured vehicles.
From 2000-2008, just 15% of vehicles were exported to countries other than the US from Mexico. But by the end of 2011, export levels of cars and light vehicles to other markets reached 36%, indicating an industry more mature and adaptable to shifting demands, while less dependent on a single market.