A Mexico Manufacturer Can Benefit From U.S. Automotive Optimism

Increased growth prospects and optimistic forecasts from the American automotive industry can have substantial influence on any relevant Mexico Manufacturer serving the same industry. A recent survey conducted by Booz & Company reflects well-founded optimism among U.S. manufacturers and suppliers for the near and projected future. With 14 million vehicles expected to sell in 2012, up 9% from the previous year, prospects continue to look bright from the 93% of respondents who believe the industry is healthier and stronger. Reasons cited include:

• Better alignment between supply and demand
• Improved balance sheets
• Reduced and controlled excess capacity
• Significant cost reductions

Several factors contributing to more sobering yet reliably optimistic growth estimates from industry professionals are:

• Lower break-even points
• Profits generated by smaller total industry volume
• Better products
• New vehicle launches with improved performance, technology and safety features further aiding value and fuel efficiency

Additional contributions to a more favorable outlook also include greater consumer confidence, more available credit, pent up demand and improved products, all of which are expected to temper expectations juxtaposed against a retooled industry. In fact, as a result of structural changes within the industry an improved production ratio against demand alignment results in a lower more realistic baseline.

In short, automotive manufacturers in the American market have redefined the industry and how it operates. Gone is the bloated capacity from previous years, as well as market share dominance thinking. This in turn affects any related Mexico manufacturer and supplier network. With a leaner approach to inventory levels, which are more aligned with demand, costs are better managed. While fewer cars may be sold (14 million for 2012, down from 16-17 million of previous years), they are done so at a far more profitable pace. Through lower inventories, better managed production goals and cost reductions, the industry has become better disciplined. The improved balance between supply and demand yields a lower cost base vis a vis profits which actually extends overall profitability. The focus has shifted on profitability not market share.

Future forces affecting this strategy could include:

• Maintaining reliable fundamentals
• Shift in demand centers
• Uncertainties about power trains and other technologies (electrics, hybrids fuel cells and government-support infrastructure programs)
• Increased interconnected supply chain

With the advent of even greater reliability on emerging markets to help manufacture, assemble and supply parts from a Mexico manufacturer, for example, shifted demand can also be affected. Strategic partnerships expanded through near shore opportunities contribute to better risk management and overall growth, which in turn stimulates growth for any Mexico manufacturer as well.

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