Mexico to Become #2 Auto Exporter to US – Who Wins?

Commentary by JP McDaris

Sometime this year, Mexico will overtake Japan as the second biggest exporter (behind only Canada) of autos to the US, according to IHS Automotive and as reported by Bloomberg. Mexican auto exports more than quadrupled from 1993 to 2013, as output almost tripled, largely spurred by NAFTA. IHS Automotive further predicts that Mexico’s export total to the US will reach 1.9 million vehicles in 2015, surpassing Canada as the biggest exporter to the world’s largest market.

In just the past four months, three big Japanese OEMs – Nissan, Honda and Mazda – have opened in Mexico, further expanding production there. The three new plants alone should boost Mexico’s annual production capacity by about 600,000 vehicles over the next few years.

The Japanese in Mexico, like the Europeans, specialize in producing smaller cars like the Honda Fit and Nissan Sentra. Now the auto industry in Mexico is so large that it generates more foreign exchange than oil or money sent home by Mexicans living abroad (known as foreign remittances).

With growth projections that robust, it’s worth looking at who stands to gain as Mexican manufacturing continues to expand:

• The environment. With so many cars being produced in Mexico for the US/Canada market, that means fewer autos will be shipped across the Pacific, saving fuel costs, emissions, etc.

• Tier suppliers looking to Mexico for opportunity. With OEMs from US, Europe and Asia setting up shop locally, there is a raft of new business growth in Mexico. Because companies looking to leverage Mexico need to have a physical presence in order to add value under NAFTA rules of origin and quality for low-tariff or tariff-free export, they need to get into the country and set up shop. Those who don’t? They risk being uncompetitive.

In fact, you could even go so far as to say that in some specialty areas there is a shortage of suppliers, which could potentially be a bottleneck to growth in the immediate future. But the market will sort that out, with fast-moving suppliers yielding the bulk of the rewards.

 

Source: Bloomberg

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