Mexico’s Auto Growth is Great News for Suppliers

Commentary by Doug Donahue

In the past couple of years, no fewer than 8 auto OEMs have announced plans to establish new operations in Mexico, which is fast becoming the prime destination in the Western hemisphere for the production of compact and sub-compact vehicles. A recent El Paso article cites projections that Mexico will produce roughly 5 million automobiles of all types by the year 2020.

Naturally this sustained level of investment leads to tremendous opportunity for Tier 2 and Tier 3 suppliers that have a presence in Mexico – or are able to establish one.

>>Read more: OEMs encouraging suppliers to expand in Central Mexico.

Just how committed are automakers to Mexican production? Consider the numbers:

  • Volkswagen: investing $1 billion to expand its Puebla plant by 2016
  • BMW: new plant in San Luis Potosi will have an expected installed capacity of 150,000 vehicles and $5 billion in domestic supplier procurement by 2019
  • Ford: invested $2.5 billion in Mexico for two new plants, including $1.2 billion to build a new transmission plant in the state of Guanajuato
  • Toyota: investing $1 billion in a new production plant in the central Mexico state of Guanajuato to build the next-generation Corolla.

Globally, Mexico surpassed Japan last year as the second-largest automobile exporter to the US behind only Canada. According to projections from Mexico’s national auto parts association, Mexico is expected to crank out 5 million autos annually by 2020, up from 3.2 million in 2014. All this growth means new opportunity for Tier 2 and Tier 3 suppliers that are in position in Mexico. For example, leading Tier 2 suppliers like Visteon, Continental, Mikuni and Robert Bosch are all expanding their Mexico operations in order to keep up with spiking demand.

New Paradigm for Auto Suppliers

Furthermore, the presence of OEMs from Europe and Japan has forever changed the playing field in Mexico for suppliers, irrespective of their country of origin. Traditionally, European OEMs would work with European suppliers and Japanese suppliers would supply to Japanese OEMs. But with Japanese and European OEMs like Toyota, Honda, BMW and Audi setting up in Mexico, suppliers of all size from Japan and Europe have set up their own operations. And those suppliers are no longer content with just supplying their compatriots. They see all the OEMs in Mexico as their prospects, raising the level of competition for

North American suppliers who traditionally considered OEMs in Mexico as their prerogative, due to proximity. Approximately 1,100 top-tier parts makers also have opened production facilities in Mexico to supply these plants. Mexican automotive plants export about 80% of their production and account for 11% of all new car sales in the U.S.

Source: El Paso, Inc.

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