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OEM Auto Presence in Central Mexico Encouraging for Suppliers

Commentary by JP McDaris

A recent article in Plastics Today highlights the level of investment that OEMs have been making in the central Mexican state of Guanajuato of late, and why the area is ideal for Tier-1 and Tier-2 suppliers. Honda, to cite just one example, continued the expansion of its North American production, with an $800 million investment in its new facility in Celaya, Guanajuato, where the Honda Fit will be produced. Honda’s Celaya plant increases the company’s North American production capacity to nearly 2 million units.

Honda is complementing this facility with a new $470 million transmission plant – that will produce continuously variable transmissions (CVTs) – now under construction and expected to go online at the same site in Celaya in the second half of 2015.

BMW announced an investment of about $1 billion in the Mexican state of San Luis Potosi last year, and Nissan opened its $2 billion manufacturing complex in Aguascalientes in late 2013, just to cite two more examples. Cumulatively, foreign automotive OEMs have poured some $11 billion worth of investments into Mexico between 2010 and 2014, according to the Center for Automotive Research.

But why specifically central Mexico? Price is certainly one factor. Overall operating costs in Mexico’s interior can be up to 40% lower than similar costs at the border. Also, the region boasts strong infrastructure, well served by road, rail and nearby ports. The area also has ample skilled labor – thanks to the large amount many state governments have invested in education and training academies in the area – with an established manufacturing tradition. In addition, a strong automotive cluster in central Mexico, also known as the Bajio, has developed. Quite simply, the presence of big OEMs results in Tier-1 and Tier-2 suppliers setting up shop, which then encourages more OEMs, and so forth. Growth begets growth as a region grows organically.

That said, the need for manufacturers in central Mexico to round out their supply base remains. “With all these plants and plant expansions, the need for suppliers will become greater,” Clare Goldsberry recently wrote in Plastics Today. “OEMs like their suppliers close, with many increasingly using a regional sourcing strategy.”

Source: Plastics Today