Suppliers Coming to Mexico for Same Reasons as OEMs
Commentary by Doug Donahue
I recently came across this blog post on Dean Barber’s Barberiz blog that I found interesting and worth commenting on further.
To summarize, Barber’s post highlighted some of the recent “greatest hits” of auto industry expansion in central Mexico:
• Audi’s new $1.5 billion central Mexico assembly plant, where the Q5 will be built
• Nissan’s $2 billion plant in Aguascalientes
• GM’s $691 million expansion in Mexican operations
• Mazda’s new $650 million plant in Salamanca and
• Honda’s $470 million plant in Guanajuato
He included the recent announcement that Denso, a tier one Japanese auto supplier, would expand their operations in Silao for $51.4 million. And while I understand that the large OEM announcements and expansions make for splashier news, it’s true that the growth and expansion opportunities for tier one, tier two and tier three suppliers in central Mexico are equally important.
Free Trade – Not just for the big players
Suppliers, in the auto industry as well as others, aren’t just transitioning to central Mexico because the big OEMs are here, but also to leverage the same free trade benefits, for export to North America and South America, those OEMs are taking advantage of. Suppliers, like OEMs, are also in Mexico to leverage a wider range of free trade inputs across the supply chain, giving them greater cost savings than at home.
Take the example of Audi that Barber cites in his post. A German tier 1 supplier can set up in Mexico and import their German input duty free. In Mexico it becomes NAFTA product and can be shipped (and shipped more quickly than if it came from China) to Audi in the US for final assembly at a fraction of the cost. Thus it’s the same type of benefits in both cost savings and potential new topline growth that is spurring the manufacturers as well as the suppliers to transition to central Mexico.