Highlights of Mexico Automotive Summit 2014 - Mexico Business Events (mbe)
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Automotive Industry Drives Mexico’s Economic Growth

Automotive Industry Drives Mexico’s Economic Growth

Spreaker: Eduardo Solis, Executive President of AMIA

After warmly congratulating the MAR team and officially receiving the Mexico Automotive Review 2015, Eduardo Solís focused his opening address on the automotive industry’s continuing importance to the Mexican economy. Impacting 20 subsectors directly, it contributes to 19.8 of the manufacturing GDP. For Solís, this proved beyond a shadow of a doubt that the automotive industry has moved beyond its maquiladora roots. “It is now is an integrated industry with a high added value that is no longer concentrated in the border states, as the Bajio region has experienced the largest growth in recent years,” said the AMIA Executive President.

Automotive Industry Drives Mexico’s Economic Growth

The automotive sector also comprised 20.8% of FDI in 2012, which helped Mexico achieve historic levels of exports and become the 7th largest vehicle manufacturer worldwide and the first in Latin America. With more than 80% of Mexican automotive production going to foreign markets, the heaviest beneficiary is the US, which recently saw Mexico leapfrog Japan as its second-largest exporter.
While OEMs have been dominating news about the Mexican automotive sector, suppliers are not to be overlooked, said Solís. Despite ongoing sophistication, the Tier 2 supply chain in Mexico is concentrated in but a few commodities, such as smelting and plastic injection. 71% of total demand for processes is still imported, making this level of the supply chain the greatest automotive opportunity that Mexico has yet to take advantage of.

Solís warned about judging Mexico’s automotive success by its export levels alone. He mentioned that the sector has still not been able to recover from the 2009 crisis, when it dropped 30%. “The amount of sales has remained stagnant for the last ten years, and we are not achieving a renovation of the vehicle pool. 640,000 used cars entered Mexico from the US last year, ultimately damaging the market,” stated Solís. A new decree is trying to address the importation of cars that do not meet environmental criteria, but amparos issued by two judges have blocked this progress, allowing up to 90% of the used cars to come through, according to Solís. The Executive President of AMIA praised the decree and thundered against corrupt public servants that acted with impunity in granting the amparos. He urged that Mexico follow the example of Brazil and Argentina that have healthy second-hand vehicles markets because they do not allow the entrance of illegal used vehicles. Ultimately, he warned, Mexico cannot solely depend on exports and it needs a strong internal market. This is where the industry’s challenges lie and where AMIA is working with the federal government: to continue opening markets.

Key trends in the Mexican Light Vehicle Market

Key trends in the Mexican Light Vehicle Market

Moderator: Ricardo Haneine, Partner at A.T. Kearney
Panelist: Gabriel Lopez, CEO of Ford de México
Panelist: Pedro Tabera, Director General of Mercedes-Benz Mexico
Panelist: Manuel Padrón, Partner at Baker & McKenzie
Panelist: Eduardo Solis, President of AMIA

In a panel tracking the key trends influencing the Mexican light vehicle market, moderator Ricardo Haneine, Partner at A.T. Kearney, began by stating just how much of an overhaul NAFTA had provided for the Mexican automotive industry. It achieved in installing a level of dynamism that national policies, implemented for decades, had failed to do. Essentially, in Haneine’s eyes, the opening of the Mexican market through NAFTA is what made the automotive sector the key economic driver it is today. This is evidenced by the automotive industry now accounting for 4% of GDP, 25% of Mexican manufacturing activity and awaiting US$10 billion in FDI for the next few years.

Gabriel López, CEO of Ford de México, agreed, stating that Ford had come to Mexico to export to the US. He described waves of automotive FDI to Mexico as pre and post-NAFTA, and said that the post-NAFTA phase had allowed the entrance of billions of dollars in investment to the country. “The efforts made by successive administrations to attract investment have been crucial to the sector, as they have maximized economies of scale,” said López. Pedro Tabera, Director General of Mercedes-Benz Mexico, echoed his counterpart, praising Mexico’s market openness as key to its automotive success. The 45 countries with which Mexico has FTAs make it much easier for multinationals to decide to settle here, while the country’s close ties to the US dollar provide a large measure of economic certainty. Finally, the quality of suppliers and the cheap labor in Mexico has combined with the country’s proximity to the US to provide an irresistible combination for investments.

Manuel Padrón, Partner at Baker & McKenzie, jumped on the issue of Mexico’s geographical advantages. “Location is key for automotive companies, because of demand from the US. The government has taken advantage of its geographical location and enhanced it through proper regulation and polices. OEMs and suppliers alike can now enjoy specific and adequate regulation to foster their development,” he explained. Eduardo Solís, Executive President of AMIA, sought to add a layer of nuance to the concept that geographical location was Mexico’s main tool. He said that Mexico’s commercial agreement were the second-most important argument and that its skilled labor pool had allowed automotive projects to go from scratch to operational in just 18 months.

Looking to the future, the panellists dwelt on what they felt would allow Mexico to bring even more automotive investment. López felt that investments by OEMs would reflect investments made in the local Mexican supply chain. He stated that to further detonate growth, the presence of reliable Mexican Tier 2 and 3 firms was of the utmost importance. He called upon Tier 1 suppliers to develop their domestic supply chains, especially at a time when international sourcing and logistics costs them 10-15% of a finished product. He provided the example of Ford, whose Mexican plants have a productivity match that of plants in the US and China, despite have less experience and technology.

For Tabera, Mexico needs to take a qualitative leap in production toward R&D. Developing a local supply chain will reduce costs and push the industry but it is not the only issue. The quality of diesel available in Mexico is poor and unsuited for sophisticated engines. He explained that problems such as this pushed companies to source abroad, despite the high logistical costs.

Padrón chimed in to say that the academic sector was largely at fault for the lack of R&D centers in Mexico, and which hindered the ability of the many Mexican engineers graduating each from entering the workforce. Solís also noted the importance of working with universities to ensure graduates are armed with the right skill. He called on the government to provide fiscal credits to R&D centers, as do many of the countries Mexico competes with. “Previously, Mexico had a 30% tax break for R&D, but this was seen as a fiscal hole by the previous administration. As a result, Mexico has good programs but no longer has incentives that allow it to compete with other countries in terms of R&D,” he concluded.

OEM Perspectives on the Domestic Market for Heavy Vehicles

OEM Perspectives on the Domestic Market for Heavy Vehicles

Moderator: Miguel Elizalde Lizárraga, President of ANPACT
Panelist: Gustavo Garcia, Director of Operations of Kenworth
Panelist: Arnaud Dordilly, Managing Director of Scania
Panelist: Ignacio Garcia, VP of Cummins
Panelist: Carlos Pardo, Director General of Navistar

Moderator Miguel Elizalde Lizárraga, President of ANPACT, kicked off the panel by recapping the essential data of heavy vehicles in Mexico, contrasting its strong production but poor domestic sales. Mexico is the seventh largest producer of heavy vehicles in the world, and third largest in Latin America. However, he believes Mexico has the potential to rise far higher and surpass Brazil and the US in terms of production. This production potential stands opposite to sales though since these are currently in a downturn. From January to August 2015, sales in Mexico dropped for the third year in a row, and now stands 35.1% below its best year, 2007.

A number of factors has led to this poor sales performance, including the tax reform and the fallout from the 2008 economic crisis. However, by doubling down on its commitment in the North and Latin American markets, Elizalde Lizárraga says the industry remains profitable as a whole, despite the domestic slowdown. The sad reality is that despite being a heavy vehicle production juggernaut, Mexico continues to import old heavy vehicles from the US. In August, for every 10 new heavy vehicles sold, 50 old ones came across the border, meaning that 2015 risks being the worst year yet for “chocolate” heavy vehicles entering Mexico. “The national legal structure is being reformed to deal with this threat to new vehicle sales. For example, Mexico’s environmental regulations for heavy vehicles are being slowly increased to match those in the US, which will make it more difficult to import old vehicles from the US,” stated Elizalde Lizárraga. This would set the tone of the panel, which revolved largely around what Mexico needed to do to spur its domestic market while maintaining its production advantages.

Gustavo Garcia, Director of Operations of Kenworth, picked up on the complementarities between the US and Mexican markets and regulation. “The main reason that we relocated our plants in Mexico was to have access to the advantages the country presents. Being next door to the biggest heavy vehicle market in the world, the US, was obviously a major plus,” he said. Gustavo Garcia also addressed the proximity of regulations between Mexico and the US, saying that the regulatory model EPA has provided for Mexico is a major reason why heavy vehicle trade. Ignacio Garcia, Vice-President of Cummins, sought to divide the issue into two sections: the FTAs Mexico has with many countries and the cost of its own labor. Dwelling on the latter, Cummins has seen an increase in productivity among its staff, engineers, technicians and operators that has not been replicated in other destinations. This makes it far easier for heavy vehicle OEMs and suppliers to start projects here than in other destinations.

Arnaud Dordilly, Managing Director of Scania, took a different tack. He explained that while Scania does not produce in Mexico, selling vehicles here requires adapting to the country’s very specific domestic market. Despite the downturn in local sales, Dordilly is confident that the situation will recover. He spoke of investments at the federal level that drive the creation of new projects and increased sales of new vehicles. He added, that although Scania is a Swedish group, the continued import of used vehicles hurt European OEMs as bad as American ones, both for new vehicle sales and for spare parts.

Carlos Pardo, Director General of Navistar, was asked by Elizalde Lizárraga as to what the consequences would be if Mexico passed specific regulations to prevent old vehicles from crossing the border. Pardo agreed that fleet renewal was crucial to the health of the national vehicle park, but said the best way to do so would be to provide credits and fiscal incentives that will encourage small owner-operators and companies to reduce their fleets. If not, issues of competitiveness or of access to financing mean that most small operators will not do so on their own. Gustavo Garcia added that Mexico was now the largest Latin American market for Paccar, Kenworth’s owner. Despite this evident confidence, Gustavo Garcia would like to see the federal government organize better enforcement of the rule that all vehicles have the right permits and meet environmental standards. This enforcement would essentially force many operators into compliance and make them seek to replace their aging trucks.

Pardo stepped in to say that this compliance was all the more needed because the presence of junk vehicles essentially provided unfair competition. Dordilly and Pardo teamed up to say that the heavy vehicle OEMs had to unite and pressure the government to enforce the rules, since fleets with newer vehicles had major difficulty competing with those companies that used old vehicles. “Competition is healthy,” stated Pardo, “as long as competitors comply with environmental regulations, with vehicle age requirements, and with labor laws. If we all do this, then this market will expand in a healthy way.”

Dealership Evolution: Client Focus & Multi-Brand Representation

Dealership Evolution: Client Focus & Multi-Brand Representation

Speaker: J. Arturo Zapata, Executive President of Corporación Zapata

The presentation of J. Arturo Zapata revolved around how established vehicle dealerships in Mexico evolved from representing one single automotive brand to becoming houses for various OEMs. With over 1,600 car and truck dealerships in Mexico, generating over 105,000 direct jobs and representing 42 brands, they are a non-negligible aspect of the automotive sector.

For Zapata, the future of distributors sees them having to form clusters, as individual distributors will have a very tough time. Furthermore, becoming a multi-brand distributor provides a cushion for a distributor, should one brand undergo a downturn or enter a negative time in its cycle. Mexican distributors are also suffering from the fact that Mexicans buy just over 1 million vehicles a year, as opposed to its full potential of 2.5 million.
But, despite this stagnant period, the expectations of customers have evolved. “Customers now expect far more from their vehicle and their distributor alike. The concept of service appointments are now seen as outdated, customers now expect to wait while their car is being serviced, the concept of having to leave and come back is difficult to accept but many repair shops in Mexico still insist on this outdated style,” says Zapata.

The problem that dealers now face is that their margins have been reduced as well, making it all the more important for them to understand what their customers expect and to represent multiple brands. It is also important for staff to evolve along with the distributors they work for. Staff cannot just understand the vehicles, they must comprehend and react to customer trends, IT, and online sales, among other areas.

Zapata then listed the challenges and opportunities that would face distributors over the next five years. Customer satisfaction ranked high on both these sections and Zapata encouraged distributors to hold specific meetings to understand how to best anticipate and match customer expectations. The imports of used vehicles will also continue to put pressure on distributors and reduce their sales. Zapata lambasted those in the Mexican automotive industry that said nothing could be done to stop the imports of “chocolate cars”, saying that the industry should pressure the government to ensure that all imported vehicles comply with regulations, permits and expected emissions levels. Only in this way, said Zapata, can the government find the political will to curb these imports. If this is done, growth will return to the distributors across the board.

Distributors must understand the urgent need for them to modernize, through rigorous application of software such as SAP, by applying sophistication operations and processes, and by providing individualized services. Finally, Zapata warned that the time for face-to-face interaction is beginning to fade. Increasingly, distributors interface with clients through the Internet and through apps but that many Mexican companies refused to take this step. He stated in no uncertain terms that customers shopped for cars online, and were now far better educated than before, even knowing more about a certain vehicle than distribution staff. “The old way of doing business, of simply selling a car to an unknowing client, is over. These changes will allow the wiser distributors to anticipate the needs of their clients and survive,” explained Zapata.

Full Operational Leasing Supports Domestic Market Evolution

Full Operational Leasing Supports Domestic Market Evolution

Speaker: Tjahny Bercx, CEO of LeasePlan

Celebrating one year in Mexico after five years in Brazil, Bercx focused on how leasing can add value to the regular maintenance of vehicles in Mexico. He said that LeasePlan’s leasing strategy was developed over 50 years of communication with automotive companies and customers and would now be developed to its full capacity in Mexico.

In the Mexican vehicle park, only 4-5% of cars are under vehicle leasing, of which 125,000 units are under full operational leasing. As such, Bercx predicts that operational leasing will see a huge increase in the years to come. This is because Mexico’s assets culture is developing and that Mexican corporate and private clients are beginning to more carefully consider their total cost of ownership (TCO). Many leasing companies have spotted this opportunity and have now invested the Mexican market. However, LeasePlan’s 1.4 million vehicles around the world make it the global leader, allowing it to enter Mexico confidently and see a growth of 130% in its first year of operation here.

Bercx explained how LeasePlan set itself up here. First, it targeted savvier international customers to get its leasing fleet in Mexico under way. As its start-up phase finishes, it will begin to target domestic customers who will consider leasing more favorably, when they see the international portfolio LeasePlan already has in the country. One of the greatest arguments that leasing companies present to customers is that the telematics provided can provide a full diagnosis schedule for maintenance needs, based on predictions of how far each vehicle is driven by each driver. These maintenance stops can also be scheduled to happen en route for each vehicle without taking off its pre-scheduled routes.

Beyond maintenance, Bercx mentioned that leasing companies can allow for fleet management to be entirely controlled by software. “Even companies with a lot of liquidity now realize that they can spend their money in different areas than their fleets. Fleets are the second-biggest expense for companies after personnel so outsourcing this and reducing spending is a major advantage,” explained Bercx.

Making LeasePlan’s leasing options unique is that it integrates all its leasing options into one package. For example, each driver has access to all the telematics data for their own vehicles in real-time, allowing for the drivers to collaborate directly with LeasePlan to ensure that all services, such as back-up cars, general maintenance, inventory, and replacement of spare parts are all linked through one information platform, available on a smartphone. This united system allows LeasePlan to provide customers with carefully tracked data about costs, about timing, about staff performance, and about the status of each service. LeasePlan is already operating this system in Europe and will be launching this telematics platform in Mexico during 2015. Bercx guarantees that this arrival in Mexico will allow domestic and international companies get more information out of their fleet vehicles than ever before, allowing companies to better manage costs and drivers to learn how to best handle their cars.

LeasePlan has also developed a supplier integration management tool, which includes all the data about different suppliers, including contracts, pricing, and invoices. Much like its broader telematics platforms, this tool is already standard in Europe and is expected to do well in Mexico.

Site Selection & Logistics Management

Site Selection & Logistics Management

Moderator: Florian Paugam, Sales and Marketing VP of Kuehne & Nagel
Panelist: Salomon Noble, CEO of Intermex
Panelist: Leo Torres, Director of Purchasing & STA of Ford de México
Panelist: Alberto Sanchez, Automotive Leader of Ferromex

Moderator Florian Paugam, Sales and Marketing Vice-President of Kuehne & Nagel, began an analysis of external factors that were moving the automotive supply chain in Mexico. The major factor he dwelt on was a “democratic shift”, in which younger customers are buying cars and are demanding a supply chain that is more responsive to their needs. Paugam referred to a study by PwC that tracked the economic impact this shift was having on the automotive supply chain. “More emphasis now needs to be placed on features instead of on performance. This is not only true in the Western world, as economic growth will see Brazil, India, China, and Mexico become ever more important bases of automotive purchasing. Accelerated urbanization will change the aftermarket and service supply chain, as it will demand models such as car sharing. Furthermore, infrastructure will become more congested, demanding more effectiveness in the supply chain,” he explained. This theme of infrastructure would be a central one for the rest of the panel. The CEO of Intermex, a shelter services company based in Chihuahua, began by pointing out the need for industrial real estate developers to develop infrastructure able to respond to new automotive trends. Salomon Noble named infrastructure as one of a few variables that determine where automotive projects will be set up. For example, the site must be near existing power lines, close to the railway system and be within easy commuting distance for workers. Aside from infrastructure, the variables included the availability of skilled labor, logistics, and easy access to natural resources.

Leo Torres, Purchasing Director of Ford Mexico, sought to develop the impact that the supply chain has on an OEM’s business. He stated that 75% of a vehicle’s cost is spent on the supply chain, which leads Ford to seek long-term relationships with its suppliers. “We have 26 suppliers in our Hermosillo plant, many of these have been with us for more than 10 years. Over that time, we have only changed three of them, due to reasons pertaining to technology,” added Torres. He pursued by revealing just how the suppliers’ own supply chains and how they helped to grow local Tier 2 and 3 companies impacted the costs of the final product. As such, to help smooth out processes lower down the supply chain, Ford has a supplier technical assistance division that works with suppliers to minimize costs and find the right suppliers of their own. He ended by saying that suppliers’ main competitive advantage no longer lay in price but in costs, such as transportation and assembly.

Torres then added that Mexico would have to take certain steps if it wanted to match the design and engineering capacity of automotive hubs like the US, Germany and Japan. He stated that advanced economies have an advantage in logistics because of the costs of energy and telephone services. Unless Mexico can improve these areas, it will not compete with developed countries. He also pointed to railway service as an area in which Mexico is falling behind, its population largely still relying on automotive transportation, which is far from being as efficient.

The unimpressed vision of the Mexico railway network was met with caution by Alberto Sánchez, Automotive Leader of Ferromex. In his eyes, the privatization of the Mexican railway system in 1995 had resulted in a great evolution, leading to more than US$4.8 billion being invested in the railway system since. Sánchez said that Mexico had followed the example of American and Canadian railways to boost the competitiveness of its railways. “Today, Ferromex was catalogued as one of the most efficient railway systems in Latin America by the OECD. Mexico’s railway system is participating with every new automotive plant. 15 years ago Ferromex was moving 500,000 vehicles but it is estimated we will move 2 million in 2015,” he ended. The strategy Ferromex has used to obtain this growth is to tackle its preparation for new plants with years ahead of its construction. He states that such early prudence is not only wise, but it is necessary if Mexico wishes to smoothly go from the seventh-largest producer worldwide to fifth.

Supply Chain Success: Purchasing Manager Strategies

Supply Chain Success: Purchasing Manager Strategies

Moderator: Oscar Albín, President, INA
Panelist: Eugenio Madero, CEO of SANLUIS Rassini
Panelist: Gonzalo Esparza, President of Tachi-S
Panelist: Carlos Garcia, General Manager of Timken
Panelist: Xavier Ordoñez, Partner at Deloitte

Oscar Albín, the president of the Mexican auto parts industry association (INA), started off by thanking the Mexico Automotive Review for its work to develop the automotive industry in Mexico. He then paid tribute to the former director of Mazda, Leopoldo Orellana, who now rests in peace, for his contributions to the Mexican automotive industry. The focus then fell on the light automotive industry’s production, which Albín stated would reach 4.5 million vehicles yearly by 2019. Mexico was the sixth-largest producer of auto parts worldwide in 2013, but if growth remains stable, Albín states Mexico will surpass Germany as the fourth producer of auto parts. He then explains that the panel will cover the importance of Mexican suppliers, the development of technology within Mexico, the cost and quality of said technology and the potential the country provides for international suppliers to establish themselves here.

Eugenio Madero, CEO of SANLUIS Rassini, mentioned how the development of OEMs in Mexico had put pressure on Mexican suppliers. In his own case, the arrival of Korean OEMs that brought their own suppliers of braking systems with them put pressure on SANLUIS Rassini. This was particularly true since innovation is highly important for Mexican suppliers to retain customers. “Being a Mexican supplier is a continuous process. Many OEMs that come from abroad bring in experts, who look at the quality of suppliers’ equipment rather than their nationality of the suppliers. OEMs look for suppliers that can provide what they need when they need it,” he explained. Carlos Garcia, Managing Director of The Timken Company, agreed with Madero and added that the speed of production and delivery could make or break the ambitions of a Mexican supplier. “Research and development takes investment, both in terms of capital and time, and an acceptance of the risk involved in such endeavors. These are the reasons for the speed of innovations in the automotive industry, as although these may seem to come slowly when compared to other industries, they come at a steady pace.”

Gonzalo Esparza Pedrosa, President of Tachi-S Mexico, picked up the thread to explain how OEMs are under pressure to produce products of an ever higher quality at an ever more competitive price. He said this reality meant that a new approach was needed in the way business was done in the Mexican automotive industry. “It is necessary to reduce dead time in production and make operations more effective. The packaging of products, for example, is a process that can still be improved among suppliers in Mexico. It is also important to have imagination and to never be satisfied by any one product. Suppliers that are already established in Mexico are sought out by OEMs that come and establish themselves in Mexico,” said Esparza Pedrosa. As evidence of this, he offered up the example of Tachi-S that has been in Mexico for 23 years, but is managed by Mexicans, despite still being a Japanese company. This local reputation sees new OEMs and Tier 1 suppliers alike approach Tachi-S to supply both these vital links in the automotive supply chain.

Xavier Ordoñez, Partner at Deloitte, Strategy and Operations, approved of this theme for continuous improvement. If possessed by a supplier, this constant drive to excel would see them not only provide innovative products, but also reduce operating costs, integrate themselves better in the supply chain and make sure that investments on assets or products are correctly used to ensure a proper return on investment. Ordoñez agreed that there had been many developments to try and better integrate suppliers in the Mexican automotive supply chain. Yet, despite these efforts, a Deloitte survey showed that most companies still believed there was a long way to go to achieve the desired level of integration in the Mexican supply chain. To close, Ordoñez advised that OEMs and suppliers work on better communication, connectivity, and proximity to achieve this integration.

Mexican States Driving Automotive Investment

Speaker: Rodolfo Esaú Garza de Vega, Secretary of Economic Development for Aguascalientes

Esaú Garza de Vega kicked off by mentioning investments by Nissan and Daimler in Aguascalientes, which are set to make it the main producing state of light vehicles in Mexico in the coming years. The introduction of the Secretary of Economic Development for Aguascalientes was followed by a video which mentioned the necessary infrastructure and economic development of Aguascalientes, which has maintained the lowest inflation rate in Mexico since 2012. It has been named the second best state to do business in Mexico, as proven by Nissan’s investment to expand its plant in Aguascalientes, which represents one of the largest private investments ever made in Mexico. These advantages will combine to allow Aguascalientes to produce over 1 million cars annually by 2017 in a sector that already represents over one third of the state’s GDP.

Esaú Garza de Vega then mentioned that Japan is the main investor in the state, accounting for 46% of the FDI made in the automotive industry so far. Other investing countries include the US, Germany and France, with suppliers from Germany establishing themselves bot in Aguascalientes and San Luis Potosi to supply the Daimler and BMW facilities in these two neighboring states. The Secretary also focused on the state’s supplier development program of the state, which aims to build a platform to link suppliers in Aguascalientes to OEMs in the state and beyond. The Nissan school in Aguascalientes, which provides specialized training, is another initiative which proves the commitment of the state government to the automotive industry, since students who attend this school have their fees paid for by the government. The total potential of the state can be seen in its growth data for the first quarter of 2015, which reached a record high of 9.8%, a growth rate superior to even those of booming economies like China.

Mexican States Driving Automotive Investment

Speaker: Fernando Macias Morales, Secretary of Economic Development for San Luis Potosi

Macias Morales projected a video about the attractiveness of San Luis Potosi, which showed the commitment of foreign OEMs and suppliers to the state. The video mentioned SLP one of the most promising zones in world for direct investment, as the third most important state in Mexico for energy generation and fourth in the production of auto parts. Despite this success, Macias Morales mentioned the importance of states supporting each other for the good of the country.

Currently, 141 companies in SLP are involved in the production of both vehicles and auto parts. Additionally, the automotive cluster in San Luis Potosi is now being planned in conjunction with a logistics cluster and will allow suppliers in SLP to connect to other state markets in the country. Macias Morales mentions that this structure is planned of a seamless integration of various investments in SLP, which are all being aimed at achieving controlled and sustained growth in the medium and long-term.
The SLP automotive sector received a major boost in the midst of the 2008 economic crisis when General Motors announced its plant there. Though, SLP was criticized at the time for this relationship, Macias Morales states history proved the state right as the GM plant now produced just under 130,000 units last year. However, one of the most exciting pieces of news in the automotive industry was the announcement of a BMW plant in SLP. This plant plans to produce 150,000 units per year by 2020, using the famed German OEM’s plant in Leipzig as a model. For Macias Morales, BMW’s choice to invest in SLP represented a long process of planning and evaluation coming to fruition. “This process took into consideration the state’s security, human talent, environmental factors, geology and soil, and its supplier base. After BMW delivered its evaluation of SLP, the state took upon itself to technically and honestly enhance those areas that were not up to BMW’s standards of BMW. The total investment we are to make between 2015-2019 will amount to MX$54.5 billion and a creation of 135, 390 jobs,” concluded Macias Morales, adding that such a commitment would be worth it, given the economic clout it would add to the state in the medium and long-term.

The Future of the Mexican Automotive Industry

Speaker: María Verónica Orendain de los Santos, Director General of Heavy Industry and High Technology, Ministry of Economy

María Verónica Orendain de los Santos, Director General of Heavy Industry and High Technology at the Ministry of Economy, began her presentation by explaining the way the automotive industry invests and produces has never been more crucial. Since 2009, Mexico has been diversifying its automotive export destinations and has now achieved an interesting mix. “It is important to explore and enter non-traditional markets with attractive profit margins for companies that are present in Mexico,” she said. Conversely, Mexico is an attractive investment destination because, according to Orendain, it can lower production costs by up to 20% against most nations it competes against. The international reputation of Mexico as an automotive investment destination of choice has reached down to the local level, with cities like Monterrey, Reynosa and Puebla ranking high on international rankings of cities to invest in.
Mexico also has a growing participation in the US automotive market, Orendain pointed out, with US$17.5 billion coming from the US into the Mexican automotive sector over the last five years. However, the Director General believes that Mexico should not rest on its laurels and that the arrival of ever more manufacturing plants could see the levels of investment double by detonating business between OEMs and suppliers at various level of the supply chain.

After all, automotive demand in North America alone is expected to grow by 30% over the next few years. “We expect stronger markets and more demanding consumers in areas such as energy efficiency, fuel consumption, and comfort. The industry will have to adapt to these requirements,” said Orendain. These trends bring about topics such as innovation, human capital, and new technologies, which provide Mexico with plenty opportunities to deepen its structural transformation.

Orendain mentioned the Inventory of National Capacities for the Development of the Automotive Industry as having mapped certain elements upon which to draw important conclusions about the future of the industry. First, the Inventory considered technological infrastructure, consisting of private resources directed at research centers and universities that have invested in technology. Second, Orendain mentioned human resources with the capability of developing technology. Finally, she explained that these research lines have to be able to properly assist the positioning of the automotive industry by understanding and answering its needs. The results from mapping these three components indicate that Mexico is indeed very active in implementing R&D in its manufacturing processes. Orendain gladly stated that the days of simple automotive manufacturing in Mexico were long gone. In addition, the study based on the inventory showed a strong link between industry, government, and academia when these collaborate in large projects, although precious few of such efforts were aimed at technological development.

This led Orendain to conclude that the Ministry of Economy is therefore concentrating its efforts in making it less costly to invest in technology, but that this can ultimately only be achieved through scaled-up collaboration.

The Future of the Mexican Automotive Industry

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