Mexico Automotive Summit 2019 - Mexico Business Events (mbe)

Manufacturing Muscle Fueled by National Growth

Carlos Bárcena Paus, Minister of Economy of Zacatecas
CarlosBárcena_Zacatecas

Carlos Bárcena Pous, Minister of Economy for the state of Zacatecas, made the case for the state as a unique destination for automotive investment during his opening presentation at Mexico Automotive Summit 2019 on Wednesday at Mexico City’s Sheraton Maria Isabel Hotel. Despite the lack of major automakers, the state connects the central region to the north, and has a unique footprint from the mining and information technology sectors that are ideal partners for the car industry, Bárcena said. “Connectivity and innovation make this the ideal place to invest in.”

Bárcena launched his case with the premier tenet of the real estate market: location. Using a map of Mexico, he highlighted the location of major automakers in an axis around the state: Guanajuato, San Luis Potosi, Queretaro and Aguascalientes to the south and east, and Cohuila and Nuevo Leon to the north. The state also has a natural corridor that is traversed by highway 45, he said, connecting the south to the north. In the middle of this corridor is the regional airport serviced with direct international flights to cities such as Chicago and Los Angeles. Through the state run some of the country’s largest gas pipelines, which can service major industrial operations. Lastly, Bárcena highlighted the availability of alternative energy sources. “Because of long sun hours and windy conditions, the state has seen significant developments in renewable energy parks by major companies such as Iberdrola and Blackrock Investment,” he said.

Along the state border with San Luis Potosi, Zacatecas’ industrial region hosts numerous companies that already work with automotive partners or have potential to enter the sector, Bárcena said, adding that businesses in the mining, food and agro-industrial sectors were natural partners for the automotive sector. “The mining industry has strong international supply chain logistics, and more importantly, within its supply chain, there are many companies that forge and manufacture metal products,” he pointed out. The food and agro industries, in turn, are “major producers of plastics and chemical products, many of which could be applied to automotive manufacturing.” These industrial operations are fed by a large workforce, which has the average age of 26 years. “Apart from manufacturing experience, the state has a range of universities and industrial parks where innovative minds are working on engineering and information technology solutions not only for automotive, but also for the aerospace and IT sectors,” Barcéna said.

Given these circumstances, the state’s administration has an ambitious strategy to increase the presence of the automotive sector. It aims to generate 40,000 jobs in five years, with a large portion of these in the automotive industry, Bárcena said. “The state has a strategic budget that has been set up to facilitate the needs of local businesses.” He added that the government is prepared to provide incentives in different forms. Among those is a two-year income tax exemption for new arrivals. The government also is reaching out to foreign companies and governments through bodies such as the Council of Zacatecas for Innovation. This has led to projects including a new industrial park to be built in partnership with the Chinese government, and a special “knowledge city” that the state has dubbed “Quantum.” It is here, Bárcena said, that the new innovations of Industry 4.0 will come to fruition.

Mexican Manufacturing Carries Heavy Weight in the International Market

panel1

While Mexico has made significant leaps in the manufacture of light vehicles, it has not fallen behind on heavy vehicles, even if the latter spends less time in the spotlight. “Often, Mexico’s strong light-vehicle market does not allow us to see the significant growth of the heavy-vehicle manufacturing sector,” said Óscar Albin, Executive President of INA, at Mexico Automotive Summit, held on Wednesday at the Hotel Sheraton Maria Isabel in Mexico City.

Mexico’s heavy-vehicle industry has a lot to be proud of, added Miguel Elizalde, Executive President of ANPACT. “Mexico is the largest truck exporter in the world,” he said. “Twenty years ago, Mexico exported 1,000 heavy vehicles per year; now we export 161,000.” The country owes this growth, to its large number of FTAs and excellent manufacturing practices, explained Elizalde. “Mexican plants stand out thanks to their efficiency and certifications. We also keep up with the latest international standards.” The country’s efforts are expected to continue bearing fruit. “Mexico is evolving from a high-quality manufacturing country to a country of transformation,” agreed Juan José Zaragoza, Mexico Business and Country Leader of DuPont Transportation & Industrial.

Mexico is also in a strategic position to export to North and Latin America. However, “location is not enough. It must be supported by policies that support the manufacturing sector and a strong labor force. Education is essential for the manufacturing sector,” said Flavio Rivera, Director General of Daimler Trucks. While most exports are headed to the US and Canada, the country is now beginning to take advantage of its numerous FTAs and export to other countries in Latin America, such as Colombia.

Although Mexico has FTAs with 45 countries, most exports still head to a single destination. “Mexico has an enviable number of FTAs, but our exports depend mainly on only one country, the US,” said Juan Pizano, Global Trade Advisory Services Partner at Deloitte Consulting Group, while acknowledging that Mexico’s strong links with the US and also Canada were positive for the country’s manufacturing sector. “The close integration Mexico has with its commercial partners has allowed for the development of a very complex supply chain,” he said.

However, it also brought about a significant challenge as trade tensions between Mexico and its northern neighbor may cause problems for the local automotive industry. Pizano explained that he is not too concerned about Mexico’s capabilities to adhere to the USMCA’s rules of origin thanks to the strong linkage between the supply chains of Mexico, the US and Canada. However, he said that the sector must consider a rule that states that 70 percent of steel has to be bought locally. “We do not know if those amounts of steel will be available in Mexico,” said Pizano. Moreover, while many anxiously wait for the ratification of USMCA, compliance with the 70 percent steel rule starts a year previous to the ratification of the treaty.

While Mexico’s heavy-vehicle industry has greatly grown its exports, there are significant challenges in the local market. “It is necessary to strengthen Mexico’s heavy-vehicle market,” said Elizalde. While exports have skyrocketed, this is not the case for local sales. “ANPACT members sell about 40,000 trucks per year. This number has remained the same since 2000,” he added. The reason is that local regulations for heavy vehicles are not as strict as those in foreign markets. As a result, Mexico imports old, used vehicles from the US. “Mexican manufacturers follow strict regulations to allow for our products to be exported but local regulations do not enforce these strict requirements, so many users import substandard vehicles. For every 4,000 vehicles ANPACT members sell per year, 10,000 more vehicles are imported from the US,” said Elizalde. For that reason, the industry is calling for stronger internal regulations that promote the replacement of older, imported vehicles with newer fleets.

Collaborative Strength for Industrial Growth

panel2

The automotive industry is rapidly changing and clusters need to take a coordinating role between industry participants to foster the development of new technologies and human capital, panelists said at Mexico Automotive Summit 2019, as they reflected on the role that industry clusters must play to brave the changes that are coming.

“The industry is in the midst of a race, and thus, clusters must act as the coordinating body to foster the development of new technology plans, human capital and monitor closely the changes that are already upon us,” said Tarsicio Carreón, President of the Chihuahua Automotive Cluster, during a summit discussion at the Hotel Sheraton María Isabel in Mexico City on Wednesday.

Carreón was joined by Manuel Montoya, Director of CLAUT; Alejandro Veraza, President of the Automotive Cluster of San Luis Potosi; Elisa Crespo Ferrer, Executive President and Adviser of the Automotive Cluster of the State of Mexico; Alfredo Arzola, Director General of CLAUGTO; and moderator Alejandro Salas, Senior Editorial Manager at Mexico Business Publishing, to discuss the challenges the clusters and the industry face as a whole, and how they are working collaboratively to boost the performance of the Mexican automotive industry.

According to Montoya, the industry has the challenge of working in two different lanes: focusing on the challenges of today and focusing on the changes that are coming. “Today the industry must focus on solving the talent shortages it faces, while as a future concern, it has to focus on integrating more engineering to provide higher added value to the Mexican industry.”

For panelists, talent shortage continues to be a significant constraint, not for the lack of engineers, but for the lack of those with the needed specialized industry knowledge. Crespo said that in that regard, the industry has a responsibility to share knowledge and technology with universities. “The industry has the responsibility of transferring knowledge to academia. Not just giving classes, but investing in technology for universities.”

The talent shortage does not only reflect university graduates but also high-school and middle-school graduates, added Veraza. “The technical level is very important. Most plant operators only reached a high-school or middle-school level, hence the technical knowledge is critical for them.” For that matter, Veraza said that the San Luis Potosi cluster is already moving to create working committees between academia and the private sector to share better practices. 

For Arzola, in addition to the challenge stemming from the talent shortage, clusters need to focus on the generation of a strategic vision for the automotive industry. “The market is experiencing significant changes, and there is volatility and uncertainty in different contexts. As an industry, we need certainty about where we are going. We need to generate a strategic vision of where we want to be three years from now,” he said.

The need of a strategic vision in light of the changes to come is an important matter of attention for clusters, said Montoya. “Around 80 percent of the companies of the cluster work in the production of components for internal combustion systems. These companies need to transform.” To which Carreón added: “Companies need to adapt to the evolving needs of clients.”

Changing Customer Profile Spurs Digital Push

panel3

If you can’t beat them, join them. That seems to be the motto pushing companies in the automotive industry into the digital era that is changing the way customers choose to buy a vehicle or not, according to panelists at the Mexico Automotive Summit at the Mexico City Hotel Sheraton Maria Isabel on Wednesday.

Mexico City is the fifth-largest city in the world with 8.8 million people making 35 million trips daily, whether in private vehicles or public transport. Against this backdrop, banks, industry associations and even digital platforms are rethinking the way they sell to customers driven by the purchase experience and a quick response.

One of the platforms embracing the trend is Waze, which recently launched a new app called Waze Carpool, a tool with the goal of making rides more organized by searching for people going in the same direction as the user who requests the trip. The company expects a 40 percent reduction in travel times during peak hours, said Director General of Waze in Mexico Anasofía Sánchez during the panel discussion Mobility and Sales in the Digital Era. She quickly pointed out, however, that such efforts alone will not make the difference. “We have seen that this is not enough. The change has to come from all the people in the city. Waze’s ambition is to end traffic congestion altogether, as a community,” said Sánchez. 

A platform that has seen first-hand the change in customer preferences is Mercado Libre, which is a growing platform for people hunting for both pre-owned and new vehicles. In this process, the Head of Classifieds at the company, Rodrigo Hütt, said the company has identified three stages: research, consideration, and closure. And the transition is clear. Mercado Libre has found that nine out of 10 people begin their vehicle search on the internet, with 80 percent of them doing it from a smartphone.

This environment has also forced vehicle distributors to change to remain relevant. Director Mexico of Grupo Surman Fernando Enciso believes the answer is in customer experience.  “With a new customer profile, we must innovate, get into new technologies, even use platforms such as Mercado Libre,” he said.

Enciso pointed out that the reasons people buy a vehicle today are clearly evident, whether it is for luxury, comfort, status or necessity. “The acquisition process involves an emotional component. As a community, we enjoy socializing and vehicles are part of our personality. We are trying to understand, process and cultivate our people in this new system,” he said.

But for most of people, buying a vehicle would not be possible without financing. Business Development Director of Consumer Financing at BBVA Luis Vega said that the Spanish bank is already working with online startup Kavak to accompany the client in the vehicle purchasing process until the vehicle is delivered. “Customers place more value on how fast they can get their car than the price. At the moment, when a client requests a loan through BBVA’s website, they get an answer in less than 18 minutes. And it is a final response,” said Vega. 

Slower Sales Don’t Diminish Mexico’s Attractiveness for Automakers

Panel4

Beyond its strengths as a car manufacturer and exporter, Mexico has a dynamic market that has attracted numerous brands both for the light- and heavy-vehicle markets. “The automotive sector is without a doubt one of the main motors of Mexico’s economy,” said Guillermo Rosales, Director General of AMDA, at the sixth edition of Mexico Automotive Summit, held on Wednesday. Panelists met at Sheraton Maria Isabel in Mexico City to discuss the reasons behind this growth and the opportunities for brands in the local market.

“Mexico is a solid market that has attracted many brands,” said Gerardo San Román, Head of Latin America at JATO Dynamics. There are 42 different brands serving the light-vehicle market, which speaks to the country’s attractiveness. “Having all possible brands in Mexico speaks to a welcoming market, no matter the number of sales. The Mexican market is still attractive to all OEMs in the world,” said Mario Olea, former Director of Bentley México.

However, sales of light vehicles have been sluggish for the past few years. “This will be the third year in a row with lower light-vehicle sales. We have been unable to reach the numbers of 2017,” said Rosales. During the first nine months of 2019, Mexico sold 7.5 percent fewer vehicles than during the same period in 2018.

Although 2019 is seeing sales of all types of cars falling, there are still opportunities for the Mexican market, explained Rosales. However, there are significant challenges to address to achieve a recovery. Chief among them are loans to buy new cars. “Many major credit agencies are not taking risks and only giving loans to those who they are fully certain will repay them. The reason for this is the problems inherent in recovering a car after the buyer stops paying. Changing regulations to facilitate the recovery of the car will allow lessors to take on more risk,” said Fausto Cuevas, Director General of AMIA.

Illegally imported cars are another area of concern. Importing old, used cars, mainly from the US, has been a common problem for Mexico, explained Cuevas. “Importation of used cars also affects the sale of used vehicles in Mexico as it greatly lowers prices. It also discourages local car owners to sell their cars since they will get only a fraction of what it is worth. Addressing these two matters will allow us to strengthen sales of light vehicles.”

For heavy vehicles, the market has become increasingly open thanks to regulatory changes. “Mexico recently opened its market to European trucks thanks to regulatory changes. Several years ago, Mexico’s regulations were identical to those of the US but European norms are gaining strength in many countries in Latin America,” said Enrique Enrich, Managing Director of Scania Mexico. Opening the market to a larger number of players benefits customers first and foremost because it gives them more choices. An area that offers significant opportunities is delivery services, particularly for “the last mile,” which require a larger number of smaller vehicles, explained Elías Massri, General Director and Chairman of the Administration Board at Giant Motors Latinoamérica. “Instead of having a single 10-ton gas truck, it is more efficient to perform the last mile of delivery using several 3-ton trucks,” he said.

The increased acquisition of used cars must also be addressed in order to refurbish local fleets of all types of vehicles. Rosales stated that INEGI’s latest report indicated that 34 million vehicles circulate in Mexico, including cars, bicycles and buses. The average age of these vehicles is 17 years. “Due to their age and their emissions, these cars should be removed from circulation, which would allow for the growth of the light-vehicle market,” said Rosales.

Navigating Change to Ensure Sector’s Growth

Fausto

The panorama of the automotive sector looks positive despite the change and uncertainty sweeping across the industry, according to Fausto Cuevas, Director General of AMIA, who believes the tools already exist in Mexico to make the industry thrive again.

Fausto Cuevas, Director General of AMIA, told the audience at Mexico Automotive Summit 2019 that the country's automotive industry has several opportunities but also faces challenges in the coming years to continue being competitive worldwide. "The automotive industry has positioned itself as one of Mexico's main industries, contributing to job creation, currency generation and trade balance. A continuing drive for achievement is essential for both the industry and Mexico,” he said at the Sheraton Maria Isabel Hotel in Mexico City on Wednesday.

In his closing presentation, Cuevas highlighted the industry’s substantial contribution to the Mexican economy. "About 3.7 percent of the country's GDP comes from the automotive industry, with an annual generation of US$83 billion and exports of spare components and complete cars to over 100 nations," he said.

But the industry’s impact extends beyond its own boundaries. "Job generation and economic spillover transcend the sector's immediate advantages and shows that the arrival of new companies contributes to the surrounding communities," Cuevas said. "For example, the arrival of BMW and the expansion of Toyota in Guanajuato generated indirect jobs at restaurants and other service segments.

AMIA had projected an increase in the number of units manufactured by 2020 but a number of factors were altering expectations. "There are opportunities for development,” Cuevas said, “but the USMCA agreement and political changes in Mexico have added change and uncertainty to the expectations of the industry and its players.”

According to Cuevas, the USMCA change in the laws of origin for vehicles was among the treaty’s greatest modifications. "The renegotiation increased the regional origin content from 62 to 75 percent. It is now essential to confirm that 75 percent of the components and 70 percent of steel and aluminum come from the area, as well as guaranteeing the employment of regional talent for the sector,” he explained.

Greater competition from countries in North America, Europe and Asia also must be factored into the equation. South Korea is among the countries that competes directly with Mexico and generates pressure on the Mexican industry to keep international players and investors interested in the country,” he says.

However, Cuevas believes that despite the pressures and uncertainty, there are forces generating opportunities for the sector. "There is a strong transition from internal to electric combustion vehicles worldwide and Mexico is adding to this wave of change," he said. "A clear example is the renovation of the Ford plant in Cuautitlan to produce electric cars."

In addition to the tools that the sector has to capitalize on emerging opportunities, Cuevas said that R&D centers will be key for the near term. There are more than 300 R&D centers between the industry, academia and government that are driving the sector. We have all the necessary tools and conditions to grow the industry. It's just a matter of navigating through the obstacles,” he said. "Progress will come in a matter of time because the opportunities, conditions and knowledge already exist. In spite of the barriers, I believe the automotive sector will continue to develop positively in Mexico.

The panorama of the automotive sector looks positive despite the change and uncertainty sweeping across the industry, according to Fausto Cuevas, Director General of AMIA, who believes the tools already exist in Mexico to make the industry thrive again.

Fausto Cuevas, Director General of AMIA, told the audience at Mexico Automotive Summit 2019 that the country's automotive industry has several opportunities but also faces challenges in the coming years to continue being competitive worldwide. "The automotive industry has positioned itself as one of Mexico's main industries, contributing to job creation, currency generation and trade balance. A continuing drive for achievement is essential for both the industry and Mexico,” he said at the Sheraton Maria Isabel Hotel in Mexico City on Wednesday.

In his closing presentation, Cuevas highlighted the industry’s substantial contribution to the Mexican economy. "About 3.7 percent of the country's GDP comes from the automotive industry, with an annual generation of US$83 billion and exports of spare components and complete cars to over 100 nations," he said.

But the industry’s impact extends beyond its own boundaries. "Job generation and economic spillover transcend the sector's immediate advantages and shows that the arrival of new companies contributes to the surrounding communities," Cuevas said. "For example, the arrival of BMW and the expansion of Toyota in Guanajuato generated indirect jobs at restaurants and other service segments.

AMIA had projected an increase in the number of units manufactured by 2020 but a number of factors were altering expectations. "There are opportunities for development,” Cuevas said, “but the USMCA agreement and political changes in Mexico have added change and uncertainty to the expectations of the industry and its players.”

According to Cuevas, the USMCA change in the laws of origin for vehicles was among the treaty’s greatest modifications. "The renegotiation increased the regional origin content from 62 to 75 percent. It is now essential to confirm that 75 percent of the components and 70 percent of steel and aluminum come from the area, as well as guaranteeing the employment of regional talent for the sector,” he explained.

Greater competition from countries in North America, Europe and Asia also must be factored into the equation. South Korea is among the countries that competes directly with Mexico and generates pressure on the Mexican industry to keep international players and investors interested in the country,” he says.

However, Cuevas believes that despite the pressures and uncertainty, there are forces generating opportunities for the sector. "There is a strong transition from internal to electric combustion vehicles worldwide and Mexico is adding to this wave of change," he said. "A clear example is the renovation of the Ford plant in Cuautitlan to produce electric cars."

In addition to the tools that the sector has to capitalize on emerging opportunities, Cuevas said that R&D centers will be key for the near term. There are more than 300 R&D centers between the industry, academia and government that are driving the sector. We have all the necessary tools and conditions to grow the industry. It's just a matter of navigating through the obstacles,” he said. "Progress will come in a matter of time because the opportunities, conditions and knowledge already exist. In spite of the barriers, I believe the automotive sector will continue to develop positively in Mexico.

 

 

 

 

Our Networking Cocktails are a must for C-level professionals who want to expand their business, improve their contacts or who simply want to gain insights from other key stakeholders in their industry. By invitation only, these exclusive events provide enhanced networking and put you in front of the people and businesses that matter to you. Organized around specific topics and themes, our intimate Networking Cocktails are a value-added opportunity to discuss the latest trends and strategies impacting your sector.

Let us help you open doors to fresh opportunities.

Mexico Automotive Summit brings together the most influential business and political leaders in the Mexican automotive industry, including the interviewees featured in Mexico Automotive Review 2021. Register now or risk missing this opportunity to get the inside perspective and network with the industry’s main stakeholders at this high-profile conference and networking event.

Register today and join us on March 24, 2021