The Automotive industry in Mexico

The Mexican automotive industry is one of the main pillars of Mexico’s economic growth. By today it accounted 3.0 percent of Mexico’s GDP (vs. 1.9 in 1993).   The automobile industry in Mexico has been growing steadily through foreign investment. In 1993, ten plants of five different brands were built; 2015, there were 18 plants from eight different brands; for 2017 – 2019 six other projects are expected of which four are from non-US companies. Trade agreements made the Mexican automotive industry an important export platform, bringing its products to five continents, mainly finished products but also auto parts.  In 2016,  three and half million of light vehicles were assembled, of which 80 percent were sent abroad to 44 countries mainly to the NAFTA markets, showing to us the high dependence of Mexico to the trade agreements.

But, Mexican cars are not only produced for exportation. If we analyze the case of Nissan: already in 1966, selected Mexico for building it first factory outside Japan. Today Nissan is, and for the last six consecutive years, the sales leader  in Mexico. Similar case can be seen for Volkswagen which installed its Puebla plant in 1964.  

Guillermo Rosales, deputy director of the Mexican Association of Automobile Distributors (AMDA) stated last January. 5: “domestic auto sales are expected to grow between 5-6 percent this year”.  “it’s expected that sales reach over 1.4 million vehicles”. Already in 2015, new auto sales grew 19 percent to 1,351,648 vehicles, which also set a record, according to data from the industry group.

Mexico first main competitor was Brazil, though back in 2002, Mexico signed a free trade agreement with Mercosur countries allowing the unrestricted shipment of vehicles across borders. Though in 2011, Brazil’s strengthened real went under pressure and the Brazil’s trade deficit in vehicles with Mexico grew to $1.6bn in 2011, as they were unable to export their pricier vehicles. By 2012, Brazil decided to protect his market and imposed a quota on the import of Mexican vehicles.

Thought, these initiatives has yet not save Brazilian economy?  

So, I question myself is this the same strategy that President Trump would like to copy. Thanks to the NAFTA, US, Canada and Mexico have complemented the value chain in the automobile industry and make it stronger.  According to the American CAR report, some auto parts crossing the NAFTA countries’ borders as many as eight times before finally being installed in a car. And for what US concerns, before NAFTA, cars imported from Mexico had only 5 percent U.S. content; today, that number is 40 percent.  

Mexico high dependence to U.S exports may jeopardize the Mexican Automobile industry, but the boom in the Mexican industry is expected to continue. The already established expertise the industry during the last 14 years and the creation of the newest automobil cluster “del Bajío“ ( including Querétaro, Guanajuato, San Luis Potosí y Aguascalientes)   which according.   Alberto Aldape, secretary of Economic Development (Sedeco) of Aguascalientes, says: Trump’s policy will not affect the generation of jobs in the automotive industry in the central region of the Bajio because the companies that operate there do not export exclusively to the United States. Several studies of market trends both in type of vehicles and in prices positioned Mexico very competitive based on its labor, competitiveness, strategic location and infrastructure.

Was it really a good decision of Ford to not supply the Mexican Market?  Will Mexico also impose and import tax for the US produced cars?

We will talking about this interesting topic, and complemented with our March issue.