Mexico’s automotive industry is growing rapidly. No, that is an understatement – Mexico’s automotive industry is booming. In the past couple of years, no fewer than eight automotive manufacturers have announced plans to build new plants in Mexico. By 2016, Mexico will be a manufacturing base for automakers such as Infinity, Audi, BMW, Mercedes- Benz, and Kia. Other automakers such as Ford, Nissan, GM, and Volkswagen have long produced in Mexico. In 2014, combined auto production in Mexico rose 18.5 percent and a record 538,972 vehicles were exported, while 266,899 units were sold domestically.
Fueling the boom is Toyota’s recent announcement that it will invest $1 billion in a new production plant in the central Mexican state of Guanajuato to build the next generation of Corolla. The new plant will employ more than 2,000 workers and will produce more than 200,000 vehicles per year starting in 2019. And not all of these vehicles will be for export. The Corolla is the number one selling vehicle in Mexico, and a substantial portion of the new plant’s production will be for Mexico’s domestic market.
Ford recently announced a $2.5 billion investment in Mexico for two new plants and an expansion of a diesel engine line that will create about 3,800 jobs. The company will spend $1.1 billion to build an engine facility within its existing Chihuahua Engine Plant, where it will create 1,300 jobs. These gas-powered engines will be exported to the U.S., Canada, South America and Asia. Ford also will spend $1.2 billion to build a transmission plant in the state of Guanajuato.
The company will spend more than $200 million and create 500 more jobs to expand its current I-4 and diesel engines production in Chihuahua.
Volkswagen is investing $1 billion to expand its Puebla plant to support the production of a new model, which will be introduced in 2016. BMW will manufacture the 3 Series model at a new plant in Villa de Reyes, San Luis Potosi. This plant will have an expected installed capacity of 150,000 vehicles per year from 2019 and on, and aims to reach the $5 billion procurement mark to domestic suppliers. The 3 Series new generation will be initially marketed in Germany by 2018, and subsequently introduced into China and South Africa, preceding its introduction to the Mexican market by 2019. This will represent the creation of between 15,000 and 17,000 additional jobs.
All of this new production is predicted to make the number of autos produced in Mexico rise from 3.2 million units in 2014 to 5 million units by 2020. According to Mexico’s National Autoparts Industry, through November of 2014, production in Mexico’s auto plants was valued at US$75.6 billion, with 2015 predicted to end at $85 billion. This group predicts that the figure will be approaching $100 billion by the end of 2016. Mexico has become the country of choice for automakers to produce compact and subcompact cars.
Last year, Mexico surpassed Japan as the second largest automobile exporter to the U.S., only behind Canada, which many experts believe Mexico also will surpass in the near future. The huge gains in Mexico’s automotive industry are reflected in the country’s trade numbers, which reached a record $797.5 billion in 2014. Exports were up 4.8 percent in 2014, after having risen 2.5 percent in 2013. Ciudad Juarez, the maquiladora production leader in Mexico, created 30,308 new jobs in 2014, many of which are directly related to the automotive industry.
Mexico’s automotive boom is creating a tremendous opportunities for second-tier manufacturers that supply the major car companies. Suppliers such as Robert Bosch, Visteon, Continental, Mikuni, and Federal Mogul are all expanding their operations to keep up with the demand. The development of a local supplier base to feed the huge maquiladora (twin plant) industry has been a failure of Mexico’s industrialization efforts since the maquiladora program was founded in 1965. However, major automotive suppliers are following the production boom to Mexico, creating a second-tier level of jobs based on the auto industry.
Keeping production in North America allows the U.S., Mexico and Canada, the three North American Free Trade Agreement (NAFTA) partners, to production share. This keeps jobs, capital and revenues in North America, rather than in places such as Europe or Asia. The rise of Mexico’s automotive industry also provides opportunities for U.S. companies to supply the automotive suppliers, and supplies are not just limited to direct production inputs such as fabricated metal products, plastic injection parts and cable. Opportunities exist in supplying suppliers with what is termed MRO, or maintenance, repair and operations supplies. This can include everything from lubricants, cleansers, paper towels, food for plant cafeterias, and calibration equipment.
The automotive industrial boom south of the border, and its tie-ins to the economies of the U.S. and Canada, are evidence of the creation of the North American Free Trade Bloc that was envisioned under NAFTA. The benefits in making North America competitive in the global auto industry will go far towards strengthening the competitiveness of the region in the years to come.