Mexico and the Automotive Industry: A Strategic Place to Invest

Mexico and the Automotive Industry:
A Strategic Place to Invest
Raul Urteaga Trani
Minister
Office of Mexico - Japan Economic
Partnership Agreement
Tokyo
November 2010
Mexico at a Glance
 Mexico is a federal republic of 31 states and one Federal District (Mexico







City)
Land area: 1,964,375 km2
Costal area: 11,000 km
Population: 112.3 million (June, 2010)
Age structure: 0-14 years: 29.1%
15-64 years: 64.6%
65 years and over: 6.2% (2010 est.)
Median Age: 24 years (2005)
GDP: US$1,085 Billion (2009, World Bank)
GDP Growth Rate: 4.5% (2010, estimated)
GDP ranking: 14th (2009, World Bank)
2
Mexico at a Glance
GDP Growth Rate
Mexico’s GDP grew 5.3% in the 3rd Quarter of 2010.
Quarterly GDP growth rate as of the 3Q of 2010
(%, compared to the same quarter of the previous year)
10
8
6
4
2
0
-2
-4
-6
-8
-10
-12
7.6
2.6
3.0
5.3
4.6
1.6
-1.1
-2.0
-5.5
-7.2
-9.6
I
II
III
2008
Source: INEGI
IV
I
II
III
2009
IV
I
II
III
2010
4
Introduction
Mexico is one of the world’s largest auto producers
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Mexico’s automotive industry is highly integrated, from
assembly operations to tier 3 suppliers.
The most important Original Equipment Manufacturers
(OEM’s) are already operating in Mexico, including Japanese
companies.
It is an export oriented industry, with several automotive
clusters in the country.
New processes are taking place in Mexico (engineering,
product design, testing and R&D).
Mexico has competitive advantages for the industry
(geographic position, supply chain, logistics, human capital,
etc.).
5
Companies established in Mexico
The most important OEMs have plants in Mexico.
Passenger vehicles
No. of plants
Commercial vehicles
Engines
Nissan
2
Hino Motors
Detroit Diesel
Honda
1
Isuzu
Man
Toyota
1
Volkswagen
Cummins
GM
4
Freightliner
Ford
Ford
3
Scania
Chrysler
Chrysler/Fiat
3
Volvo
G.M.
Volkswagen
1*
Mercedes Benz
Volkswagen
BMW
1
Kenworth
International
Giant Motors
*Volkswagen’s largest automotive cluster in the Americas
6
Automotive Industry Location
Highly developed automotive clusters.
CHIHUAHUA
G. PALACIO
KENWORTH
MEXICALI
(TRUCKS)
North
LINAMAR
SONORA
CHIHUAHUA
(ENGINES)
Center
TIJUANA
TOYOTA
COAHUILA
(PICK-UP TRUCKS & BEDS )
RAMOS
G.M.
ARIZPE
(PC & UV)
Bajío
GARCIA
NAVISTAR (TRUCKS)
NUEVO
FORD
(PC)
S.L.P.
LEON
DURANGO
TAMPS.
HERMOSILLO
SCANIA
(TRUCKS)
ZACATECAS
CUAUTITLAN
S.L.P.
AGS.
CHRYSLER
(ENGINES & UV)
NISSAN
(PC & ENGINES)
HONDA (PC)
JALISCO
GUADALAJARA
COLIMA
MEX.
MICHOACAN
MOR.
SILAO
G.M.
G.M. (ENGINES)
CHRYSLER (PC & UV)
M.BENZ (PC & UV)
MICHOACAN
(PC & UV)
QRO.
BMW (PC)
MASA (TRUCKS)
VOLVO (TRUCKS)
YUCATAN
D.F.
HIDALGO
AGS.
(UV)
FORD
GTO.
SALTILLO
TLAX.
CAMPECHE
PUEBLA
TABASCO
GUERRERO
TOLUCA
OAXACA
TOLUCA
CHIAPAS
SANTIAGO
TOLUCA
TULTITLAN
TOLUCA
NISSAN
(PC & UV)
CIVAC
PUEBLA
V.W.
(PC & ENGINES)
7
Strong Auto Parts Segment
Mexico has a strong auto parts industry, focused on
developing technology.
OEM assemblers
18 companies
Air Conditioning, Engine
Components, Steering,
Suspension, Logistics,
Die Casting & Molding,
Electronic Components
Approx.
1,200 companies
(About 30%
are domestic)
Parts Suppliers
355 companies
(mostly foreigners)
Tier 1
Tier 2
Tier 3
Casting Components,
Press, Plastic,
Aluminum, Logistics,
Bearing, Machining,
Die Casting & Molding,
Machine Tools
8
Mexico’s Automotive Industry
 In 2009, Mexico ranked 10th. in the world in automotive manufacturing
*Data includes automobiles and commercial vehicles
Automotive Industry Restructuring
Automotive companies and their suppliers are intensifying
the transfer of their production to Mexico.

This is a result of the restructuring process of the automotive
industry in North America to reduce production cost.

Until a few years ago, China and other low-cost countries had
attracted investments for the production of auto parts.

This trend changed radically from 2008, when the oil price hiked
significantly and the U.S. dollar depreciated against foreign
currencies.

Japanese OEM’s and auto parts firms have increased production
and new investments this year. The relentless rise in the value of
the yen against the U.S. dollar is one key driver in the migration of
automotive manufactures to Mexico.
10
Automotive Industry Restructuring
Automotive companies and their suppliers are intensifying the
transfer of their production to Mexico. (Sample of recent investments)
Company
Local Company in Mexico
State
Manufactured Products
Ahresty
Ahresty Mexicana
Zacatecas
Aluminum die-casting
Aisin Seiki
Aisin Manufacturing
Aguascalientes
Aguascalientes
Autoparts
Kiriu
Kiriu Mexicana
Estado de Mexico
Casting parts
Sanoh Industrial
Sanoh Industrial de Mexico
Aguascalientes
Break tubes, Fuel tubes, Brazed
products and Stainless steel
apparatuses
Jatco
Jatco Mexico
Aguascalientes
Automatic transmission
Sumitomo Wiring
Systems
Autosistemas de Torreon
Coahuila
Wire harness
Takata
Takata de Mexico
Coahuila, Nuevo
Leon
Airbag modules (Coahuila), Seat
belt assemblies and Seat belt
components (Nuevo Leon)
Denso
Denso Mexico
Nuevo Leon
Body equipment, Functional
products such as valve
Nihon Plast
Nihon Plast Mexicana
Queretaro
Leather wrapped steering wheels,
Steering wheels
Hitachi Chemical
Hitachi Chemical Mexico
Nuevo Leon
Disk break pad
Fujitsu Ten
Fujitsu Ten de Mexico
Tamaulipas
Car Infotainment, Car electronics
Panasonic
Panasonic Automotive
Systems de Mexico
Tamaulipas
Car audio
Yazaki
Tecnologia Autoelectronica
de Durango
Durango
Autoparts
11
Automotive Industry Restructuring
Foreign automakers are also increasing production capacity in
Mexico

General Motors (GM) announced its plan to invest close to US$
500 million to produce a new line of engines, as well as a new
vehicle, at its plant in the State of Coahuila.

Ford announced its plan to produce 80,000 to 90,000 Fiesta
models this year at its new plant in Cuautitlán, State of Mexico.
Since 2008, Ford has invested US$3 billion in its Mexican
operations – including a diesel engine plant in Chihuahua, a new
transmission plant in Guanajuato (a joint venture with Getrag) that
produces the Fiesta’s new automatic transmission, as well as the
transformation and expansion at the Cuautitlán Plant.

Volkswagen announced its plant to invest US$550 million to build a
new motor plant in Silai, Guanajuato, to produce up to 330,000
latest-generation engines a year to supply to the Mexican and U.S.
markets.
12
Industry Size
Mexico is among the top ten automobile producers.
Source: AMIA
Source: International Organization of Motor Vehicle Manufacturers.
According to AT Kearney, in the next six years, Mexico could become the sixth or the
seventh world’s largest manufacture of vehicles.
13
Industry Size
2009 Employment
The automotive industry employs more than 560 thousand people and
its foreign trade is expected to exceed US$ 87 billion in 2010.
Dealers
79,723
Vehicles
59,826
Autoparts
426,843
Source: INEGI Encuesta Industrial Mensual Ampliada y Encuesta
Nacional de Ocupación y Empleo.
*Annualized based on Jan.-Apr. Data
14
Vehicles Sales, Exports and Production
Mexico Car & Light Truck
Sales, Exports and Production
(Units)
Domestic
Retail Sales
Total
production
Exports
2007
1,099,866
1,613,313
2,022,241
2008
1,025,520
1,661,406
2,102,801
2009
754,918
1,223,333
1,507,527
2010(Jan.-Oct.)
693,883
1,543,738
1,881,600
7.0%
62.5%
59.9%
2010 Var (%)
Source: AMIA
From January to October 2010, the production in Mexico has increased 60% over
the same period of last year.
Exports have also grown 63% in the Jan-Oct period reaching 1.5 million units,
mainly to North America, Europe and South America.
Source: Mexican Association of the Automotive Industry and Bloomberg
15
Japanese Companies in Mexico
Production of Japanese Car Companies Manufacturing in Mexico
Honda
2007
2008
2009
2010(Jan.-Oct.)
Var (%)
26,374
51,253
47,728
46,325
17.3%
Nissan
498,288
449,447
355,414
419,075
45.2%
Toyota
Total*
32,249
49,879
42,696
45,523
30.5%
556,911
550,579
445,838
510,923
40.7%
Exports of Japanese Car Companies Manufacturing in Mexico
Honda
2007
2008
2009
2010(Jan.-Oct.)
Var (%)
15,755
34,037
36,829
35,195
13.4%
Nissan
314,269
281,039
225,726
284,501
53.8%
Source: Mexican Automotive Industry Association (AMIA)
* Cars and light trucks
Toyota
32,249
49,879
42,696
45,523
30.5%
Total*
362,273
364,955
305,251
365,219
45.6%
16
Japanese Companies in Mexico
Retail Sales of Japanese Car Companies in Mexico
Acura
Honda
Isuzu**
Mazda**
Mitsubishi
Nissan
Subaru**
Suzuki**
Toyota
Total*
2007
1,852 52,951
171
16,604
17,666 214,121
703
5,700 66,208 375,976
2008
2,132 54,132
787
21,997
16,804 212,022
1,076
8,004 63,306 380,260
2009
2010
(Jan.-Oct.)
Jan-Oct
% change
1,942 35,245
972
18,914
14,320 156,186
752
7,095 51,991 287,417
1,539 27,957
1,111
19,394
10,216 148,325
442
6,410 35,877 251,271
-4.8%
56.0%
37.4%
5.3%
-6.4%
23.0%
-31.9%
16.5% -11.3%
13.7%
Source: Mexican Automotive Industry Association (AMIA)
* Cars and light trucks
** New entrants in Mexico as a result of the EPA quota system
17
Mexico is a very important player
in the U.S. Automotive Market
18
Autoparts Segment: Export Oriented
Mexico is the main auto-parts supplier for the U.S. market
*Annualized based on Jan.-Apr. Data
Source: US DOC.
19
Mexico’s Comparative Advantages
Privileged
geographic
location
Domestic
market
size
Network of
trade and
investment
agreements
Mexico's
solid position
for
investment
Responsible
fiscal and
monetary
policies
Skilled
labor
& Mgmt.
talent
Competitive
labor cost
20
Beyond Geography: Manufacturing Costs
Mexico has the lowest manufacturing cost (72% of U.S. cost)
Source: AlixPartners LLP
21
Beyond Geography: Labor Costs
Labor costs in automotive sector are lower than in developed
countries, while skilled labor is available.
Even among low cost countries, Mexico ranks best in manufacturing cost…
Source: KPMG Competitive Alternatives (Guide to International Business Location), 2010 Edition
22
Beyond Geography: Corporate Tax Competitiveness
Mexico has been ranked at the top of a new international list
for corporate tax competitiveness.
Source: Competitive Alternatives 2010, Special Report: Focus on Tax. KPGM
23
Beyond Geography: Market access
Mexico has one of the world's largest free trade agreements
network (12 FTAs in three continents) and preferential tariff
access to 44 countries.
EPA
Japan
FTA EU
NAFTA
NAFTA
FTA
Honduras
El Salvador &
Guatemala
FTA
Nicaragua
FTA
Colombia
FTA
Costa Rica
FTA Bolivia
FTA Chile
MERCOSUR:
- Brazil
- Argentina
- Uruguay
- Paraguay
FTA Israel
24
Industrial Policy
Mexico aims for a competitive modern automobile industry
oriented to the most demanding markets.



To impel momentum towards more added value activities
(engineering, product design, testing and R&D), Mexican
Government provides support to attract new investments and
to facilitate operation of companies already established in the
country.
High support for investment projects that promote innovation
and technological development.
Mexico offers incentives, including job training and tax credits
on R&D and innovation projects.
25
Programs to support the Automotive Industry
The main support mechanisms are:



Decree to support
competitiveness of
the automotive
industry.- It grants benefits (customs, tariffs, government purchases)
for the manufacturing of new light vehicles.
Fund to support Micro, Small and Medium Enterprise (Fondo
PyME).- Supports projects that promote the creation, development,
consolidation and competitiveness of small and medium enterprises.
(Auto suppliers) Large companies that contribute directly or indirectly
to these activities could also apply for benefits.
Ministry of Economy/Promexico Fund.- supports projects that
promote economic development.
26
Industrial Policy
Support instruments
• R & D Programs.- The National Council on Science and
Technology (CONACYT) offers several incentives for innovation
and technology development.
• Training Programs.- The Ministry of Public Education (SEP)
offers English and computer training courses.
CONACYT offers scholarships for graduate courses linked to the
productive sector.
• Local Governments Support.- Local governments provide
additional support, according to its own programs and laws (e.g.
infrastructure, suppliers development, grants, etc.)
27
Recent Actions

Mexico’s Ministry of Economy increased incentives for the
development of the auto parts industry by implementing amendments
to the Automotive Decree in November 2009.

Regulations applied to the automakers with operation in Mexico have
been made more flexible and the allocation of duty free import quota
for vehicles from outside the NAFTA region may be increased under
certain conditions.

The new scheme encourages automotive manufacturers to invest in
projects that may help to develop Mexican suppliers and the purchase
of components made in Mexico to be used at their factories outside
Mexico. As a result of these measures, the production of Mexican
suppliers for Japanese automakers operating in Mexico is expected to
increase.
28
Japan’s Challenges
 The Global economic crisis of 2009 exposed the growing
structural vulnerability of the Japanese automotive industry.
 Japan’s domestic auto base challenges:
 Deflation risk.
 Unfavorable demographic dynamics.
 A constant gain in value of the yen vs. the U.S. dollar
 Competition from Korean, and in the future, from Chinese
manufactures in international markets.
29
Global Challenges
The global automotive industry is challenged by several issues:
•
Industry reorganization.
•
Product quality & innovation.
•
Reducing costs & fierce competition.
•
Effectively exploiting cleaner technologies.
Automotive companies could take advantage of producing in
Mexico with low cost under a predictable investment and
regulatory environment.
30
Mexico-Japan Economic Partnership Agreement (EPA)
Announced Investment in Mexico 2010
In 2010, Japanese companies are making significant investments
in Mexico.
Nissan
US$ 600 million
Production of low cost models for emerging countries with possible
Nissan
US$ 10 million
Establishment by Nissan Design America (NDA); a new center to design
automotive prototypes in Mexicali.
Ahresty
US$ 4 million
Expansion of its die castings plant and a new plant for metal molds.
Nippon Seiki
US$ 14 million
Circuit boards for measuring instruments of automobiles.
Clarion
US$ 3 million
DVD multimedia navigation systems for Latin America.
reinforcement of production capacity in the future.
Nippon Steel
US$ 350 million
Plant for galvanized steel automotive sheets.
JATCO
US$ 200 million
Expansion of its existing automatic transmission plant.
Kiriu
US$37.5 million
Expansion of its casting plant by adding a line.
Nihon Plast
US$8 million
Establishment of a new manufacturing company for airbags.
31
ANNEX
32
Beyond Geography: Doing Business
According to the World Bank, Mexico compares favorably in key
aspects.
Ease of doing business
127 123
Dealing with
construction permits
Protecting investors
93
182 177 181
134
93
74
112
79
44
C hina
India
R ussia
B razil
M exico
C hina
India
R ussia
B razil
M exico
C hina
India
R ussia
22
B razil
M exico
35
44
Source : Doing Business 2011. International Finance Corporation. The World Bank.
Note: Dataset covers 183 economies.
33
Solid Economic Fundamentals
Mexico’s fundamentals remain strong.
Macroeconomic Environment
(134 countries sample 1= best)
Country Risk Global EMBI
(basis points)
May, 28th 2010
1254
111
107
79
807
73
54 50
162
Brazil
India
Uruguay
Colombia
Argentina
Mexico
Russia
Chile
Venezuela
Argentina
Russia
Uruguay
Colombia
Brazil
Mexico
Chile
Source: Bloomberg
China
4
45
China
28
27
277
219 234 241 261
Source: Global Competitiveness Report 2009–
WEF.
34
Trade and Investment Networks
Mexico keeps on facilitating international trade, reducing import tariffs.
Average Tariff
on Imports
(%)
Industrial Goods Categories
with Zero Import Tariff
(% of all industrial goods
categories)
Ease of Trading Across
Borders*
(sample of 183 countries,
1 = best)
BRIC average 11.9
162
114
100
50
58
*US and BRIC average tariff on
imports as of 2008
Russia
Brazil
India
Mexico
China
US average 3.5
*Measure on paperwork, time and
cost to export and import
Source: Ministry of Economy of Mexico, World Trade Organization and Doing Business 2011 - World Bank.
35
Beyond Geography: Logistic Improvement
Mexico has improved its logistic process and service quality.
Source:
Note:
Complete Orders
On time Orders
Returned Orders
(%)
(%)
(%)
Mexican Council of Businessmen. Survey of Supply Chain in Mexico 2008, A.T. Kearney Analysis.
(1) Survey conducted by A.T. Kearney in 2002. It includes16 Mexican firms.
36
Mexico in the world
North
America
Europe
Asia
South
America
Distance to selected countries from Mexico:
Mexico shares a three thousand kilometer border with the U.S. There are
more than 50 border crossings (road and rail) between the two countries.
Country
To Tokyo:
Distance
10,911 km
(Europe)
To United Kingdom:
To France:
To Spain:
To Germany:
8,452 km
9,193 km
9,022 km
9,448 km
(To South America)
To Brazil:
To Argentina:
To Chile:
To Peru:
To Colombia:
6,289 km
7,498 km
6,755 km
4,630 km
3,851 km
Mexico’s Export Performance
Domestic Market
Mexico’s rise internal demand will continue this year and in 2011
due to:
 Recovery of emplacement and income
 More availability of credit
 Investment in infrastructure
 Structural measures to increase competitiveness
 Population growth and demographics (1 million enter the job market
every year)
 One million young Mexicans become consumers every year
Automotive Industry for Mexico-Japan Trade
 According to the Ministry of Finance of Japan, in 2008, trade
of automotive related goods (automobiles and autoparts)
corresponded to 25% of total bilateral trade.
 In 2008, Japan imported US$246 million in automobiles and
US$106 million in autoparts from Mexico
 In 2008, Mexico imported US$1.51 billion in automobiles and
US$1.55 billion in autoparts from Japan
Establishment of manufacturing plants
of Japanese truck makers
 In October, 2009, Hino Motors inaugurated its first plant in
Mexico for truck assembly in the city of Silao, Guanajuato, with
US$13 million of investment.
 In December, 2008, Isuzu Motors established a truck assembly
in the State of Mexico, with US$2 million of investment, creating
20 jobs. Isuzu entered in Mexico in November, 2005.