Mexico is caught up in a storm that seems to be gathering pace. Changes in international demand puts production and employment at risk in OEM plants. Meanwhile, the US’ trade politics do little to alleviate the tension amid a less than successful negotiation of NAFTA.

In a previous blog, I talked about Ford’s new global strategy to adapt to changes in global demand. By the end of 2017, it was not only Mexico that saw a decrease in its domestic sales. The US, Mexico’s main export market, also saw a contraction of 1.9 percent in its domestic market after seven years of sustained growth. “In due course, the US market will continue stabilizing to an end figure of 16.5 million units,” said Guido Vildozo, Senior Manager, Americas Light Vehicle Sales Forecasting at IHS Markit, in an interview for Mexico Automotive Review 2018 (MAR). “As a result, Mexico will have to compete against the rest of the world to maintain its share in a relatively flat market.”

But it is not just a slower demand that should worry Mexico. As Vildozo explained to MAR, the US is becoming a light-truck intensive market, which clashes with Mexico’s passenger-car intensive nature. The first repercussions of Ford’s decision are already being felt in Mexico’s plants, mainly in the company’s operations in Hermosillo where 2,000 jobs have been cut to eliminate the plant’s third production shift. “The supplier network, even with two shifts, has been highly affected,” said Javier Villarreal, Secretary of Sonora’s Labor Federation of Mexico’s Labor Confederation, to El Economista.

Ford is not alone in reducing its production to maintain profitability. In late May 2018, Nissan also announced production cuts in its three Mexico plants, as well as in the two facilities the company has in the US. The company said that production could be reduced by as much as 20 percent in North America although in this case, Nissan opted for a general reduction of shifts to avoid compromising jobs.

Between January and April 2018, Mexico’s light-vehicle exports increased by 8.1 percent compared to the same period in 2017 to a total of 1.09 million. However, some industry leaders expect exports to show signs of deceleration by the end of the year, among them Manuel Montoya, Director of the Automotive Cluster of Nuevo Leon. Montoya told El Financiero that the tariffs imposed by the US to steel and aluminum could be an additional strain on Mexico’s exports.

Although first exempt from them, Mexico and Canada became subject to the US’ tariffs on June 1 after US President Donald Trump decided this was in the interest of national security. Both Canada and Mexico have already filed a complaint to the WTO, most recently Mexico on June 7, and both countries have established countermeasures, imposing tariffs on key US imports such as pork, apples and cheese.

Today, Trump and the other G7 leaders will meet in Canada and investors expect the climate of the conversations will be tense due to Trump’s protectionist views. Justin Trudeau, Prime Minister of Canada and Emmanuel Macron, President of France, have said they will try to convince Trump to lift the imposed tariffs but see little leeway. Meanwhile, Trump has already tweeted his intentions of leaving the G7 should he not get his way. “Looking forward to straightening out unfair Trade Deals with the G-7 countries. If it doesn’t happen, we come out even better!”

The data used in this article was sourced from Statista, El Financiero, El Economista, Forbes, MVS Noticias, El Periódico and Expansión. 

Don’t forget to follow us on twitter at @mexautomotive and @mexautomotriz for the latest industry news.

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