Now that USMCA is almost a reality – pending ratification – the uncertainty plaguing the industry could finally be over. However, the new treaty’s stricter regulations will create new challenges for all suppliers, be it local or international. Finding the right partner will be key to ensure competitiveness and reduce costs.

Industry leaders agree that Mexico is far from over as an investment destination. “The country has demonstrated its capabilities as a competitive automotive hub and now our goal is to define the best way to face the current trade challenges,” told Eduardo Solís, Executive President of AMIA to Mexico Automotive Review (MAR) 2018. However, there is no denying that further measures could be taken to strengthen our local capabilities.

During the administration of former President Enrique Peña Nieto, the Ministry of Economy put in place an industrial policy that, among other priorities, supported the development of the local supply chain. Peña Nieto’s efforts were not the first, however. According to Ricardo Haneine, Partner and CEO of A.T. Kearney Mexico, supply chain development has been in the federal administration’s agenda for nearly 30 years. The problem in consolidating these efforts has been the lack of articulation between industry and government. “There has been improvement if we consider that in the 1970s we used to manufacture only harnesses and other maquila components,” he told to MAR 2018. “However, the country’s true potential shows we still have a long way to go. Having a stronger Tier 2 and Tier 3 base could be a trigger for further investment.”

The original NAFTA was supposed to be a stepping stone for Mexico to develop its position as a manufacturing hub. Although this was true in some measure as Haneine puts it and given the arrival of 95 percent of the leading Tier 1 companies in the world according to Solís, the country failed to develop a strong national supplier network that could be considered on par with that found in the US, Germany or other driving automotive hubs. Local supplier development will be more important than ever under new USMCA regulations. Vehicles will now have to comply with a regional content of 75 percent to be considered eligible for nontariff exports, up from the current 62.5 percent established in NAFTA.

Now that stakes are higher, manufacturers will have to find more local partners in North America. If Mexico wants to remain in the race, the country will have to both attract more investment from foreign suppliers and develop its own base. “Integrating technology and growing the capabilities of local companies is crucial, particularly in filling the holes of the current supply chain,” Juan José Zaragoza, Mexico Country Leader of Transportation and Advanced Polymers at DowDuPont told MAR 2018. “In plastics, for example, there are not enough mold manufacturers in the country. Many plastic component providers are working at full capacity and they are looking for companies to subcontract part of their production.”

Finding new production partners can be challenging for companies accustomed to their own suppliers. Many companies are looking to enter the game and some of them are yet to develop the necessary capabilities to be truly competitive in an industry as demanding as automotive. For Elisa Crespo, Vice President of the Automotive Cluster of the State of Mexico, continuous improvement should be a priority, as well as certifications, investment in technology and talent development. Still, there are already suppliers ready to participate in global supply chains. “Mexico produces all the seatbelts used in North American vehicle production. Even Tesla uses a variety of components produced in Mexico by Mexican companies,” told Óscar Albin, Executive President of INA to MAR 2018. Albin also expects further auto part investment to cope with the growing light-vehicle manufacturing operations in the country. “Component manufacturers that have yet to set up shop in Mexico in the short to medium term will supply Toyota at its plant in Guanajuato. We expect the Bajio region will attract auto parts investments worth around US$300 million,” he said.

If your company is currently on the lookout for new partnerships, visit the upcoming Automotive Meetings Queretaro on February 19-21, 2019, an international manufacturing forum for the automotive industry centered around B2B meetings, conferences and workshops. Visit the exposition floor or schedule your meeting with leading buyers and suppliers.

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

Tagged with →  

Looking for something?

Use the form below to search the site:

Still not finding what you're looking for? Drop us a note so we can take care of it!

Visit our friends!

A few highly recommended friends...