Photo by Kia Motors Corporation

It seemed Andrés Manuel López Obrador’s (AMLO) position regarding the automotive industry and its role in the country’s investment promotion strategy was one of live and let live. However, his most recent decisions could send the industry down a detrimental road, especially under current political and trade conditions.

Even before entering office, AMLO had already announced several controversial decisions that could make or break the country’s economic development, NAIM being the most infamous one. The automotive industry had not been targeted directly. There was uncertainty on AMLO’s position toward foreign direct investment due to the lack of clarity in his future policies, but the fog seemed to be lifted when the then president-elect backed up the NAFTA renegotiation process and even helped in the final definition of the new USMCA agreement. The road seems to be getting foggier once more, however, after several announcements made regarding investment and the automotive industry in particular.

Not even one month into his mandate, AMLO announced the decision to terminate ProMéxico, a subdivision of the Ministry of Economy in charge of strengthening Mexico’s position in the international market by promoting both foreign investment and participation of Mexican companies in global manufacturing chains. Under AMLO’s austerity banner, there was no reason for ProMéxico to continue since promoting the country should be the role of embassies and consulates around the world. “In Mexico City there is no ProFrance or ProGermany; embassies of those countries are the ones in charge of promotion,” he said during an address to foreign relations officers regarding Mexico’s nonintervention foreign policy.

The president’s decision regarding ProMéxico contrasts with the results the office obtained in its 10 years of existence. According to “10 Years Promoting Mexico in the World,” a document published in ProMéxico’s 10th anniversary in 2017, the office helped to attract an average of US$34 billion yearly. Between 2012 and 2017 alone, ProMéxico provided assistance for 820 foreign direct investment projects, 335 of them in the automotive and auto part sectors.

Data from the Ministry of Economy shows that between 2007 and 3Q18, the country has received US$50.4 billion in foreign direct investment oriented to automotive and auto part production, which represents 14.3 percent of the total US$353.5 billion the country received in that period. The country is now positioned as the seventh-largest light-vehicle manufacturer, third-largest light-vehicle exporter and fifth-largest auto part manufacturer. The arrival of so many companies has helped Mexico boost its position as an international automotive hub. Yet, this does not seem to be in line with what the new government wants regarding economic development.

Graciela Márquez, the new Minister of Economy, announced the Ministry will cease to offer support to foreign direct investment coming from the automotive sector, mainly because those resources could be used for other sectors. “Automotive companies will keep coming to Mexico anyway due to market integrations,” she said. “Maybe it is beneficial to help and establish agreements with the states where new plants will settle, but we think (support for) projects could have been more effective in consolidating value chains in other sectors.”

Changing the country’s industry policy so radically could negatively impact its development, especially in the midst of a difficult political and trade transition. Though a short-term issue, Mexico’s attractiveness as an investment destination is already under pressure because of AMLO’s war against gasoline theft and the so-called huachicoleros. Several states already present insufficient supply of gasoline, among them key automotive hubs Queretaro and Guanajuato. The problem is currently contained to retail supply but Juan Pablo Castañón, President of the Coordinating Corporate Council, said manufacturing operations are beginning to feel the impact of lack of fuel. The situation could complicate according to Alfredo Arzola, Director of the Guanajuato Automotive Cluster, who told Reuters plants might cease operations next week if the shortage is not solved.

Moving on to more medium and long-term challenges, under new USMCA regulations, 75 percent of the content in automotive production must come from within North America. This means local supply chains must be strengthened through both foreign investment and the development of a local supplier base. US President Donald Trump’s America First policy has revolved around the idea of attracting more investment to the US and if Mexico stops favoring new companies wanting to establish in the region at a federal level, investment rates could be impacted negatively.

The data used in this article was sourced from the Ministry of Economy, ProMéxico, El Economista, El Universal, Automotive News and Reuters.

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

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