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Are you a Tier 2 automotive supplier? Mexico wants you!
OEMs continue to push for regional supply chains to shorten geographic distances, reduce transportation costs and provide better oversight of their supplier base. Mexico got that message as well, according to a recent editorial in IHS SupplierBusiness. The "country's association of auto parts manufacturers aims to increase suppliers at the Tier 2 level to localize operations as the country's light-vehicle production is set to pass Brazil," said the editorial.
September 22, 2014
4 Min Read
Light-vehicle production in Mexico is up 7.2% on the year-to-date and "further investments by automakers and component suppliers" as "Mexico is currently booming as an automotive production base." As PlasticsToday has written of late, all of the major global automotive OEMs have - or will soon have - operations in Mexico. "As a result, suppliers also continue to expand their facilities in the country as they seek to optimize their production footprint and support their OEM customers," stated the SupplierBusiness editorial. "There has been a marked increase in plant openings or investments by Tier 1 automotive suppliers in the last year."
SupplierBusiness reports that Mexico will see production of 3.24 million units in2014 on its way towards 4.2 million units in 2017, eclipsing Brazilian output in 2014. "The two [countries] are forecast to run a tight race until 2017, when Mexico takes a firm lead," said SupplierBusiness. "In 2014, production should increase in the third quarter, though output may be sequentially lower in the fourth [quarter] 2014. We also see output surpassing 4.80 million light vehicle units in 2019 as capacity and component supply6 networks are widened and improved."
While the Tier 1 suppliers have done a good job of locating facilities in Mexico to serve the OEMs, those companies "still rely on imports as the local Tier 2 material supply base is still underdeveloped: an issue that Mexico's trade associations know only too well," stated the editorial.
While many Tier 2 suppliers to the automotive industry might be tempted by this "Siren song" of Mexico, most will resist the temptation due to several factors. Some remember only too well the lure of the consumer electronics industry to Mexico when that industry left the U.S. to open plants in Mexico. Some of the larger molders followed the big names in televisions, computers, copy machines and other office equipment, and myriad other consumer electronic products during the 1990s.
No sooner had these molding operations set up shop to serve these global customers than these big OEMs heard the call of "cheap labor" from Asia. They packed up and moved again to places such as China, Singapore and other Asian countries to reduce their costs even further than they had in Mexico. That left many of these molders in a lurch - and some even closing down their facilities.
Within the plastics industry, the Tier 1 suppliers are large companies like Delphi, TRW, and IAC. The Tier 2 suppliers tend to be smaller, privately-held companies, with fewer resources and less financial wherewithal (and the stomach) to take the risks that locating a manufacturing facility in Mexico to serve one or two particular customers, requires.
Over the past 10 years, there have been a few success stories of plastics processors and mold manufacturing companies that have located on or close to the border to satisfy a customer's need for a localized supplier. But there have also been some failures as well. Failures can be expensive - especially when there are no guarantees from the customer on quantities of work to sustain the facility.
According to the IHS SupplierBusiness editorial, Mexico's Industria Nacional de Autopartes (INA), the Mexican association of auto parts manufactures is continuing to push to for a stronger Tier 2 supplier base in the country. "According to INA, Mexico produced USD76.8 billion worth of automotive parts in 2013. Imports during the year reached USD38.9 billion, up 7% year-over-year from 2012."
The problem for Mexico's booming automotive industry may be "a chronic one," said SupplierBusiness. "Mexico's local suppliers have been hampered by a shortfall in the quality needed for international manufacturers, as well as the intense competition that has emerged with the arrival of major Tier 1s over the last few years. The arrival of major global suppliers setting up production bases in Mexico has seen them dominate at the expense of the local supplier industry, which as very few local Mexican Tier 1 suppliers."
I'm sure that while U.S. Tier 2 suppliers such as plastics processors and mold manufacturers would love to have piece of that $76.8 billion pie of parts produced in Mexico, I'm just as sure that there continues to be reluctance on the part of many of these companies to invest there without assurances of sustainable business.
About the Author(s)
Until she retired in September 2021, Clare Goldsberry reported on the plastics industry for more than 30 years. In addition to the 10,000+ articles she has written, by her own estimation, she is the author of several books, including The Business of Injection Molding: How to succeed as a custom molder and Purchasing Injection Molds: A buyers guide. Goldsberry is a member of the Plastics Pioneers Association. She reflected on her long career in "Time to Say Good-Bye."
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