IHS report shows Mexico’s automotive industry attracts OEMs and Tier-1 suppliers

I’ve written a number of articles and blogs over the past six months on Mexico’s automotive industry, and it shows that most of the U.S.-based automotive OEMs are moving the manufacturing of various models of vehicles to Mexico and expand plants there. The last company to announce a possible move south of the Rio Grande was Fiat Chrysler, as it deals with the United Auto Workers Union (UAW) on its latest round of contract negotiations. As of this writing, Fiat Chrysler is awaiting the vote as the UAW is giving its members more time to review the new contract.

IHS SupplierBusiness adds that “investments by automakers and components suppliers continue, with BMW committing to 50% local content and PPG announcing a USD $27 million to expand its installed production capacity in Queretaro this September.” Obviously, this is to serve the increasing number of vehicles that will be produced in Mexico, as Ford, GM and Toyota have announced investments. “Jaguar Land Rover is reported to be considering production in the country,” said IHS.

According to the IHS figures, there were 278,781 light-vehicle units built in Mexico in September, a 4.1% gain over September 2014. Further investments by automakers and component suppliers in Mexico “bode well for the country as a production base in the future.” IHS also noted that “Mercedes has indicated that it is looking to set up a new supplier network to support both the Mercedes and BMW luxury brands.”

One of the big problems that OEMs and Tier 1 suppliers face it a lack of Tier 2 and raw material suppliers, something that HIS called “structural issues” for suppliers. “Tier-1 suppliers still rely on imports as the local Tier 2 and raw material supply base are still underdeveloped, an issue that Mexico’s trade associations know only too well.”

PlasticsToday recently published the news that RadiciGroup, a global producer of engineering thermoplastics including polyamide, polyester, polyacetal and TPEs, announced the addition Radici Plastics S. de R.L. de C.V., a new RadiciGroup company, through the acquisition of the polyamide engineering plastics division of Resinas TB. The new company, headquartered in Ocotlan near Guadalajara—strategically located to serve automotive firms in North and Central Mexico—has an installed production capacity of 8,000 tons per year and has more than 30 employees.

According to IHS, “the Industrial Nacional de Autopartes (INA), the Mexican association of auto parts manufacturers, is pushing for a stronger Tier-2 supply base in the country. Citing figures from the INA, IHS notes that Mexico produced USD $76.8 billion worth of automotive parts in 2013. Imports during the year reached USD $38.8 billion, an increase of 7% year-over-year over 2012.
 
After increasing 9.9% to 3.21 million units in 2014, IHS Automotive forecasts Mexican light-vehicle production growth to be more moderate in 2015, readying 3.40 million units. “However, as new plants come online in 2016 and 2017, output is forecasted to reach 4.48 million units in 2018,” stated IHS. “Mexico eclipsed Brazilian output in 2014 and is forecasted to remain ahead through the forecast period, in part on slowing markets in Brazil and Argentina.”

While those numbers are encouraging, attracting Tier-2 suppliers to the region may be more difficult than for the often larger and more financially well-off Tier-1 suppliers. Mexico retains its position as being more risky, and often Tier-2 suppliers are more risk-averse than their large, global customers. However, for those who are willing to take that risk there seems to be, from all the reports of late, some really good opportunities for business in Mexico.