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Mexican automakers hope to fire on all cylinders in 2021

COVID-19 pandemic, energy shortages, lack of semiconductor parts hampered industry in 2020

Automakers in Mexico hope foreign demand for parts, vehicles will spur a rebound in 2021. Pictured is the Volkswagen assembly plant in Puebla, Mexico. (Photo: Volkswagen)

After a disruptive year, Mexico’s light vehicle manufacturers hope to revive a sector depressed by the COVID-19 pandemic, as well as hampered by shortages of semiconductor components and energy for factories.

Some of the best opportunities for the industry’s recovery could come from U.S.-China trade tensions, along with changes initiated by the United States-Mexico-Canada Agreement (USMCA), said José Zozaya Délano, executive president of the Mexican Automotive Industry Association (AMIA).

“It is expected that during the administration of President Joe Biden, some of the imposed measures on Chinese technology platforms and products tariffs that led to a trade war during the Donald Trump term could be negotiated to strengthen their bilateral relations,” Zozaya Délano told FreightWaves.

“However, it is necessary to recognize this juncture as a window of opportunity for Mexico since this event has allowed the strengthening of the already close commercial relations between Mexico and the U.S. as strategic partners.”

Zozaya Délano said that the AMIA, along with other Mexican auto associations, is “confident that our country will be a much more attractive destination for foreign investments because of the regulations established by the USMCA.”

Mexico City-based AMIA is a civil association formed in 1951 with the goal of representing the interests of foreign vehicle manufacturers established in Mexico, including Audi, BMW, FCA, Ford, GM, Honda, JAC, KIA, Mazda, Nissan, Toyota and Volkswagen.

Zozaya Délano was appointed as AMIA president in August. Prior to joining AMIA, he was president of Kansas City Southern de México (KSCM) for 14 years. KSCM is a subsidiary of Class 1 railroad Kansas City Southern.

The trade war between the U.S. and China could favor new investments coming into Mexico as a result of the USMCA’s new rules of origin that seek to promote more North American content in new light vehicles.

The USMCA rules require that a higher percentage of a vehicle’s content and parts come from North America and that a certain percent of a vehicle be built by North American workers earning at least $16 an hour.

“Most of these new investments could go into Tier 2, Tier 3 auto parts suppliers,” Zozaya Délano said. “In order to attract new foreign investment, we need to work together, industry and the federal government, to assure public policies that promote such investments to manufacture those auto parts that we are importing from outside the North American region.”

Rahul Oltikar, chief operating officer of Laredo, Texas-based JAMCO Group, said he could see more auto suppliers moving to Mexico because of the USMCA.

“Since your OEMs have moved down there years ago, there has been a shift for Tier 1, Tier 2, Tier 3 moving to Mexico,” Oltikar told FreightWaves. 

The JAMCO Group is a cross-border trade and logistics service provider that offers trade and customs brokerage services to automotive, retail, electrical, grocery, steel and other industries.

“I think that initially it would have been more Tier 1 suppliers moving down sooner, now you [also] have your Tier 2 and Tier 3 understanding that Mexico’s economy is still growing and labor rates still remain very competitive with the global economy,” Oltikar said. “When you take a look at China and India, and the rate of growth with their labor rates that they have had over there, it’s not necessarily cost competitive to be over there anymore.”

Oltikar said another consideration for more suppliers to come to Mexico is geography and supply chain security.

“If you have supply chains for North America in China or India, you have to deal with containers and cash flow being on the water. I think a lot of companies in the last few years have decided that we will be in China for the Chinese market, which is very big. We will be in India for the Indian market, to supply Asia. If we’re going to be in North America, Mexico is the place to manufacture,” Oltikar said.

Mexico’s automotive production industry — which includes vehicle assembly and parts manufacturing — is the No. 1 foreign investment attractor to Mexico, according to the AMIA.

There are 26 assembly plants across Mexico. Among other Mexican automotive industry statistics:

  • 88.9% of passenger vehicles produced in Mexico are exported.
  • Mexico is the fourth-largest exporter of passenger vehicles in the world.
  • Mexico is the fifth-largest exporter of auto parts in the world and the No. 1 supplier to the U.S.
  • Mexico is the sixth-largest vehicle manufacturing country in the world and No. 1 in Latin America.
  • Mexico’s automotive production sector generates 18.2% of the country’s manufacturing GDP.
  • Mexico’s automotive manufacturing sector contributes 3.8% to the country’s total GDP.

Despite the industry’s profitability, the COVID-19 pandemic forced the government to shut down all of Mexico’s automotive plants for about two months during 2020. 

Thousands of autoworkers were furloughed or laid off. Once they were operating again by midsummer, most factories struggled to recover lost production all year.

“There is a structural decrease in sales in all markets of the world,” Zozaya Délano said. 

The lack of semiconductor chips affecting the global automotive industry has also affected factories in Mexico, along with the electricity blackouts that recently rippled through Texas, caused by a rare winter freeze that left millions without power.

Mexico — which imports large volumes of natural gas from the U.S. — reported the blackouts affected some 2,600 factories across the northern part of the country.

The blackouts cost Mexican manufacturers $2.7 billion in lost revenue, according to Mexico’s National Council of the Maquiladora and Export Manufacturing.

The blackouts prompted Zozaya Délano and the leaders of Mexico’s National Auto Parts Industry, the Mexican Association of Automotive Dealers and the National Association of Producers of Buses, Trucks and Tractor-trucks to send a joint letter to Mexican President Andrés Manuel López Obrador.

The letter requested that keeping factories running remain a priority and energy not be cut from them again.

“We are deeply concerned about the lack of electricity and the imminent shortage of gas for industrial use; we request your support to guarantee the supply of electrical energy and industrial gas,” stated the letter dated Feb. 17.

Zozaya Délano said so far they have not received a direct response from López Obrador.

“This is a general issue that affects all industrial sectors. We are certain that as long as the federal government takes the right steps addressing the problem, we will be part of the solution,” Zozaya Délano said.

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Noi Mahoney

Noi Mahoney is a Texas-based journalist who covers cross-border trade, logistics and supply chains for FreightWaves. He graduated from the University of Texas at Austin with a degree in English in 1998. Mahoney has more than 20 years experience as a journalist, working for newspapers in Florida, Maryland and Texas. Contact [email protected]