• ITVI.USA
    15,804.330
    22.060
    0.1%
  • OTRI.USA
    27.150
    0.320
    1.2%
  • OTVI.USA
    15,791.050
    32.880
    0.2%
  • TLT.USA
    2.580
    0.020
    0.8%
  • TSTOPVRPM.ATLPHL
    2.990
    0.140
    4.9%
  • TSTOPVRPM.CHIATL
    3.630
    0.320
    9.7%
  • TSTOPVRPM.DALLAX
    1.520
    0.120
    8.6%
  • TSTOPVRPM.LAXDAL
    2.880
    0.210
    7.9%
  • TSTOPVRPM.PHLCHI
    2.320
    0.200
    9.4%
  • TSTOPVRPM.LAXSEA
    3.260
    0.190
    6.2%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
  • ITVI.USA
    15,804.330
    22.060
    0.1%
  • OTRI.USA
    27.150
    0.320
    1.2%
  • OTVI.USA
    15,791.050
    32.880
    0.2%
  • TLT.USA
    2.580
    0.020
    0.8%
  • TSTOPVRPM.ATLPHL
    2.990
    0.140
    4.9%
  • TSTOPVRPM.CHIATL
    3.630
    0.320
    9.7%
  • TSTOPVRPM.DALLAX
    1.520
    0.120
    8.6%
  • TSTOPVRPM.LAXDAL
    2.880
    0.210
    7.9%
  • TSTOPVRPM.PHLCHI
    2.320
    0.200
    9.4%
  • TSTOPVRPM.LAXSEA
    3.260
    0.190
    6.2%
  • WAIT.USA
    125.000
    -1.000
    -0.8%
InfrastructureNewsNewslettersSupply ChainsTransmission

Transmission: Mexico- the land of opportunity…for auto industry

Tuesday is here, so is Transmission. Here’s what’s cookin’ today:

  • The rise of reshoring points to the rise of nearshoring
  • Used auto sales down, values up
  • Industry News

The rise of reshoring points to the rise of nearshoring 

Reshoring has been in a slump the past decade, but 2020 saw it increase by more than 45%. FDI Markets found that in 2020, reshoring accounted for more job growth than foreign direct investment (FDI), with 69,000 manufacturing jobs reshored compared to 42,000 roles created through FDI. The pandemic has accelerated this trend as companies look to strengthen supply chains and meet the needs of consumers as they search for U.S.-made products. The study covers a wide range of industries, but the auto industry could definitely benefit from this trend. As companies look to bring home operations, I believe nearshoring will be on the rise as well.

Nearshoring would benefit both U.S. neighbors, but Mexico would benefit the most. Companies are searching for ways to save money on labor while ensuring at least 75% of a vehicle is made in North America. Mexico fits the bill to achieve both of those objectives.

(Chart: Freightwaves SONAR. Outbound tender volume leaving Laredo, TX (2018-19: Orange; 2019-20: Green; 2020-21: Blue)

This trend would also be a huge boost for U.S.-Mexico border towns, including Laredo and McAllen, Texas. After the auto industry shutdowns that took place in the spring, cross-border activity in Laredo has been booming ever since factories in Mexico resumed production. According to Roy Rodriguez, McAllen’s city manager, cross-border trade is projected to grow as more development on the border takes place. 

Mexican officials expect their country to play a larger role in supply chains in the future and are partnering with the private sector to develop infrastructure to support growth. Announced Jan. 12, a package of 29 infrastructure projects is underway in Mexico. The package includes building a natural gas plant costing nearly $2.3 billion, developing highways in multiple Mexican states totaling $1.5 billion and constructing a gas pipeline costing nearly $457 million. 

Another part of the package, and arguably the most important to supply chain providers,  includes a multimodal logistics center called the USMCA Park Logistics Center that will be built by E-Group, a Mexico City-based commercial real estate development company. The project aims to increase cross-border trade and will cost roughly $1.2 billion. 

With auto components expected to lead freight demand in Mexico, the logistics center would increase both capacity and throughput for the auto supply chain. Shippers would have more flexibility to move freight by rail, air or truck. To oversimplify it, it’s like widening a highway. The biggest beneficiaries are the people who were getting stuck in traffic on the narrow road before it was widened.

I talk a lot about development in Mexico because, as we all know, it plays such an important role in the auto supply chain. Shippers and transportation providers: Stay on the watch as more automakers and suppliers realize the benefits of nearshoring. 


Used auto sales down, values up

Dealerships all around the country are experiencing low inventory volumes in a period of high demand for vehicles. OEMs are having to adjust production levels to replenish inventory, but the chip shortage currently hitting automakers is making that job a lot more difficult. Vehicle prices, both new and used, are higher than normal as a result of low supply. In previous editions of Transmission, I have honed in on new vehicle sales, but today the focus is on the state of the used auto sector. 

December was tough on used auto sales. Total used vehicle sales volumes were down 5% y/y in December. Used cars weren’t moving off the lot quick enough, with the used retail supply lasting 49 days compared to the typical average of 44 days. Used car values decreased, which remains constant with normal seasonal fluctuation, but was still 14.2% higher than December of 2019 due to the rebound in sales the country experienced after the spring shutdowns. The higher price and sparse inventory may have persuaded consumers to head to new car dealerships, where there was a wider selection to choose from.

Jonathan Smoke, chief economist for Cox Automotive, estimates that used-car wholesale auction volume will increase in 2021 but didn’t state by how much. Inventory should correct as more consumers trade in their cars and repossessions resume after halting in 2020. And hey, if basic economics principles tell us anything, it’s that as supply increases, prices fall and entice consumers to buy. This correction would alleviate pressure on OEMs as they work hard to restore inventory volumes amid the chip shortage.  


Industry news:

  • Semiconductor update: Ford is the latest victim of the chip shortage plaguing the industry. The automaker is ceasing production at its factory in Saarlouis, Germany, home to the Ford Focus. The factory supports 5,000 jobs and will be shut down through Feb. 19. According to a Ford spokesman, lower consumer demand is also a reason for the shutdown. How long will the chip shortage last? An IHS Markit researcher has estimated this problem could persist for another two to three months
  • Tata Group, owner of Jaguar Land Rover, is betting on the auto industry’s shift to electrification. In an interview with Reuters, N Chandrasekaran, chairman of the $100 billion conglomerate, stated, “When you look at trends for the future, definitely there are clear signs you can pick up. Anything that is digital, we’re making a big bet on.” Although the investment amount wasn’t stated, Tata indicated that it was also serious about battery storage and renewable energy.
  • GM is investing $800 million to transform its SUV plant in Ingersoll, Ontario, Canada, into an electric delivery van plant. An increase in consumer spending has created demand for electric vans as delivery companies search for cleaner modes of transportation. Work on the plant, which assembled the Chevy Equinox, will start immediately, with the renovation set to be complete by the beginning of 2023.

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Clay Katzman

Clay is a supply chain analyst with a specialized focus on the automotive industry. He graduated from the University of Tennessee-Chattanooga and joined the Freightwaves team in the fall of 2020. Prior to Freightwaves, he worked for a marketing agency while finishing up his degree in business analytics.