Wage increases, the cost of manufacturing, higher costs of oil that lead to higher shipping costs, lack of intellectual property rights protection, midnight conference calls because of the time difference and 16-hour flights for business meetings, are all contributing factors in why many businesses are moving their manufacturing centers from China to Mexico.
Automobile Industry, Top Manufacturing Industry in Mexico
The automobile industry in Mexico has been seeing a record boom, Ferrari North America CEO Marco Mattiacci made the bold statement that, “Mexico is the next China.”
Mexico’s close proximity to US for exports; cheap labor (20% cheaper than the US and Canada); and trade agreements with over 40 countries is what is bringing US and Japanese auto manufactures to Mexico in droves.
Mexico is now the 2nd largest car manufacturer in North America. They have been out pacing Canada since 2008, and the gap has been widening every year.
Car production in Mexico has doubled since 2009. Mexico’s auto industry produced 2.26 million vehicles in 2010, making Mexico the world’s tenth biggest car maker, says the US Department of Commerce. Figures from April 2013 showed a 15% increase since the same month in 2012. Mexico will be producing 4 million cars by 2017, representing a 40 percent increase.
Mexico accounted for 19 percent of all American car and light truck production in 2012. GM, Ford, Chrysler, Volkswagen, Nissan, Audi, Mazda, Honda, Ferrari, Fiat, BMW, Mercedes, Mastretta, all build cars in Mexico, 80% go to exports and most exports go to the United States.
“Auto exports have gone from 4 percent of Gross domestic product to close to 6 percent,” said Marco Oviedo chief economist of Barclays in Mexico, “With all of the investments that have been announced, they´re going to rise to 8 to 9 percent pretty soon. That’s almost twice oil exports last year as a percentage of GDP.”
Foreign manufactures are expanding operations in Mexico and making serious investments. Nissan (the largest automaker in Mexico) will open a 2 billion dollar factory this year, next to their existing factory in Aguascalientes in central Mexico. (Nissan accounted for 24 percent of the auto output in 2012, followed by Volkswagen, GM, Fiat, Chrysler and Ford.)
Honda will spend 800 million dollars to open a plant in Guanajuato. Mazda will spend 650 million to build a plant in the same state, that plant will also produce 50,000 sub-compact Toyota-branded vehicles. Volkswagen´s Audi will open a 1.3 billion dollar plant to assemble the Q5 in 2016.
Production in Mexico is anticipated to steadily grow over the next 13 years due to increased wealth creation, desire for industry, and international investments. Mexico’s status has given indicators that manufacturing is increasing due to exceptional quality of education for workers, and governmental reform.
Peripheral Industries: Auto Parts and Steel
All of this is leading to billions of dollars in foreign investment pouring into Mexico, not only in plants and manufacturing facilities in Mexico, but in peripheral industries as well. 2013 is showing continued growth not only from car makers, but all of the auto industry associated industries as well, like steel and auto parts, according to the AMIA, Mexico´s Auto Industry Association.
Jatco who makes automatic transmissions for Nissan, will be opening a 220 million dollar plant in Aguascalientes, with the production capacity of 400,000 units, Vitro one of the world’s largest glass manufacturers that make glass for windshields, plans to make a 146 million dollar investment to upgrade their existing facilities in Mexico. And Mexico´s Steel industry is spending 3 billion dollars this year to upgrade facilities and will invest 11 billion dollars over the next 4 years, said Alonso Ancira, the president of the iron and steel chamber, and chairman of Alumsa. Mexico´s is the world´s 13th largest maker of steel overall, and the steel industry employs 53,00 workers in Mexico. All in all, very good news for industry and investors in Mexico.