Perspectives of Mexican Automotive Industry before USMCA

By Guillermo Fernández de Jáuregui

We are currently experiencing a period of changes due to the entry into force of the USMCA and to the uncertainty derived from the effects of COVID-19 within the short and medium terms; these times generate both challenges and opportunities.

The world production of automobiles in 2018 was 94.2 million units, in 2019 a decrease to 88.9 million units was experienced, and in 2020 a significant fall is expected projecting that only 68.6 million units will be produced, which means a decrease equivalent to 22.8%; considering as a probable time or returning to the production levels of 2018 not until 2024.

Therefore, we must be prepared for a slow recovery. However, it is there where the effects generated by the entry into force of the USMCA comes in:

  • Fewer cars will be produced, but 
  • There will be more national content.

The new rules of the USMCA, the trend towards regionalization versus globalization, and the global uncertainty will make T2, T3 and T4 companies find reasons to consider expanding their operations to North America, where Mexico offers very interesting competitive and comparative advantages.

The main challenges for OEMs are:

  • To immediately replace global purchases with regional ones 
  • To finance tools and dies to their suppliers 
  • To accelerate their component releasing procedures and systems

The challenges for suppliers in the supply chain are:

  • T1: Search for their systems to be made in the region, preferably in Mexico due to the manufacturing cost, and to locate T2 suppliers in the region or those willing to expand within the region.
  • T2: Locate current suppliers of raw or semi-processed materials who are interested in increasing their product portfolio and to invest in new machinery and technology; and to locate T3 suppliers in the region or those willing to expand within the region.
  • T3: Invest in equipment and technology to increase their productive capacities and assess their expansion within the region.

We have to consider that these challenges are not exclusively for operations installed in Mexico, so any OEM, T1, T2, and T3 having operations in North America will be in the same situation. In Mexico, a great job has been done attracting investments into the automotive sector, the current opportunity for the entire USMCA region is in the auto parts sector.

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