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AMIA: COVID-19 a Turning Point for the Industry

By Alejandro Enríquez | Mon, 09/21/2020 - 18:53

Q: How has AMIA tried to convince the government to label the automotive industry as essential during the COVID-19 crisis?

A: We have remained in close communication with different players in the executive and legislative branches, including the Ministry of Economy, the Ministry of Foreign Relations, IMSS, deputies and senators. The automotive industry generates 3.8 percent of Mexico’s GDP, 20.5 percent of the manufacturing GDP and approximately 980,000 direct jobs. Given its relevance, we approached different players and finally received the approval for the automotive industry to be labeled as essential. Coming tasks are focused on resuming operations.

As the industry gets ready to resume operations, we offer an optimistic perspective to return to the new normal. We have talked with IMSS about the health and safety protocols that must be followed. The most important element in resuming operations is to ensure the health and safety of company collaborators. It is necessary to set all necessary measures to prevent contagions at the plant. Going back to work should not mean an increase in cases.

Q: What production levels should the industry expect in the short term?

A: Production and exports have remained close to zero given that most OEMs and plants remained closed in April. This situation is unprecedented. We have never experienced that in the history of the industry. However, we need to remember that the situation is global. Other countries around the world have gone down this path at different paces. As for Mexico, we have a two-to-three-week time difference compared to the US and Europe in terms of COVID-19 cases. In Asia, as of early May, people had already returned to work.

The global pandemic will have significant negative effects. It will be really difficult for the industry to recover lost production and sales levels. The goal now is to get back on track and look forward to regaining pre-pandemic levels.

Q: How are OEMs helping their suppliers to stay afloat?

A: Each OEM and Tier 1 company still enjoys a close relationship with indirect suppliers. The industry hopes to avoid any issues when it comes time to resume operations. Having problems with an indirect supplier can complicate this process. I am certain each company has implemented the necessary actions so that they can resume operations as smoothly as possible.

Q: What other impact will the COVID-19 pandemic have on the Mexican automotive industry?

A: Mexico is highly dependent on foreign trade. Around 88 percent of what is produced in Mexico goes abroad, mainly to the US, Canada, Europe and Latin America. Regarding the internal market, 64 percent of what is sold in Mexico is imported. We depend greatly on international trade, so much so, that the reignition of the industry should be aligned with the recovery in other affected markets. It is not sound to produce vehicles that do not have an end customer. Demand will grow gradually.

On the other hand, we should get used to a new normal. Specifically, all health and safety protocols that are going to be applied when resuming operations most likely will prevail for a certain period of time to provide certainty that the pandemic has indeed ended and there are no risks of new contagions. This new normal will change the way we produce and sell. We have yet to see how this new social-distanced world will affect economic activities, including automotive. The automotive industry will get back on track under a different reality than what we were used to.

Q: How feasible is it to delay the enforcement of USMCA’s new rules of origin?

A: The alternative transition regime is a figure that is only applicable to automotive rules of origin. It is not an instrument that could be applied to other sectors. This was just published on April 30 as these kinds of regimes are a feasible option that each company in each country should decide on. This offers the possibility for companies to extend the time frame under which new rules of origin should be met. The treaty as it is today established that new rules of origin should be met within a three-year period. However, under alternative transition regimes, this could be extended to five years or longer depending on the plans that each company has regarding compliance. Having said that, this regime could only apply to light and heavy OEMs, not to the entire automotive supply chain.

Q: How will USMCA influence supply chains in North America?

A: Strategies implemented by companies across the value chain are now oriented toward a stronger regional integration. It will not be so easy to have alternative suppliers from countries outside North America. Consequently, all companies established in Mexico must undergo a great effort depending on its previous strategy to face the change in rules of origin so they can export tariff-free in North America.

As for the treaty with the EU, it is an update of the existing treaty. It is a more robust deal that will allow us to target alternative markets beyond North America.

Q: What is your perspective on the past decade for the Mexican automotive industry?

A: We doubled our relevance to the country’s GDP. We now represent 20.5 percent of manufacturing GDP. Over the last 10 years, manufacturing GDP has grown at rates three times higher than the national GDP. We have also increased our relevance in terms of job creation, representing 22 percent of the total employment in the manufacturing sector, which enables social mobility for 980,000 Mexican families. Over the last few years, we have consolidated the role of Mexico as a light-vehicle manufacturer and exporter to more than 100 countries. Just in 2019, the trade balance had a surplus of almost US$89 billion, which is superior to the surplus generated by tourism activities and remittances. We became the engine of Mexico’s economy over the last decade.

Today, we are at a turning point. However, we are pushing to carry on with the achievements we have made so far. In this sense, the first step we are taking is preparing a health protocol that allows automotive players to resume operations gradually. Everything that we do will be aimed at maintaining our current operations and development.

Q: How might the autonomous and electric vehicle trends ramp up in Mexico?

A: These trends remain incipient in our country. Electric vehicles represent 1.8 percent of the market with no additional incentives to generate greater demand. These vehicles are also expensive, which does not work in their favor. It remains unclear what the scenario will be for electric units, but they remain available to the general public. As we resume operations, there will be a gradual recovery for the market. As for autonomous vehicles, more infrastructure is needed.

 

The Mexican Association for the Automotive Industry (AMIA) is a civil association formed in 1951 with the goal of representing the interests of vehicle manufacturers established in Mexico

Photo by:   MBP
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst

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