AMIA: We Need to Take Care of Existing InvestmentsBy Alejandro Enríquez | Tue, 03/23/2021 - 10:37
Q: How would you evaluate the state of the automotive industry in the country?
A: It has been a difficult time for the automotive industry in Mexico due to the COVID-19 pandemic. The sector stopped production and new vehicle sales for over two months. The pandemic also translated to a drop in light-vehicle exports and new vehicle sales of 20 percent and 28 percent, respectively. However, we saw a slight recovery when plants and floor sales opened again in 2H20. At the same time, the increase in demand for semiconductors has affected both production plants and the supply chain due to the role they play in ADAS and other vehicle systems. As part of a perfect storm, the cold wave that hit Texas affected natural gas production and exports. Although brief, the shortage of natural gas forced a technical halt at some facilities in February.
That being said, the relationship between Mexico and North America in the automotive industry is essential. The US still demands Mexican vehicles, particularly SUVs and pickups. Mexico is the world’s fourth-largest vehicle exporter and the sixth-largest vehicle producer. More than 80 percent of our exports go to the US and Canada, while the rest go to Europe, Asia and Latin America. The automotive sector generates more than 1 million direct, well-paid jobs and contributes to 3.8 percent of Mexico’s GDP. We should remain competitive, as a country and as a region, making the most of the opportunities brought by this pandemic.
Q: How can Mexico make the most of USMCA and regionalization trends to consolidate its place as a global manufacturing hub?
A: From my experience in the railway sector and now in the automotive sector, I can say that Mexico is a global logistics hub. All stakeholders should be committed to making the most of the country’s advantages, including its privileged geographic location and its extensive FTA network. Moreover, the production capacity the country has and the role it plays in the regional integration of North America offer a unique opportunity.
The government and the private sector should work together to foster investment, both local and foreign. The way to do this is by taking care of the FDI already in the country. We need to nourish the investment that is already here so these companies can attract more investors. For the automotive industry, just to introduce a single production line implies billions of dollars. We need to take care of brands based here or else they will choose other countries to ramp up new production lines. The government has to play its part as private companies play theirs.
Q: How are OEMs advancing in the implementation of USMCA’s new rules of origin?
A: Each rule has its specifics. For light vehicles we have a three-year period to reach 75 percent RVC. The industry is looking for suppliers in North America to elevate its regional value content. At the same time, companies are working toward achieving labor content value (LVC) requirements. There are no bottlenecks related to labor. When it comes to issues regarding to union freedom, companies do not intervene. Gradually, this element should be solved by OEMs within a three-year period.
Q: How are OEMs’ carbon neutrality efforts influencing the automotive sector?
A: This is a trend not only in North America but at the global level. We voiced our concerns when we heard about the approval of the changes to the law regarding the Mexican electricity industry that seems contrary to global trends. This worries the sector because investments could go to any country that favors clean energy sources. As a country, we need to be careful of the signals we send to foreign investors.
If we want to attract potential investments and follow global sustainability trends, we should set the appropriate conditions, one of which is establishing clean energy as a priority. The new electricity law could lead to higher pollution levels and foster concerns among, not only potential investors, but also existing investors due to the potential high energy costs that could result from the law.
Some brands are already producing electric vehicles in the country and all of them are moving toward sustainable mobility. Vehicle production should be focused on clean energies, which means the country cannot go in the opposite direction.
Q: What are your views on recovery expectations after the pandemic?
A: Considering that the economic impact was caused by a pandemic rather than an economic crisis, we will see a faster recovery. We are optimistic about 2022 and we expect to return to pre-pandemic levels in 2023 or 2024. The automotive sector in Mexico has proven to be flexible by adapting quickly at the upstream and downstream level of the value chain. Mexico has vehicle production overcapacity and should demand in the US increase, as we expect it will, the country is ready to supply those vehicles.
Q: What are AMIA’s strategies moving forward?
A: We will further strengthen our collaboration with local and federal authorities and work together for the sector to thrive. We need to send the right signals of where the sector is heading to, while addressing the government’s priorities to create a fertile environment for the sector.
The role of local governments has become more and more relevant to promote investment in their respective states. Potential investors are now reviewing states on a local basis. We are committed and active with local governments so they can better promote both legal certainty and the right investment conditions.
As the new Executive President of AMIA, I am also committed to introducing changes to the association, both internal and external. Once all plans are approved by our members, you can expect significant changes in how AMIA engages in relationships and partnerships with the media and the government. AMIA should be a strong representative of the most important sectors of the Mexican economy at this time.
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