Automotive and Aerospace Expectations Post-Midterm ElectionsBy Alejandro Enríquez | Thu, 06/10/2021 - 13:36
The results of Mexico’s midterms elections held on June 6 are a positive sign for investors and industry leaders. President Andrés Manuel López Obrador’s ruling MORENA party is now below the qualified majority in the lower chamber of the Mexican Congress that is needed to amend the Mexican constitution, a development that will boost the confidence of foreign investors, industry leaders say.
With a participation rate above 52 percent, the highest for a midterm election since 2000, the election was one of the largest ever held as more than 20,000 public posts were contested from the lower chamber of Congress and 15 governorships. The preliminary results give López Obrador’s coalition 279 seats divided among MORENA (197), PVEM (44) and PT (38). This is 53 seats short of a qualified majority in Congress that would have allowed the administration to fast-track initiatives like amending the Constitution.
The incumbent governors of two key automotive states, Queretaro and Chihuahua, won re-election, while a third, Nuevo Leon, saw a change at the top. Chihuahua, in Northern Mexico, is home to the greatest share of historic FDI in the automotive and auto parts sector since 1999 and the opposition party PAN conserved its governorship in the state. The same happened in Queretaro, located in the Bajio area and home to the largest aerospace hub in the country. Nuevo Leon, also in the north of the country, is the second-largest contributor to Mexico's nominal GDP. The state is home to Kia and Tier 1 and Tier 2 companies for the automotive and aerospace sector. Previously governed by an independent-party official, the state was won by one of the election’s youngest candidates, Samuel García (34), from the Movimiento Ciudadano (Citizen’s Movement) party, which also governs Jalisco, Mexico's third-largest state economy.
Results Provide Certainty
The automotive industry, contributing 3.4 percent of the country's GDP and 20 percent of manufacturing GDP, is one of Mexico's main economic engines. Industry leaders agree that the election results send the right signal for investors. "Today, the automotive industry in Mexico faces the challenge of remaining competitive. Having different views and political positions in Congress now is good, but we need to align the interest of the business community with that of politicians. For us, the election results are a positive step because we will now see different ways of thinking represented. The results of the elections will help to attract more investment to the country as the House of Representatives will be more diverse in terms of political parties. This will give foreign investors more confidence in Mexico," said Manuel Montoya, President of the Mexican Automotive Cluster Network.
Miguel Elizalde, leader of the association representing the interest of heavy-vehicle OEMs in the country, ANPACT, agrees that plurality is a bridge to constructive dialogue. "We will have a plural Congress, where dialogue and agreements will play a central role, particularly regarding constitutional reforms," he said. ANPACT had previously organized a legislative forum with Congressional candidates regarding the sector's recovery, mobility and logistics. "We will strengthen our partnerships with the new authorities at the local and municipal levels as well as with the Congress to boost certainty, investments and employment," Elizalde added.
For the president of AMDA, another major industry association in the automotive sector, the election results showed the strength of Mexico’s democracy. "Citizen participation reached 52 percent. Political forces had wins and losses. The fact that there are no absolute losers or winners is a good sign for democracy," Guillermo Rosales told MBN. He added that MORENA's losses in the lower chamber of Congress were an important step toward balance. " The ruling party did not obtain a qualified majority in the Chamber of Deputies, which could have had a major impact on the economy. The fact is that this circumstance generates better conditions to keep the executive power in balance and avoids constitutional reforms that do not enjoy the proper consensus," he said.
The Right Sign for Investors
Although CEOs of major companies in the automotive and aerospace sectors generally believe that the election results do not fundamentally alter their business, they also think the results send the right signs for potential investors. "Foreign investors will remain vigilant of the results and how they can provide certainty in the economic policies that sustained Mexico's growth," said Jaime Gutiérrez, Site Leader Shared Services Mexico at aerospace supplier Incora. According to Gutiérrez, legislators should focus on ensuring policies help industries to grow their manufacturing footprint in Mexico, together with national and global players.
For José Román, CEO and President of Nissan Mexicana – the country's top light-vehicle seller with 21 percent market share and the second-largest producer in the country – Mexico's role as the sixth-largest vehicle manufacturing market in the world and the world's fourth-largest light-vehicle exporter will need to be grounded in collaboration between the public and private sectors. "We will continue to work alongside federal, local and municipal governments for the benefit of our customers in the country," he said. Brand Manager of Mexican EV automaker Zacua, Nazareth Black, also sees a promising scenario after the election. "Seats lost by the ruling party create counterbalances, which are always positive as different perspectives are now considered during the decision-making process. I see a positive scenario as counterbalances in Congress will reduce uncertainty for companies and investors, which will help many investment projects to flow, many of them in the automotive sector," she said.
For Tier 2 companies, the election results are also important to boost Mexico's economic engines. "Shifts in power in state and municipal governments provide certainty of democracy and an organic balance in power. These types of events and results send a positive message to the industry, business partners and countries that have an interest in Mexico," said René Espinosa, Plant Manager of Metal Finishing Co.
Topics on the Agenda
Industry leaders have also pointed out that regardless of the party, there are important topics to be addressed by Congress. In the heavy-vehicle sector, for instance, priorities include legal consistency and sustainable mobility. "At ANPACT, we will promote an integral policy for transportation that considers vehicle renewals. What we heard from some candidates hints to the possibility of creating agreements that target a safe and sustainable mobility," said Elizalde.
For AMDA, strengthening the domestic vehicle market requires a fiscal adequation. "There are still opportunities in tax deductions after purchasing a vehicle, the absence of fiscal incentives for electric and hybrid vehicles, as well as the negative impact on the limitations to deductions established in the Income Tax Law," said Rosales.
Lastly, Montoya says the country must not forget its role within USMCA. "We have to take advantage of the agreement and take the opportunity to integrate more suppliers into the (automotive) industry value chains. We also have the challenge of implementing a labor reform that the government released in 2018 but that USMCA demands we implement faster."