Home > Automotive > Expert Contributor

Automotive Industry Landscape and Its Challenges

By José Zozaya - Mexican Automotive Industry Association-AMIA
Executive President

STORY INLINE POST

By José Zozaya | executive president - Wed, 12/08/2021 - 11:39

share it

During the first months of 2021, the production of light vehicles in Mexico showed progressive growth, pointing to an increase in activity in comparison to 2020. And the entry into force of the Mexico-United States-Canada Treaty (UMSCA) raised opportunities for regionalization and the creation of new scenarios that allow Mexico to grow in favor of competition in the automotive industry. Nevertheless, the global automotive industry faced, and still faces, the effects of confinement due to the global COVID-19 health emergency and the effects of chip shortages that have impacted suppliers and production levels.

Many equipment manufacturers have employed scheduled, staggered, technical shutdowns at their plants to deal with chip shortages and have also begun to prioritize the production of more profitable vehicles over those with higher margins. Some are also eliminating certain electronic characteristics in some models to compensate for the lack of components.

The lost production in the first half of the year was expected to recover toward the end of 2021 or early 2022; however, the shortage of components has persisted longer than experts and OEMs had considered.

Today, it is estimated that the installed production capacity in Mexico is approximately 5 million vehicles per year. Our production estimate at the end of 2021 is 2.8 million. That is 56 percent of the installed capacity. It should be noted that these are estimates are based on general information disclosed at the time of announcing the investments that are currently operating.

In October, the production and export of light vehicles suffered a fourth consecutive double-digit reduction. Both indicators showed levels similar to those of October 2011, while internal sales registered the third consecutive month below 80,000 units. In the January-October 2021 period, the three indicators were above 2020 levels, although they are still below 2019 records.

On the other hand, the level of employment in the vehicle manufacturing sector has remained at similar levels to those before the pandemic. According to INEGI data, as of December 2020, only 345 positions had been lost, and for the month of July 2021, the decrease compared to the end of the previous year was 0.3 percent. Regarding the value chain, the data published by INEGI show that between January 2020 and July 2021, 21,642 jobs were lost, going from 961,857 positions at the end of 2019 to 940,215 in July 2021.

It is also important to mention the opportunities and challenges that arise from the entry into force of the USMCA in July last year, which created new scenarios for regional growth in favor of competition in the automotive industry, as well as opening possibilities for investments and a focus on regionalization of production of parts and vehicles.

For the USMCA to be truly effective and beneficial for the automotive industry and for Mexico, the Mexican Automotive Industry Association (AMIA) recognizes the necessity for a progressive and ambitious investment plan, high-quality infrastructure for transportation projects, information technology (IT) and clean energy to improve Mexico's economic growth and promote North America's competitiveness on a global scale. We believe that to meet this objective, innovative policies and close collaboration between the public and private sectors are needed.

Also, the new USMCA Rule of Origin represents a challenge for OEMs established in Mexico. The rule should be achieved in a three-year transition period with a possible two-year extension for specific models. The difference in interpretation in the calculation of the RVC between the governments of Canada and Mexico versus that of the United States has led Mexico to initiate a consultation process and possibly a panel for dispute resolution. In August, the Mexican authorities asked the United States to initiate formal consultations on what they consider to be the application of rules that are incompatible with what was agreed to in the USMCA. According to the USMCA rules, if an agreement is not reached within 75 days of the request, the matter goes to the dispute resolution panel.

At AMIA, we hope that all involved parties manage to reach an agreement in which the competitiveness of our industry is respected and protected. Besides the entry of UMSCA and its application, production and export levels also pose a challenge for the outlook of the automotive industry. Chip shortages, legislation and COVID-19 have deeply impacted OEMs around the world. Our expectations are that production and exports will reactivate for an increase of 12 percent in comparison to 2020, but due to the latest results, it is necessary to see how the chip shortage behaves in the near term. The result could be that at the end of the year, production and export volumes are like those of 2020. It is estimated that production and exports will decline 4.7 percent and 3.8 percent at the end of 2021.

The recovery will depend on the capacity of the manufacturers of semiconductors to adapt to the demand of the different sectors and the waning of the COVID-19 pandemic. We hope that the recovery will be slow and that pre-pandemic levels will be reached by 2025.

I am confident that the health outlook will improve, and with it all the challenges we are facing, so that we can continue to make great progress in the automotive industry, which is a driving force and a fundamental part of the country's economy and dynamism.

Finally, the current administration has a great role in implementing policies that really benefit the country, and to ensure it does not go backward. Otherwise, a negative impact will be generated for the competitiveness and economy of Mexico. At AMIA, we continue to be open to dialogue with any relevant actor in our country to make it more attractive to new investments and maintain its competitiveness.

Photo by:   José Zozaya

You May Like

Most popular

Newsletter