Image credits: Volkswagen
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Analysis

Challenges Herald a Transformational Period

By Alejandro Enríquez | Thu, 09/30/2021 - 15:15

The automotive industry in Mexico continues to adapt to urgent circumstances. In the aftermath of the pandemic, a shortage of supplies and logistics constraints are slowing the pace of manufacturing lines. Meanwhile, the ongoing transformation toward connected, autonomous, shared and electric mobility is more evident than ever.

"We face a common challenge as a sector, which is the shortage of some components needed to manufacture our vehicles at the volumes necessary to meet the needs of the market. We have not met the demand, given that we are not producing at 100 percent capacity,” says Edgar Estrada, General Manager Mexico of Volkswagen.

Despite not operating at full capacity, leaders among Mexico’s Top 5 sellers and producers remain optimistic about the road to recovery. "The automotive market operates in cycles. The sales cycle had reached its peak and was in a lower phase when the pandemic arrived. We have already hit the lowest point in the curve and now we are again moving upward. Mexico has the potential to sell 2 million units per year. In a regular year, we sell about 1.3 million units but it is possible to sell more. In 2020, the industry sold just below 1 million. For 2021, we forecast that sales will surpass 1 million. In a couple of years, we will reach 1.3 million again," says José Román, President of Nissan Mexicana and NIBU.

Estrada agrees: “The pace of the automotive sector’s recovery is faster than we expected, which shows the strength of the market. The automotive market is seeing solid recovery and will likely experience growth in 2021 and 2022."

Another short-term driver for recovery is the legitimization of unions across manufacturing sites. The new labor standards set by recent Mexican reforms to labor laws are a direct consequence of USMCA. "The law says that in a four-year-period, the collective relations between companies and unions should be legitimized through an election within the union. To agree a collective bargaining agreement, a majority of the union members must support it. The reform also establishes that in order to request the execution of a collective bargaining agreement, the union will previously need to gather the support of at least 30 percent of the union workers, which is similar to the US labor system," says Luis Monsalvo, a member of the USMCA’s rapid response mechanism.

This year, two labor complaints have been filed by the USTR against two Mexican facilities, one of them being the GM plant in Silao. Through the labor rapid-response mechanism created with the treaty, the goal is to solve labor disputes in less than a year, as was the case in GM’s situation, which was solved in less than six months. "The mechanism is designed to address breaches at specific facilities. I genuinely believe that this scheme intends to ensure companies respect workers’ rights since this will ultimately benefit the people and the region," says Monsalvo.

At the same time, the industry is undergoing one of its largest transformation periods in history. OEMs are working alongside suppliers to ramp up a successful connected, autonomous, shared and electric mobility strategy. “Manufacturing a vehicle is complex, given all the components that are needed. We work closely with our customers because we consider them to be key business partners. In many cases, we have our suppliers within our manufacturing plants and we work together on the transformation processes the industry is living, whether related to electrification or USMCA’s regional integration processes. Close communication is the secret," says Luis Lozano, President of Toyota Motor de México.

“The automotive industry is going through significant challenges but we have to put 2020 behind us. Despite the circumstances, we continue to meet our customers’ expectations and provide them safety, efficiency and state-of-the-art mobility, fueled by innovation," adds Estrada.

Sector leaders are clear about the role auto parts manufacturers play in the country and the sector’s development, as well as the importance of adapting to new circumstances. “We are the fifth-largest auto parts producer in the world with US$94 billion in play. This drives the country to build regulations that assure its competitiveness. The automotive sector in Mexico is larger than the oil and gas and remittances sectors, even larger than tourism. Millions of families rely on the automotive sector," says Alberto Bustamante, Deputy Director of INA.

Material technology companies are pressing the accelerator to achieve lighter, safer and more efficient vehicles. “Evonik has two main drivers: saving weight and boosting efficiency. The company is now working on high-performance, lightweight materials to replace metal or rubber parts. By combining different polymer materials, weight is reduced and efficiency soars," says Martin Toscano, Managing Director of Evonik Industries de Mexico. For DuPont, its recent material technology innovations already drive a significant share of its business. "Lightweighting, sustainability and comfort remain macro trends for combustion, hybrid and electric cars. We have a special program called AHEAD™ (Accelerating Hybrid-Electric Autonomous Driving) to address these challenges. Today, 30 percent of our global profit comes from AHEAD technology developments,” says Juan José Zaragoza, CEO Latin America at DuPont.

The pandemic became a catalyst for digitalization too. Now, new manufacturing tools and even a new data supply chain have become more evident. Digital twins are playing an essential role for EV manufacturing as they emulate the conditions of a manufacturing cell. "Before the real implementation, we work on a digital twin, which is to design the product and the production line virtually. This digital-reality combination is the basis for implementing a successful digital transformation," says Alejandro Preinfalk, CEO of Siemens México.

This has also spurred the creation of a new branch of the automotive supply chain: data. Companies like Playment.io, which collects, classifies and manages all data generated by automotive sensors, highlight their collaborations with ZF, Siemens, Daimler, DELL and Continental AG. Another big name in the segment is Understand.ai, which works with Volkswagen and Bosch. "Highly accurate annotation is an indispensable prerequisite for supervised machine learning. We rely on the labeling service and tools from Understand.ai" says Florian Faion, Research Scientist LiDAR Perception at Bosch.

To analyze and produce a successful outcome to a problem presented in a vehicle, models need to collect data and prepare it for analysis. This is the often an unclear and labor-intensive side of AI supply chains. "The outsourcing of manufacturing was a more visible process, rendered through things like ‘Made in China’ tags in clothing. The AI supply chain should have a similar ‘Made in’ attribution scheme to better understand the global assembly of a technology often considered to be purely technical in nature," notes a report by the Oxford Internet Institute.

Important trends in manufacturing operations are also the arrival of engineering centers and the reaping of benefits created by USMCA’s rules of origin. “The two largest trends at the local level are USMCA and the arrival of engineering centers. These centers are arriving in Mexico because the country has good engineers. Engineering centers are providing greater added value,” says Manuel Montoya, President of the Automotive Cluster Network, an organization that groups 11 auto clusters nationwide.

As companies prepare for a disruptive future, opportunities arise for Mexico to take advantage of new trends to consolidate its place as a leading automotive hub. "We are undergoing a transformation process in the automotive industry and Mexico has the unique opportunity to jump into that transformation," says Lozano.

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