Sergio Mendoza
Chihuahua Automotive Cluster
View from the Top

Chihuahua Looks to Past and Present to Define Future

Mon, 09/01/2014 - 11:49

Q: How has Chihuahua’s economy developed from its beginnings as a Maquiladora hub?

A: 30 years ago, Chihuahua was the home of the Twin-Plant program. Offshore companies, known as Maquiladoras, would focus on labor-intensive operations while their US counterparts performed the capital intensive ones. Chihuahua’s main advantage was its proximity to the US, with 80% of the processes focused in Ciudad Juarez and 20% in the city of Chihuahua. Products would cross the border from El Paso to Ciudad Juarez, carry out the necessary labor processes and then go back. As the industry matured, Chihuahua started performing more complex manufacturing processes, such as plastic injection moldings and die-casting of magnesium, zinc and aluminum. When Chihuahua began to develop this expertise, it slowly started to be seen almost as an extension of the US. With this new mindset, some companies would send entire manufacturing processes to Chihuahua and this maturity brought more suppliers to the State. Given this history, Chihuahua only looked north for its market, customers, and investors. Most promotion efforts were targeted to the US and Chihuahua was so successful that there was virtually full employment in cities like Ciudad Juarez. There were even programs set to bring people from other states as the demand for labor was so high. Then, the downturn came and brought a new category of challenges. In the process, other states woke up by creating their own integrated packages, strategies and opportunities to attract automotive companies. Chihuahua has learned from this history and must now choose how to grow wisely and not just grow for growth’s sake.

Q: What must Chihuahua do to further consolidate its presence within the automotive industry?

A: Several strategies need to be carried out across the whole supply chain. When the Auto Cluster began one and a half years ago, nobody was fully aware of the real size of the automotive industry in Chihuahua. At a federal level, Chihuahua was overlooked and that was hard to believe. The first step taken as a cluster was to run diagnostics to evaluate the size and the current state of the automotive industry, and the results indicate we are one of the main engines for the industry in Mexico. We felt that we first needed to set a strategy regarding how we want to grow and then find who wants to grow with us. Secondly, the state needs to showcase its experience, talents, and the opportunities it offers to foreign investors. Thirdly, we must foster the creation and growth of local companies, either with local investors or through joint ventures. Chihuahua needs to create a virtuous circle of growth, but this time with the participation of local companies, a factor that was absent 30 years ago.

Q: Can this wish list be achieved if the federal government underestimates Chihuahua’s potential?

A: We certainly need the support of the government. The issue was that we felt invisible and to make ourselves visible to the authorities we have had to show hard facts and figures. Chihuahua has 113 automotive companies present and some have several plants in the state, such as Delphi. There are two OEMs in Ford and Bombardier Recreational Products (BRP), 44 Tier 1 companies, 52 Tier 2s, and 15 Tier 3s. According to INADEM’s numbers, Chihuahua is first in direct employment for the automotive industry in Mexico, with over 130,000 direct jobs as of 2012. No other state comes near the scope of Chihuahua. This position is a result of the state’s long industrial history and the coordinated efforts of the private sector, our government and academia. However, it is important to note that most of the jobs are low added value with low wages. This is because Chihuahua has many companies doing light assembly processes and few companies doing complex manufacturing, like forging and die-casting. Automotive companies here occupy over 1.1 billion m2 of industrial real estate and our estimated sales for 2012 were a little over US$9 billion. Chihuahua occupies first place in foreign direct investment, and the direct payroll is a little bit over US$2 billion a year. Education is also an important asset with ten Mexican technical universities in the state. Our mission is to make these figures known to the industry. To further consolidate Chihuahua’s role, we have begun to attend national cluster meetings and collaborate with ProMéxico, the Ministry of Economy and, as always, we keep working with the Secretary of Economic Development at a state level.

Q: To what extent could Chihuahua become a destination for R&D in Mexico?

A: The cluster collaborates closely with the regional R&D centers, such as the ones run by Visteon in the city of Chihuahua and Delphi in Ciudad Juarez. We also work with CIMAV (Advanced Materials Research Lab), located in the city of Chihuahua and funded by CONACYT. CIMAV is CONACYT’s lead point for nanotechnology research, among other things. This lab is collaborating closely with Sandia National Laboratories in New Mexico. We are also trying to establish a link with Stanford’s Centre for Automotive Research (CAR). One of our initiatives with these R&D centers was to jointly develop an academic program specifically for automotive engineers. Engineers with a wide range of specializations could enter this program and be taught the specific knowledge needed to enter the automotive industry.

Q: How viable is the establishment of an industrial corridor in Chihuahua and how could this serve the industry?

A: The biggest testament to Chihuahua’s success lies in the millions of auto parts being made here. Depending on the vehicle the OEM assembles, Chihuahua can manufacture up to 60% of the needed content. We are seeing the Bajio region benefiting from a well-defined industrial corridor that stretches to the US Midwest. It is well-structured with excellent railways and border-crossing facilities, which are not that far from each other. It would difficult for Chihuahua to play a part in this corridor, so we need to think strategically about a new industrial corridor. Chihuahua is already trying to develop it. The absence of plants in this region could be seen as a negative, but I choose to see it as a positive. California represents 11% of the US market and has a demand of over 2 million vehicles and Chihuahua can service this market through that corridor. As EPA restrictions become more stringent in the US, there will be a need for more fuel efficient vehicles. This new corridor can service two different markets, which will become a differentiating factor for Chihuahua. We are in the process of building enough data and marketing material to show a strong case for automotive companies that are yet to be established in Mexico.