Homegrown Talent on the HorizonMon, 09/01/2014 - 09:44
To outsiders, perhaps one of the more perplexing elements of Mexico’s successful rise as a global automotive hub is its own dearth of both manufacturing and supplier companies. The country became successful as a low-cost, labor-intensive manufacturer on the back of its maquiladora industry, but fell behind as creative engineering hubs drove industrial development, stifling local companies’ competitiveness in the global arena. The country’s luxury automaker, Mastretta, recently announced an abrupt halt in production of its only commercial vehicle and the company’s future remains uncertain. This leaves just one niche automotive manufacturer in the form of VUHL, which will produce just 50 of its lightweight VUHL 05 sports cars in 2014. Nevertheless, the fact that Mexico has managed to build a thriving automotive sector without a strong domestic light vehicle OEM is a clear testament to the country’s ingenuity in attracting the global cream of the automotive crop. Some believe this ingenuity should now be directed towards fostering Mexican corporate talent. The President of the Mexican Automotive Industry Association (AMIA), Eduardo Solís, however believes that the fact that Mexico does not have its own OEM has become a moot point, bearing in mind how globalized the industry has become. He feels that Mexico will eventually have its own OEM, but he does not see this as key to the country’s success. As true as that sentiment may be, the strengthening of Mexico’s domestic automotive base would undeniably bolster the industry’s long-term economic stability, and both the private and public sectors have recognized the need to foster homegrown success stories.
The most widespread opportunities for Mexican companies have so far been identified at the Tier 2 and 3 segments of the supply chain. The country’s auto parts sector is seen as a key area for its potential contributions to the North American value added production chain. According to the US International Trade Commission, the domestic content of Mexico’s transportation equipment exports to the US currently stands at 26.9%, and Mexico’s Ministry of Economy wants to see this increase. To this end, the Ministry and organizations like INADEM are working with leading private sector companies to grow local capacity and capabilities, with the development of technological sophistication topping the list of priorities.
Ford is one OEM that is working to develop local suppliers, and Purchasing Manager Leo Torres explains that “Mexican Tier 2 and 3 suppliers are clearly superior to Chinese suppliers but they need to refine their technical skills when compared to German counterparts. We are advising our suppliers to reinvest a strong part of their revenue in R&D. Companies that do not do this will not be successful in the long-term, or will only be used as maquiladoras by other firms.” Mexican companies also need to define a clear strategy. Companies that are underperforming at the Tier 1 level might find success and profit working as Tier 2 suppliers, according to Torres.
Despite the diminutive nature of Mexico’s own bank of automotive industry companies, there are a number of solid homegrown success stories that local companies can seek to emulate. Founded in 1929, SANLUIS Rassini is the world’s largest producer of suspension components for light commercial vehicles as well as the largest fully integrated brake rotor producer in the Americas. Supporting industry experts’ sentiments about the importance of technological development is the fact that SANLUIS Rassini’s R&D focus has played a major role in the company’s success, with the company now boasting four technical centers located in the US, Mexico, and Brazil. “Our consistent focus on engineering and technology development has enabled us to secure 40 new contracts since 2012. For one major automaker, we will be in six out of ten vehicles by 2016,” explains the company’s Director General Eugenio Madero. During 2013, SANLUIS Rassini was awarded new contracts that the company predicts will secure additional sales of more than US$500 million over the next five years.
Another patent success story is that of manual transmissions producer TREMEC, part of Mexican corporate giant Grupo KUO. TREMEC supplies major OEMs including GM, Chrysler, Ford, Case New Holland, and Volvo. Such is the trust that TREMEC has built up with its global customers that it has now made initial first forays into the Indian market. “TREMEC’s long-term partnerships are a result of the wish to have a relationship with the customer based on mutual respect and needs. Testament to this is the fact that our first contract in India was with one of our global customers,” explains TREMEC’s CEO Robert Neal. Nemak is a further Mexican company to provide inspiration, producing high-tech aluminum components for the global automotive industry. Established in Mexico 30 years ago, Nemak now has more than 20,000 employees working in 34 manufacturing plants located across 14 countries.
Looking to the future, Solís believes Mexico’s best shot at developing its own major OEM will come from investment by the country’s major tycoons. Mexico actually came within a whisper of having its own OEM back in 2007 when Chinese automaker First Automobile Works and Mexico’s Grupo Salinas agreed to establish a joint venture for the production of small low-priced vehicles for the Mexican market. However the plan, which included the establishment of a production plant with a yearly capacity of 100,000 vehicles in Michoacan, foundered due to the global economic crisis in 2008. Until a similarly ambitious plan materializes, Mexico’s hopes center around two areas. It must go ahead with the development of its supplier network and capitalize on the opportunities that exist for it to follow in the footsteps of international success stories and forge more of its own.