Honda Supplier Hurt by Mexico Fiscal Reform

Q: How has your understanding of the Mexican market evolved since Yusa’s market entry?

A: We originally chose Mexico because our parent company in the region is based in Ohio. By settling in Mexico, we expanded our North American operations. Yusa studied potential investment locations across the Bajio region including Queretaro, Aguascalientes, and San Luis Potosi, as well as Nuevo Leon. The reason we chose Zacatecas was because all players, including the government and the Mexican embassy in Japan, were very cooperative and helpful. We completed our first plant here in 2011, and in 2012 we began analyzing the possibility of opening a second plant. Yusa’s commitment to Zacatecas was welcomed by the state government. Our executives met with the Secretary of Economic Development of Zacatecas, who showed us exactly what the state was doing to make life easy for automotive suppliers arriving there. The main purpose of Yusa Mexico is to manufacture specific rubber parts such as suspension bushings for the Honda Civic and Honda CR-V that are manufactured at the plant in Celaya, Guanajuato. We began cautiously as we were not sure about the capabilities of the local labor force, and these parts are relatively easy to make. We are right on schedule in the execution of our five-year plan. We have invested the planned amount and are currently using ten of the 20 acres of land that we purchased. We told the government of Zacatecas we would need 1,000 people, and we currently have 900 employees, but we need to hire more people since we are close to hitting all our targets. Plans to build a third plant, which will make slightly more complex products like hoses, are in the works.

Q: What is the balance between the proportion of your production that is exported and sold in the domestic market?

A: We export 95% to the US and the other 5% is sent to Tier 1 companies with a presence in Mexico. In the near future, we will be sending about 10-15% to Brazil and to the Honda plant in Celaya. Our Mexican plants will then be supporting our operations in both the North and South American markets. We used to import a lot of parts from our plant in the US for our customers here, but every year we produce more and more parts locally in Mexico. We have tried to shift most of our production to Mexico because of the low cost of labor. However, we cannot produce all of the products here as some of the raw materials we need are not available in the country. Moreover, quality is very important to our customers, which forces us to import certain products, particularly specialized parts that are used in ensuring a vehicle’s safety. Nonetheless, the cost competitiveness issue is very important in the automotive industry. You can bring down cost in the purchase area in several ways, including R&D targeted to reduce production costs.

Q: How is Yusa participating in the global automotive trend to make lighter weight vehicles?

A: The majority of our products in the past were made of steel. We have now switched to aluminum or resin brackets, which aid in making cars lighter while ensuring that our products continue to be reliable and safe. Safety is paramount. An engine mount is made so that when hit by a certain impact, the engine will not move or fall off. If the aluminum version of the engine mount did not meet this requirement, then we would not be producing it.

Q: What impact is the Fiscal Reform having on Yusa’s financial growth in Mexico?

A: The Fiscal Reform is hurting us. It is very political in nature and we have been badly affected. For example, we have not received the VAT refund that had been agreed upon, and we have not received an answer as to why. It is a significant amount, and we need to get it back. We are very disappointed because the government is answering our queries with a lot of bureaucratic questions. The same goes for a lot of other companies. The problem seems to lie within the federal government and this is clearly affecting our investment plans.

Nevertheless, we are aiming to increase sales by 1.5% in 2014, which means producing more in Mexico. We will be completing our second plant this year and construction will start on our third plant in the near future. We have expanded very quickly, and while that is good, we need to fix some operational problems before beginning the third plant. Our customers must be prioritized so we need to assure the right quality levels before moving forward.