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How Chihuahua’s Automotive Sector Emerged from The Pandemic

By Alejandro Enríquez | Wed, 10/21/2020 - 06:00

Q: What effect has the pandemic had on Chihuahua’s manufacturing industry?

A: The very first effect is a change in mindset. Businesses are not viewed through the same lens anymore. Society has seen how the rules of the game have changed. The pandemic started to impact the sector earlier than it hit the country and companies are aware of the internal transformations they need to conduct to compete in the new normal.

Adapting is key. As a cluster, we have been the liaison between government and companies to understand the requirements needed to resume operations. When operations suspensions were mandatory, uncertainty was evident. We conducted a survey among different companies to create a guide for them to keep their employees safe while complying with local and federal health requirements. Communication and close contact with government agencies proved essential to provide guidance to our associates.

After resuming operations, we continued to provide guidance on what to do next. Some companies are seeing reduced demand while others are experiencing pre-pandemic levels, so we have different scenarios and, again, adaptability is key.

Q: How have restrictions on manufacturing influenced the sector?

A: Restrictions were implemented according to production capacity. Companies were worried about the basis for calculating such restrictions, as some calculated their capacity based on the manufacturing levels they had prior to pausing operations in April. Other companies started to cut operations by taking other approaches. We needed to create uniform policies. By establishing a dialogue between our associates and the government we got more explicit restriction measures. We also designed strategies for companies to meet the government’s measures while keeping production levels optimal. At the end of the day, we accompanied plants in delivering solutions to safely resume operations.

Q: As USMCA enables nearshoring practices, how is Chihuahua taking advantage of these opportunities?

A: We know that some companies are already exploring the option of relocating operations from China. This is just the beginning of that trend. Companies remain expectant about the trading environment in the country to define their relocation strategies for North America. Mexico still raises concerns among investors given the uncertainty projected by the federal government. Particularly, the energy market has changed considerably as companies face higher prices. Competitive prices require clean energy solutions, something that has been put into question to some extent by the government. This is a critical moment to send the right signs to potential investors to trust Mexico with new investments.

In Chihuahua, different initiatives are carried out by municipal governments and the state government to elaborate different diagnostics. We understand the benefits of potential investments and thus, we need to generate trust both at the local and the federal level. I am optimistic that these efforts will be translated into a cohesive public policy to advance investments, as well as technology development. One of our greatest challenges is for Mexican companies to participate in technology development for the global market.

Q: How are companies in Chihuahua adapting to an emerging EV supply chain?

A: Different companies in Chihuahua have been working on components specifically designed for electric vehicles. Tesla is a very-well known customer for companies in the state, alongside other traditional customers such as Toyota and Ford. The electric vehicle market is developing at its own pace and although we are seeing small volumes now, companies are involved closely in these new components.

Q: What are your views regarding automation versus manual labor?

A: Digitalization strategies are being embraced on the basis of a cost-benefit analysis. In fact, there are times when having manual labor can be cheaper than installing a robot or any other automation solution. It has always been like this with new technologies. State-of-the-art technology can be challenging but there are alternatives.

The ideal scenario would be for Mexico and local companies to develop those kinds of solutions to offer them at competitive costs. Many costs related to automation or technology are high because of the brand. There is a great opportunity for Mexican entrepreneurs here. That is how other countries have done it. China, for instance, started to develop its own solutions years ago and now it has optimal quality. A second alternative for companies is to dig deeper for a technology supplier. There are many suppliers in the world. Often companies are attached to a single group of brands but they must be open to finding alternatives at more competitive costs while advancing their digitalization process.

Q: How has Chihuahua advanced in developing local suppliers?

A: Suppliers have gained experience. Local suppliers are competitive because they are backed up by a solid financial structure. Technological and skill gaps are being filled as companies invest in training and tech capacity. I personally have seen how much local suppliers have grown. A challenge remains in adopting the right technology. We have local automation suppliers that are providing services to globally known companies in Chihuahua. We hope more companies will take the leap and through their knowledge and technical capacity become more closely integrated into the automotive supply chain.

Companies also need to conduct an internal analysis to reduce waste in their manufacturing and administrative processes. They need to break down their cost structure for it to evolve and be ready for the coming scenario.

Q: What is your perspective on the industry’s recovery?

A: We are experiencing a relatively high level of demand considering what the industry could be experiencing in the near future. We cannot disregard the economic impact of the pandemic. My perspective is that the market will experience low demand levels in the near future at around 75 percent of the levels seen in previous years. This 25 percent decrease in production levels is expected to be reached in March 2021 when stocks and demand stabilize.

 

Chihuahua Automotive Cluster is an association of automotive companies, government agencies and academic institutions focused on fostering the growth of the automotive industry in Chihuahua 

Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst

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