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INA Sees Opportunities for Auto Part Sector After COVID-19

By Alejandro Enríquez | Tue, 05/12/2020 - 15:04

During its monthly address to the press, INA’s Executive President Óscar Albin shared his views on the opportunities for the auto part sector in the country after COVID-19. “Not everything has to be red numbers, we need to look up for those opportunities that we have always found in Mexico during difficult times,” he says.

After an April where merely 3,722 vehicles were produced in Mexico, automakers are getting ready to resume operations shortly. "One of the most sensitive issues we are experiencing this and the following week is the restart of car and truck manufacturing operations, as well as auto parts manufacturing, which will require a great effort on health and safety measures," says Albin. By the end of 2020, INA forecasts a negative 30 percent growth in auto parts production value, with a total production value in 2020 of US$70 billion. 

After the pandemic, INA stresses that opportunities are coming for the auto parts sector in the country, which is formed by 600 Tier 1 companies and more than 900 Tier 2 and Tier 3 suppliers. “In every crisis we must see the opportunities ahead. For auto parts production we have three opportunities to grow.” According to Albin, the first one is related to the new rules of origin stablished by USMCA. “The treaty stablishes an increase of regional value content, which presents an opportunity to increase auto parts production in the country as OEMs will be bringing their suppliers' operations from Asia and Europe into North America; not necessarily in Mexico but the country can offer investment opportunities,” he said.

The second opportunity for the auto parts sector is in supply chains relocation. “After COVID-19, trade regionalisms and nationalisms will increase across the world. It will be a great opportunity for the US industry to look to Mexico to purchase or relocate suppliers in the country,” explains Albin.

The third opportunity Mexico has is in the reduction of costs OEMs will demand from their Tier 1 companies. “The industry has experienced other crisis in 1994 and 2008. In those crises, car manufacturers have demanded cost reductions throughout the supply chain, but considering that 60 percent of the cost of a vehicle is composed by its auto parts, if OEMs do not have an effective negotiation with their auto parts manufacturers any other aspect is minimal,” he says. According to INA as auto part manufacturers ask their suppliers to reduce costs, transferring operations to Mexico will be an easy way to do so.

Even though opportunities are there, Mexico needs to level up its game to materialize investments. “To really make the most out of the upcoming opportunities, Mexico needs to be a really competitive country,” says Albin. For INA, energy, labor, incentives and security are at the country’s big opportunity areas. “Energy remains at high costs compared to the US. Mexico has enjoyed an effective synergy between employees and employers for over 25 years and the new federal labor law must not undermine this achievement. We need to promote tax incentives for new investments, compared to the US in Mexico we cannot find these. Finally, security is an ongoing issue that everyone is experiencing. For companies, insecurity increases manufacturing costs.” Details Albin. 

The second strategy to take advantage of the opportunities after COVID-19 is to keep promoting Mexico abroad. After ProMéxico disappeared, there has not been an entity that is actively promoting FDI in the country, according to INA. “The private sector is organizing itself with industrial developers to gain some of the attributions ProMéxico used to have. We do not need to cover the world, we need to focus on some countries such as US, Canada, Spain, France, Germany, China, Japan and South Korea to assure sustainable investments,” says Albin.

Finally, INA considers the technical level of academic institutions related to manufacturing operations is really “below” what the industry actually needs. Efforts must be done by the private sector and academic institutions to improve the curricula in universities so more companies can be motivated to invest in Mexico.  

The data used in this article was sourced from:  
INA
Photo by:   BRP
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst