Manuel Nieblas
Manufacture Industry Leader
Gabriel Renero
Gabriel Renero
Former Partner

Industry Reforms Modify Supply Chain Relations

Mon, 09/01/2014 - 16:48

Among those advising the automotive industry, Deloitte holds pride of place as its own executives say it offers its services to 80% of OEMS and Tier 1 companies in Mexico. This position has been attained while Mexico has become highly competitive as a destination for foreign automotive investment. This trend has been characterized by mammoth announcements such as Audi announce a plant in Puebla and the BMW plant in San Luis Potosi, which have helped to keep global interest high in the Mexican market. But Gabriel Renero, a former Partner in Deloitte’s consulting arm, sees potential developments outside the norm. “There is a big opportunity for Chinese manufacturers here. They are trying to understand how the North American market works and what they need to do in order to break into it,” he says, adding that “as it stands, Chinese manufacturing is not up to the standards required by the US for the most part. However, Latin America is a good test market for them, with Mexico being a particularly good opportunity.” He believes that with the country having piqued the interest of Chinese investors, it has secured automotive investment for many years to come.

For companies unfamiliar with the Mexican tax situation, Deloitte also offers advice on tax compliance, transfer pricing and international taxation issues. Manuel Nieblas Rodríguez, a Partner specialized in auditing, explains that the most relevant issues in Mexico’s 2013 Tax Reform involve customs and importation duties. “Companies will need more capital to fund the VAT payments that are now necessary,” says Nieblas Rodríguez, “We are still waiting for the final regulations and requirements regarding certification to avoid the VAT payments. The results of that will reveal the impact more clearly.” However, Renero seeks to clarify one matter. “By the very nature of their businesses, all of our clients are used to a certain level of change and uncertainty within the industry. This is to be expected in evolving markets around the world, and most executives within the sector are used to witnessing change.” Therefore, Deloitte does not believe that changes in the Mexican market are of much concern, especially when it comes to initiating or continuing investment. Instead, companies are seeking the best way to assimilate costs that were previously unaccounted for. Deloitte also works with local suppliers, given the need for these to develop at the Tier 2 and Tier 3 levels of the supply chain. Nonetheless, in order to function as indirect suppliers for leading international companies, these local suppliers need to demonstrate their competitiveness. This is where Deloitte comes in. “Within the scope of our management consultancy, we advise clients on what sort of structures they need to have in place and then help them to implement those systems. SMEs have a lot of opportunities from a technological, process, and human capital standpoint, and we are trying to help them become more sophisticated and grow as suppliers,” says Renero.

“The most familiar explanation of Mexico’s poor domestic market is the influx of used, American cars. But while this is being worked on, there also needs to be better communication between the OEMs and the dealers. For example, a customer might enter a dealership looking for a black car with a sunroof, but the dealership only has a red car without a sun roof available. If this is successfully sold to the customer, the OEM will receive an update from the dealership indicating that red cars without sun roofs are selling well, when really the true demand was actually for the black car. This shows how recording and communicating the real need of the consumer is therefore key to increasing sales.” Deloitte has found this miscommunication extends to the dealership network where confusion often exists about who owns customer data, how dealers should report information, and to what extent this information is confidential or shareable. Many of the OEMs that have been in Mexico for a long time grew by implementing different systems for all different aspects of the sales process, which has resulted in many different solutions for how the information is stored and shared. Renero suggests that all of this information should be integrated into one single data system, which analysts could then use to mine data.

As for the future of Deloitte’s services in the automotive industry, Renero predicts that the company will receive a raft of requests for market entry strategies as all aspects of the industry grow. “Mexico may not have a large domestic light vehicle market, but it is one of the most competitive markets in the world. Mexico is a price-sensitive market but the luxury car segment is the fastest growing area. The other sector that is creating a lot of demand for advice will be technology. With the development of high-tech prototypes such as autonomous vehicles, inquiries will come regarding how these changes to the industry’s status quo will be assimilated by the consumer. Of course, this will call for a lot of interesting debate as the population tries to find the balance,” concludes Renero.