Interlocking Purchasers with Manufacturers

Q: General Motors recently announced a US$5 billion investment, how will this investment be allocated?

A: This cash flow injection started in 2013 and, with funding expected to last until 2018, it will mainly be directed toward renovating and expanding our manufacturing capabilities in all four GM plants, namely Toluca, Ramos Arizpe, Silao, and San Luis Potosi. So far, US$1.4 billion has been invested in two principal projects. Firstly, we invested in a new engine plant that manufactures small gasoline engines (SGE), which is one of the most efficient engines on the market. Further resources went toward creating a new eight-speed transmission facility in the Silao plant. Of the remaining US$3.6 billion, we plan to invest US$350 million in Ramos Arizpe to develop the next generation Chevrolet Cruze, US$87 million is designated to the expansion of our stamping plant in San Luis Potosi, while the remaining US$3 billion will be invested across our manufacturing complexes.

Q: What kind of new technology is GM introducing to develop these projects?

A: Our SGEs are highly efficient turbo-charged engines. In the past, only diesel engines were turbo-charged, but the development of this feature in gasoline engines means that the metals are smaller but more efficient, providing more fuel economy without sacrificing power. In terms of our transmission development, we are constantly improving our products, having started with four speeds, before moving on to six, and subsequently eight. This provides a more effective ratio between gears, which helps with the transmission’s efficiency, in turn optimizing fuel consumption. We are also establishing two stamping lines that will help us produce larger quantities of panels and stamped components. Although our national production lines are currently running efficiently, we are constantly looking at ways to improve manufacturing processes. In an effort to continue mitigating the impact of our environmental footprint, we are working on wind power generation. This project will be developed primarily for our Toluca facility, and is being operated in collaboration with Enel Group.

Q: As the largest auto parts purchaser in the country, how is General Motors supporting the development of the local supplier network?

A: The main opportunities for Tier 2 and Tier 3 suppliers depend on the needs of Tier 1 companies. Multiple forums sponsored by state governments are held at our plant to align the existing demand between Tier 1 companies and the offerings of Tier 2 and 3 companies. We help Tier 1 suppliers identify companies from within the chain, alongside the Center of Mexican Automotive Industry Development (CeDIAM) at the Tecnológico de Monterrey, as well as offering basic quality tool courses for potential suppliers. Many new suppliers will enter the market, while existing ones will expand their production capacities within the country. When facing noticeable expansion efforts, the challenge is to maintain a competitive focus in terms of manufacturing costs, which include logistics, technological, and raw material costs.

Q: How has the content ratio of locally and internationally produced components changed in vehicles that are produced in Mexico?

A: Between 2013 and 2014 our in-country purchases increased by 16.7%. The production of a General Motors vehicle requires an average of 2,400 components, and 40% of these are manufactured in Mexico, including electric components, stampings, and interior and exterior parts such as lights, windows, and mirrors. Although the average can vary depending on the vehicle, approximately 70% of our component expenditure is allocated to the purchase of locally produced goods, which demonstrates that the parts that are manufactured in Mexico are of the highest quality. We have plans to expand local content up to 90% over the next five years and we are still working on some products that we do not yet have the capacity to manufacture, such as forges and braking components. In addition, we are developing our existing product base in electric components and interior parts. The combination of these efforts will hopefully allow us to reach the 90% mark that we are striving for.

Q: What opportunities are there to use components produced in Mexico for technologically specialized vehicles, such as electric and hybrid cars?

A: GM Mexico has no existing plans to manufacture electric or hybrid vehicles in the country, but in the first quarter of 2015 we announced the introduction of the Chevrolet Spark Electric Vehicle (EV) to Mexico, a car designed to run completely on electricity, which will be manufactured by GM Korea. We believe that it is an area that has the potential for development at a later date, but due to the need to develop a component supplier network for the specific market segment, there is unlikely to be any progress in the short term. However some of our local suppliers manufacture components for electric vehicles such as the VOLT from Mexico. The projected sales volume for these vehicles is relatively small within the Mexican market and it is likely that the spare part market would be solely comprised of imports, which may prove costly. Our future plans in this area will be dependent on the way in which the market reacts to our product, but if our predictions of a limited product penetration are accurate, there will not be sufficient demand to justify establishing relationships with this type of supplier in Mexico.

Q: What are the priorities of General Motors to reduce costs in the supply chain?

A: We can improve the logistics costs when there is an increase in product offering from the local market. The larger the volume, the more cost effective the logistics will be, and this improved response capability also helps us face industry changes and demand fluctuations. If we possess a strong production and logistics chain we can increase our product volumes and consequently increase our exports, so we work with our logistics providers to improve our local infrastructure and equipment availability. Additionally, we collaborate with the state governments to create the appropriate infrastructure in terms of ports, highways, and railroad tracks. GM seeks providers with a competitive price, lean production systems, robust quality mechanisms, and the ability to offer an unequivocal guarantee that our components will be created with the best quality materials in the market.

Q: In terms of Tier 1 providers, what companies has GM helped to establish in the Mexican market?

A: There are almost 30 new companies that have established plants in Mexico with GM support, and they provide us with engine and transmission components, as well as interior and exterior parts. Our supplier development strategy consists of balancing General Motors’ demand between the Mexican and global market and the increasing supplier offering in the country has meant that we have begun focusing on maximizing the competitiveness of Mexican based suppliers. In order to optimize the process, a total cost- based approach was implemented, which includes logistic costs, production competitiveness, local integration levels, raw material availability, technology, and engineering and development capability. Our supplier quality division oversees compliance with necessary guidelines that will allow us to deliver the best possible products to our clients.