Manuel Montoya
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Local Consumption Key to Fostering Economic Growth

By Alejandro Enríquez | Tue, 01/19/2021 - 18:47

Q: How is the automotive supply chain in Nuevo Leon doing eight months into the pandemic?

A: Production has been stabilizing. During April and May, plants remained shut down and when we were able to restart operations it was a great challenge to install the hygiene systems, given government guidelines. It was an even greater challenge to align the entire supply chain in the same direction. OEMs in the US resumed operations in mid-May but in Mexico, we still did not have that authorization. Therefore, they could not start production because auto parts companies here were closed. One-third of the parts used at OEMs in the US are produced in Mexico. It was a long process of negotiations but in early June, almost all companies in the supply line resumed operations. 

In the following months, production was largely normalized by the industry's drive in the US. In September, more cars were produced compared to the same period last year. We also posted good results in October and we expect to close 2020 with results similar to 2019.

Q: How have CLAUT companies experienced the acceleration of automation processes due to the pandemic?

A: The automotive industry was already on the road to automation long before the pandemic arrived. Over three years ago, Industry 4.0 was gradually incorporated into the state’s plants. The pandemic has only reinforced this strategy, which seeks optimized management of big data and predictive maintenance, among other developments.

Q: How have companies looking to relocate their supply chains to Mexico advanced in their ventures? 

A: This is a phenomenon that was occurring long before COVID-19 but the pandemic has undoubtedly accelerated it. We are moving from globalization to regionalization. The pandemic exposed the fragility of supply chains scattered around the world. It awakened the need for closer production lines. This has led to a relocation of production to North America but not necessarily to the US. The preference is to join the Mexican market to have costs similar to those in Asia. In short, cost optimization is important but not as much as it used to be.

Likewise, USMCA and the new rules of origin require an increase in OEM regional value content. Unlike NAFTA, this new treaty also imposes rules for Tier 1 suppliers. This is also pushing companies to relocate their production. 

Q: What influence could Joe Biden's administration have on the automotive industry in Mexico?

A: I do not see any radical changes resulting from this situation. It seems to me that we are going to continue on the path that has already been established. That is what trade agreements are for. Some aspects will perhaps receive more attention, such as sustainability. We will probably see the implementation of more environmental policies that will motivate the North American automotive industry to reduce its carbon footprint.

Electric vehicles (EVs) during Donald Trump's administration were seen as a faraway scenario. With Joe Biden leading the way, there will surely be incentives for these technologies to be incorporated. There is still a long way to go because we still do not have the technology or infrastructure to adopt them on a mass scale but we are going to move in this direction.

Q: How are suppliers in Nuevo Leon preparing to manufacture EV auto parts?

A: Those that need to be prepared the most are companies in the business of engineered components for internal combustion vehicles. Those who have not begun this transition will disappear. One example is Nemak, which entered the electric vehicle business in 2017 and has already begun making battery trays. Sooner or later, the volume of demand for internal combustion components will start to decrease.

When both electric and internal combustion vehicles have similar costs, we may see greater penetration of this segment in the market. Even today, EVs are more expensive because of the cost of the battery. Not everyone is willing to pay US$10,000 for a battery. Internal combustion vehicles will remain in the market for many years.

Q: What initiatives has the Mexican Automotive Cluster Network taken during these months?

A: There has been a great deal of collaboration and partnership between all clusters. Each region has its particular needs but we also have common ground across the industry. Since the pandemic began, we have held meetings to share what each of us is up to in our respective states. Initially, when the uncertainty was greatest, surveys were a great support to us. Through them, we collected information about the plants and production lines that had ceased operations and who was already up and running again. All this information has been very useful to companies. 

We have also hosted online seminars regarding USMCA and its implications for the entire cluster network. The challenge in this area has been organizing B2B meetings. The great advantage of these platforms is that buyers now can talk to suppliers from home. However, it has been difficult to coordinate the meetings. This is a great opportunity for Tier 2 companies to grow. This is what is really going to help grow the economy of this country. The auto industry has been driving Mexico's economy for years but growth will only come when there are more opportunities for local businesses.

 

The Nuevo Leon Automotive Cluster (CLAUT) is a civil association composed of automotive suppliers, academic institutions, and public dependencies focused on boosting the competitiveness of the Nuevo Leon automotive sector

Photo by:   CLAUT
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst