Oscar Albin
President
National Auto Parts Industry
/
Insight

Mexican Auto Parts Industry Must Command Better Respect

Mon, 09/01/2014 - 09:47

The Mexican auto parts industry was largely born of the need for OEMs establishing in Mexico to fulfill requirements for set levels of domestically made components in order to sell cars in the country. Furthermore, large multinational corporations looking to settle in Mexico had to comply with the condition of having a Mexican majority shareholder. During this period, a number of leading international manufacturers entered the national automotive arena, including Johnson Controls, Lear, Bosch, Federal-Mogul, and Dana, among others. As the economy of the NAFTA region grew, many OEMs changed their manufacturing strategies in Mexico to produce one or two high-volume models instead of several low-volume models. Production was intended to be exported while suppliers could now settle in Mexico and own 100% of their companies. This was the big change that the Mexican auto parts industry needed in order to grow sustainably. When the local content regulation for the automotive and auto parts sectors was removed, many Mexican Tier 1 and 2 companies vanished, leaving the market in the hands of transnational competitors. Few Mexican companies overcame the challenge of growing  their own businesses while global competitors were taking over the market. Today, those that have thrived include major companies like Nemak, TREMEC, Metalsa, Bocar, Arbomex, Macimex, and SANLUIS Rassini. As a result, the Mexican auto parts industry now faces the challenge of recovering its Tier 2 and 3 production volumes. As for Tier 1, many parts are still produced here, but the rest of the supply chain has not followed suit. Over the past 20 years OEMs have encouraged their trusted Tier 1 suppliers to set up nearby. Tier 1 companies have been only too happy to take up this opportunity, but have largely remained focused on assembling components in Mexico while importing raw materials from longstanding suppliers in their country’s of origin.

Considering low need from OEMs and the absence of national content regulations, Mexican suppliers need to become competitive in terms of cost, logistics, and quality standards. Without these characteristics, it will be impossible to promote the Tier 2 and 3 components of the Mexican automotive industry’s procurement chain. The federal government has to play a crucial role in this development through the promotion of direct foreign investment by supporting and attracting suppliers that can complement the production chain, such as those manufacturing steel, fabrics, electric cabling, forging, and machining. Finally, it is important to remember that Mexico is not the only destination where transnational auto parts companies are being invited to follow OEMs. Countries like Russia, Brazil, China, India, Czech Republic, and Poland are also seeking to attract employment sources and technology. Therefore, in such a crowded environment, Mexico must not rest on its laurels but adopt a highly aggressive stance towards promoting itself.