Óscar Albin
Executive President
INA
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View from the Top

More Innovation Needed Among Mexican Suppliers

Mon, 09/01/2014 - 09:12

Q: Do you see a big difference between the capabilities of international and domestic auto parts companies operating in Mexico?

A: The domestic automotive industry was born 60 years ago when the government decreed that to sell a car in Mexico, you had to build it here with Mexican components. At the time, Mexican investors invested their money to create factories based on technical agreements and joint ventures with international firms. The NAFTA agreement provided the opportunity for international firms to enter Mexico with 100% of ownership, which resulted in foreign companies buying the Mexican portions of the industry. This led to the local automotive industry disappearing, leaving us with only five to ten professional and high-tech auto parts manufacturers. The same happened in Spain and in South American countries. Today, we have around 200 companies that are dedicated to the aftermarket business. These companies manufacture parts such as brake pads, but they are not designing or investigating new formulas for the braking system that will serve the cars of tomorrow. They are building brake pads for the cars that are on the road today. To conclude, we have a few leaders and many followers. Germany has about 40 companies that compete internationally. But in general, the auto parts world has been shrinking in recent years as the largest companies are buying smaller players. Big names are disappearing or they are consolidating. Mexico has consolidated to about ten innovating companies, and that is a pretty good number.

Q: What role can auto parts suppliers play in the R&D cycle in Mexico?

A: OEMs know how to build a car, but they do not know how to build an air bag, how to design a brake system, how to design an exhaust system, or how to cool an engine. The real technology is in the auto parts industry. OEMs provide auto parts suppliers with information about the shape and design of the car and, for example, the seat. They provide specifics such as the seat’s required resistance during a crash test, presence of an electric track that is not noisy, and cost parameters and durability. Based on this information, the seating will develop the foam, the stretch of the foam, the stretch of the frame, the condition of the track, and the condition of the recliners. The companies that develop such seats, headlights, steering wheels, or radio and audio system, fall under the auto parts sector. OEMs develop systems and processes, but the technology that goes into the components is developed by the auto parts sector. Currently, the auto parts industry is growing around the world, and engineering centers are sprouting up. Now Mexico is becoming a destination for these engineering centers while ten years ago we were not even on the map.

Q: What is the main reason behind the shift of the industry from the traditional north to the center of Mexico?

A: The OEMs definitely act as the driver. Two decades ago, we were exporting 90% of our production to the US. Logistically, it made sense to be no more than 200km south of the border, which is why Hermosillo and Saltillo grew very fast as vehicle producers. Today, around 65% of the vehicles are being exported to the US, 15% to South America, and 15% to Europe. Those destinations are playing a role in the logistical components of the market. Today, many vehicles are being exported through the seaports, which provide access to the Atlantic and Pacific Oceans, and those ports are closer to the center of the country. The transit to Manzanillo or Veracruz is easier through the center than when coming from Coahuila. The OEMs, their logistics, and target markets have had an effect on the place of production.

Q: How has this move affected the supplier industry?

A: It is having both negative and positive affects. Today, companies have two options in order to generate more business: they can either expand their existing facility or create a new one. In order for a supplier plant to function, it must be within 20-30km of the OEM it supplies. So this shift has left manufacturers no option but to build new facilities. Since then, the cost of the land in the Bajio region is growing as is the demand for people. The main problem we are facing in that region is a scarcity of people to fill the required talent pool. Cities in the center of Mexico will not be able to provide the human resources needed to continue growing the automotive industry so they will need immigration, and immigration means a need for better infrastructure.