Manuel Nieblas
Partner and Manufacturing Industry Leader at Deloitte Mexico
Deloitte México
Alberto Torrijos
Alberto Torrijos
Partner and Automotive Sector Leader at Deloitte Mexico
Deloitte México
View from the Top

Priorities for a New Trade Environment

Sat, 09/01/2018 - 12:16

Q: What is Mexico’s greatest opportunity to maintain its competitiveness following the NAFTA negotiations?
AT: Mexico’s extensive FTA network remains one of its key strengths. The country has now entered the CPTPP agreement and is negotiating its FTA with the EU, which means more roads are opening for Mexico to diversify its operations and to lower the impact that an altered or even canceled NAFTA could bring. At the same time, talent is without a doubt one of the country’s greatest advantages. Over 100,000 engineers graduate each year and participate in the development and implementation of new technologies, including Industry 4.0 practices. Furthermore, OEMs and leading Tier 1 suppliers are now establishing their own training centers or universities to ensure talent availability. Such is the case with Nissan, BMW and Audi that have training centers working closely with the state and Federal governments.
MN: Academic institutions have made great advances in collaborating with the industry to deliver talent with the capabilities that companies need. Automotive clusters in particular have actively promoted integration between the theoretical concepts taught in the classroom and the practical approach that students can explore within the industry. Mexico has proven itself as a manufacturing hub with a high level of integration in the North American region. Our goal now is to continue developing the local supply chain, particularly if we are to meet more stringent regional content rules in a NAFTA 2.0 scheme.
Q: How viable is it to change wages in Mexico to levels more in line with the US and Canada?
MN: In reality, foreign players without local production would be the most affected by the implementation of an average wage. Components manufactured in the North American region will include content from all three countries, which means that the average wage to produce those parts will be close to the standard the US wants to set. Mexico would have to make an effort to increase wages but not to levels of US$15 per hour. The endgame of this proposal is to incentivize foreign investment in the region, which will boost local content regardless of the wage level where it is manufactured.
AT: Salaries of technical and administrative positions in the automotive industry have incremented by 10-12 percent in the past five years but are still nowhere near what we can see in the US or Canada. The country is not ready to make such a drastic change in wage rates and companies cannot absorb those added costs. Furthermore, raising salaries artificially would only lead to inflation and an impact on the final price of the vehicles that would have to be paid by the customer. In the end, this measure will only diminish the whole region’s competitiveness. Instead, the US proposals should be more oriented toward supply chain and technological integration.
Q: What should be Mexico’s priorities in a new NAFTA landscape?
AT: The country’s priorities should focus on how to attract more investment to production of hybrid and electric vehicles. OEMs have already vocalized their strategy to bring these models to the mainstream given that so far, they represent less than 2 percent of the global market. Our entire production infrastructure is oriented toward internal-combustion vehicles and if we do not change that, we will commoditize our offering. The future is electric and our supply chain must evolve from focusing on what will later be a commodity to an added value.
MN: We need to have an integral proposal that includes not only vehicle production but also auto parts. The government must pay closer attention to how new technologies will impact the industry and companies must also be aware of how their business will change. At Deloitte, we are working on ways to raise awareness about these issues among industry players, particularly Tier 2 and Tier 3 businesses because every company knows something is happening but they do nothing about it.