Andrés Lerch
Partner, Advisory Services / Performance Improvement
Ernst & Young Mexico
/
View from the Top

Projecting Immense Demand for Automotive Professionals

Sun, 02/15/2015 - 18:58

Q: What projections does Ernst & Young have for the coming years?

A: Taking into consideration all of the information that we have gathered and analyzed, we believe that local production can reach 4.1 million units for 2020. Of that, we expect that 1.3 million will end up in the Mexican local market. The annual growth rate of the Mexican automotive industry will reach 8% between 2010 and 2018, and even though this is significant and steady growth, we would like to see our local sales reach higher levels. I believe that good times are soon to come as the credit loan market is becoming more flexible, whereas it used to be one of the most severe barriers for the growth of local business. This flexibility and evolution will open up access to more domestic sales. There is an argument that continuously arises regarding the gap between sales and production, which is the county’s macroeconomics stability. While Mexico does have stability, that stability has not necessarily trickled down to the microeconomics. Wealth distribution inequalities are pronounced fact, and although middle-class growth is a phenomenon around the globe, Mexico’s middle class does not have the rnecessary purchasing power or adequate access to credit to purchase a vehicle. If credit schemes were better in terms of rates and longevity, sales would rise significantly. The number of local units sold grows at the same rate as the Mexican middle class; it is directly proportional.

Q: What advantages do you expect Mexico to gain from the continuous arrival of new manufacturing companies?

A: Job creation is the most important advantage that there is. It is quite interesting to see the immense demand for professionals. There will be an interesting cash flow entering the economy as well. In addition, we will see a manufacturing growth that will be sustained for many years to come, unless a world crisis hits, which is impossible to predict. With the way in which the global economic landscape is currently set up, the automotive industry projects the highest stability in any industrial manufacturing sector over the coming years. This will open up many manufacturing opportunities for different industries, such as aerospace. Companies that are entering the market are not only looking for a favorable geographical position. They are also looking to ensure the quality of their vehicles, while having the lowest distribution costs, and having a considerably low overhead that opens up business. In addition, government incentives play a considerable role in an OEM’s decision to enter the country. These incentives are now structured in a much better way; competition among states is no longer an all-out war, but rather a structured and organized rivalry. In the end, Mexico has developed two production clusters in the Bajio and in the North Region, which largely ensures the participation of new OEMs within those areas. This is another incentive that companies will consider when looking at the country.

Q: Mexico’s exports are destined to expand to new markets, although the US will remain the country’s main market. What opportunities will this create?

A: We expect the US market to continue its growth tendencies. It is the most important market for Mexico and it will continue to be in the future. I believe that there are opportunities for Mexico in the Latin American market, but we will not see many variations in that regard. I see a great deal of opportunities in Europe and Asia, but they will be hindered by the long distances. Logistics and distribution costs will come into play, potentially affecting Mexico’s market expansion efforts. For example, if you add high shipping costs to a luxury vehicle, it will not make much of a difference to the consumer. However, if you do so for a compact car, consumers will be less likely to make the purchase. I am confident that there will be a formula that can be applied to the issue and will allow us to expand in a favorable way.

Q: Given that NAFTA’s regulations state that any used vehicle will be able to enter the country by 2018, how will the local used market be able to compete with this?

A: There are various ways to import vehicles with certain requisites into Mexico. One is temporary import, paying around US$50 as the only tax for the operation. This is truly attractive for the customers, since they can bring any vehicle they want for a ten-year period for practically nothing. However, this form of import does not allow property transfer, which means that the clients have to inevitably return the vehicle, unless they want to renovate its import rights. The other process is permanent, but that operation implies a trade tariff that practically equates the value of the imported vehicle with the price in the local market.