Luis Lozano
Mexico Automotive Leader
PwC
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Public Private Collaboration Needed to Adapt Workforce

Mon, 09/01/2014 - 16:17

Q: What steps need to be taken to facilitate the shift from low-tech to high-tech manufacturing in Mexico?

A: In the next two to three years, Mexico will move from being the eighth automotive production country in the world to being sixth. We are constructing more plants, which will easily take our production from 3 million vehicles a year to 4 million. Companies are very careful about where they put their production bases. Japan has had a lot of issues so its companies are transferring production outside Asia while Europe has very high costs when compared to Mexico. To capitalize on this, public and private entities should work together to reduce the time being spent on training people. Many Mexican engineers are going to work for OEMs and are being sent for training in Germany and Japan. As a result, the efficiency and quality of Mexican products is superior to those made in Brazil. Ford’s plant in Hermosillo is one of the brand’s top five plants worldwide and Nissan’s plant in Aguascalientes was its first outside Japan. We have seen that companies are not just investing here because it is a low-cost country, but also because of the manufacturing quality and the technical skills found here. Universities will realize they need to adapt, as the rise in production will depend on the country’s capacity to support this development.

Q: Concerns about rising labor costs in China are giving Mexico the opportunity to recover some of the manufacturing it had lost. What concrete steps need to be taken for that to happen?

A: Several factors will allow Mexico to recoup some of the investment that was going to China. For one, China has seen rising salaries and costs which will benefit Mexico, and following the new laws that have been approved, the Mexican government will have the resources to invest and increase economic activity in the automotive sector. Last year, we suffered from many issues due to a dragged out political process concerning the passing of various reforms. Now that that is settled, over the next two to three years, money needs to be invested to boost production capacity. Mexico will not just do this in the automotive sector, but also in aerospace, infrastructure and construction.

Q: How can Mexico break the cycle of imported cars from the US and allow production to reach its full potential?

A: This is the biggest issue currently facing the Mexican automotive sector. The US has to send its old cars somewhere. Given the US culture of owning a car for only a few years before replacing it, millions of cars are being replaced every year. Mexico does not behave in this way as people keep their cars much longer. However, new vehicle prices in Mexico have been increasing over the last five years. It is not logical for many people here to invest in a new car, so they buy used cars instead. The border will never be closed to this trade, NAFTA even says that the US will export more cars to Mexico, so this situation is likely to worsen. The US authorities will not regulate this by forbidding cars over a decade old to be sent here. The problem severely affects dealerships in Mexico as many of them cannot sell more than 100 cars a month. Toyota has reduced its number of dealers already and the American OEMs are following suit. We have considered many financial alternatives to fix this, but we are so close to the US that it is very difficult to end these imports.

Q: How is PwC’s automotive group adapting to the changes that are taking place in the country’s automotive industry?

A: PwC works as one firm, Mexico does not stand alone. We bring talent from wherever we have it to resolve issues in Mexico. First, we work in clusters so PwC Mexico is part of the Western cluster, which means it can easily access anyone from PwC in the US. If we participate in a project with a certain OEM, we work with the PwC firm where the OEM’s headquarters are located. We set up a coordination team that takes the lead in relations with the client. This team will be comprised of staff from several specialties, such as audit, tax and consulting. The firm in the country from where the investment is coming is in charge of this coordination process. We also follow very strict independent regulations. If I want to work with a German client, the person in charge of the account in Germany will help me to create the proposal for Mexico, to ensure we maintain the quality of service the client expects. The Germany office is leading Volkswagen, Mercedes-Benz, Daimler and BMW. The Detroit office is leading GM, Ford and Chrysler while the Tokyo office is leading Toyota. It all depends on where the OEM is located.