Smoothing the Investment Road Into MexicoBy Alejandro Salas | Fri, 03/29/2019 - 05:00
Political uncertainty stemming from tariff threats touted by the US, the negotiation of USMCA and Mexico’s 2018 federal elections resulted in several investment projects being put on hold. These decisions have led to extensions in vehicle production programs and delays in the introduction of new platforms to the Mexican market, according to Luis Viniegra, General Manager at Vinco Automotive.
Vinco Automotive is an international professional services company that helps auto parts manufacturers land in the country and become part of the supply chain for new vehicle production projects. However, delays in new platform implementations had a negative effect on the company’s business in 2018. “USMCA and its projected ratification have reduced political uncertainty but OEMs have yet to start production of new vehicles using overhauled platforms,” says Viniegra.
Still, the company sees good opportunities for the Mexican automotive industry to grow under new trade circumstances. Even though USMCA’s rules of origin establish a minimum labor content value of 40 percent for tariff-free exports – a condition that only Canada and the US comply with so far – the deal has also made it more difficult for China-made components to enter the North American market. This will mean production of several parts will be shifted from Asia to Mexico, which is the region’s low-cost country, says Viniegra. “Eventually, USMCA will have to be revised to raise Mexico’s export quotas.”
The panorama appears positive for Vinco Automotive to grow its operations, especially among Tier 2 suppliers that can benefit from the company’s global network of contacts within OEMs’ procurement and engineering departments. “We can optimize the resources that companies invest when approaching OEMs and speed the process of becoming part of the supply chain,” says Viniegra. The company expects to launch a project that helps Mexican businessmen in this sector to internationalize their manufacturing operations and supply parts to US-based companies.
At the same time, Vinco Automotive helps automakers develop their supplier base by identifying companies that can locally offer the products OEMs need, mainly injection and stamped components. “Companies constantly contact us looking for new suppliers that offer better prices or a technological added-value in their products and services,” says Viniegra.
The company, however, has found tooling equipment and raw-material sourcing lacking in Mexico’s automotive supplier base. “There are still several opportunities to supply molds and equipment for vehicles currently being produced,” Viniegra says. Production of molds and local procurement of plastic resins are among the most significant areas of opportunity Vinco Automotive has identified, mainly because plastic-injection companies are subject to volatility of the international petrochemical industry. Having said that, Viniegra advises companies to start looking for opportunities to supply components for electric vehicles and charging stations. “Mexican suppliers need to remain competitive and offer added-value features to increase their participation in component assembly,” he says.
Viniegra also believes Mexican suppliers still have room to grow organically, although medium-sized companies will soon see themselves in the need to merge or partner with each other to create strong business groups. Should SMEs seek to grow beyond Mexico’s borders, Vinco Automotive can also offer support to find new supplying opportunities or a joint-venture partner abroad by taking advantage of its global presence, Viniegra adds.
Vinco Automotive’s own growth strategy is twofold. On the one hand, the company wants to support vehicle-platform overhauls that were lost in 2018 to political uncertainty. On the other hand, Viniegra says the company will lean on Vinco Automotive’s sister business unit, Vinco Industrial, a distributor of packaging material specially designed for auto parts and employed by key component suppliers such as Gestamp. “Vinco Industrial can support Vinco Automotive during this transition thanks to its constraint-free operations that do not rely on the implementation of new production platforms,” Viniegra says.