Uncertainty: Enemy of Mexico's Automotive Industry

The automotive industry is a strategic sector for the Mexican economy and foreign direct investment (FDI) is vital to its development. However, recent measures are raising questions on Mexico’s attractiveness as an FDI destination, including recent regulatory changes concerning outsourcing and the USMCA.

Outsourcing is causing even more uncertainty among Mexico’s industries, which were already suffering from the COVID-19 pandemic. This can push away future investors, damaging FDI. “We should not destroy the quality and the image that Mexico still has as an attractive country for FDI,” José Zozaya, Executive President of AMIA, told Milenio. In his opinion, overregulation could push investments away.

Managing uncertainty is important for Mexico, as it has taken a toll on the Mexican automotive industry. Investors, however, see opportunities in Mexico thanks in part to USMCA. Antonio Martin López Díaz, President of ARIDRA, believes USMCA is a good thing for Mexican industries. “The signing of the USMCA has been a great achievement in giving North America, which is the largest market in the world, a legal framework and, above all, certainty,” he wrote for MBN. Manuel Nieblas, Partner and Manufacturing Industry Leader at Deloitte Mexico, agrees that the treaty could be a watershed for the local automotive industry. He told MBN that companies were waiting for some gaps regarding USMCA to be filled. “USMCA’S enforcement will help curb uncertainty but Mexico needs to continue its efforts to attract FDI.”

While there might be opportunities ahead, the sector itself must evolve to continue attracting FDI. Gilberto García, Director General of Direct Foreign Investment Ministry of Economy, told MBN that “the automotive sector is going through a transformational process and technological changes will determine the success of automotive companies in the next few decades. Value chains in the automotive sector must adapt to these technological changes in the short term to be successful at a global level.” García mentions areas of opportunity in identifying international financing sources and companies that might be interested in bringing the production of electric-vehicle components to Mexico, which helps strengthen Mexico’s automotive industry. Zozaya stated in El Heraldo the importance of the private and public sectors working together to make this happen. “It is important that the automotive sector and the authorities keep a close relation, so they can give both certainty and trust to investments and boost the economic and social development of Mexico,” El Heraldo reports.

Mexico is the sixth producer of vehicles in the world and the top producer in Latin America. The automotive sector represents 20.5 percent of the manufacturing GDP and 3.8 percent of the national GDP. According to Zozaya, “even though the COVID-19 pandemic has affected society and most of our industries, creating uncertainty, at AMIA we strengthen our commitment to Mexico to keep leading globally.”