USMCA Opens Opportunity for Mexican SMEs in Auto Parts SectorBy Antonio Martin López Díaz | Wed, 09/30/2020 - 14:30
A short time ago I was invited to participate in an interesting panel focused on the topic of auto parts suppliers and their opportunities with the new USMCA, at which various options emerging in this area were discussed following this new trade agreement with the US and Canada.
First, and as expected, the panelists put into perspective the unquestionable importance of the automotive industry to the Mexican economy. Without a doubt, this cutting-edge industry is the No. 1 priority since the automotive sector generates 3 percent of national GDP and 21 percent of manufacturing GDP, 1.8 percent of employment and 22 percent of manufacturing employment, and it is the leading foreign exchange generating activity and captures 20 percent of foreign direct investment.
On a global scale, Mexico is positioned as the seventh-largest producer of light vehicles, the seventh-largest producer of engines, the fourth-largest exporter of auto parts and the third-largest exporter of vehicles. This means that nine out of 10 vehicles made in Mexico are exported and seven of those are destined for the US. These impressive figures are what give the company the hierarchy that we attribute to it. During my participation in the panel, I stated that the so-called USMCA, which came into effect on July 1, consolidated Mexico's position on a market of 490 million people, with a GDP of US$23 billion and a commercial exchange of US$1.16 billion, according to official figures. How many countries in the world would like an opportunity like this?
As far as vehicle parts are concerned, Mexico participates in the manufacture and export of harnesses, seats and their parts, seat structures, engines, gear boxes, die-cut parts, axles, brake mechanisms, airbags and safety belts, among others. Mexico is practically qualified to manufacture all products required by the automotive industry.
As for exports, our country has a surplus in all vehicle parts or systems. But as far as imports are concerned, there are obviously areas of opportunity for national companies in areas such as electro-electronic equipment, as well as in the so-called “other parts” which include gasoline and air filters, radiators, mirrors, lifts, mufflers and air conditioning systems. There are also other vital car systems in which Mexican companies can capture a greater share of the market, such as transmissions, which would be a great business because it represents a large part of a vehicle's cost.
Another aspect of the trade agreement, which I personally consider positive, is the change in origin content from 62.5 to 75 percent. As is well-known, this change will have a transition period of five years but it represents a good opportunity for the Mexican industry to substitute imports. Many of the SMEs that only serve the aftermarket today will have the ability and opportunity to become Tier 2 and Tier 3 businesses. It is a challenge and, of course, it requires investment in training and technology, but it is also an opportunity that needs to be embraced.
A series of conclusions emerged at the end of the panel that I want to share with you. One of the most important, without a doubt, was that the USMCA is not a panacea to remedy all the ills of the countries involved, but it is very clear that if the old NAFTA had not been renegotiated, the damage to the three signatories' economies would have been more than evident.
To sum up, I believe that 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.
Finally, I'd like to leave you with a message I once read in an interview with the State of Israel's first president, Jaim Weizmann, in which he said, "There are three things that never come back in life: shot arrows, spoken words, and good opportunities.” Whoever has ears, listen.