What to Expect from Mexico’s Automotive Industry?

Today and tomorrow, the International Automotive Industry Congress (CIIAM) celebrates its 20th anniversary. The event will host over 280 industry leaders and key players from Mexico’s automotive industry to discuss the most pressing topics affecting the automotive industry. 

During the first day of the event, experts discussed key issues affecting the industry, including the labor environment surrounding the USMCA, the industry's opportunities for innovation and the work companies are doing today to meet the demands of tomorrow.

Mexico is currently the fourth largest auto parts producer in the world. However, the country still has room for growth and can become a global powerhouse for the automotive sector. To achieve this, Mexico’s automotive sector must transform and adapt to the new trends and demands of tomorrow. According to Francisco Gonzáles Díaz, President, National Auto Parts Industry (INA) in the automotive industry, the Foreign Direct Investment (FDI)  has quadrupled in the last 20 years, showing that the sector has grown in relevance for the country.  

Perspectives about the USMCA

The USMCA opens the door for exclusive trade with North America, one of the world’s most important economic blocs. The agreement brought both strengths and challenges to Mexico’s automotive industry, including changes in the rules of origin, the rapid response mechanism and the dispute regarding energy policies. These issues have caused a constant back and forth between the three countries. 

The USMCA plays a critical role in attracting FDI to Mexico. According to Credit Suisse’s Mexico Nearshoring Tracker Second Edition, Mexico received at least 20 new investments projects in October 2022, with a value of US$2.05 billion linked to nearshoring activities.  

Esteban Martínez Mejía, Head of the Liaison Unit for Labor Justice Reform, highlighted the work done in the transformation of the national legal framework, which allowed to change the model of labor relations in Mexico. “The measures implemented within the USMCA, such as the new labor unionization model and the rapid response mechanism, are unique in the world and unprecedented. New trade agreements are beginning to implement these measures,” he said. 

Alignment was sought among the main trading partners to obtain an unprecedented instrument in trade treaties: direct trade sanctions against companies. The modifications to the Article 123 of the Constitution target two key points, freedom of association and trade union democracy. 

Freedom of association gives workers the right to form a trade union, to join or not to belong to a trade union, while union democracy ensures direct and secret elections of the leaders democratically elected by the workers. At the moment, there are over 200,000 collective bargaining agreements in Mexico. However, only one out of every 10 collective bargaining agreements is authentic and complies with all the necessary measures and requirements, explained Martínez. 

Tech, Trends and Opportunities for Mexico’s Auto Industry

At the recent 2022 UN Climate Change Conference (COP27), Mexican representatives said that the country is committed to reduce emissions by 35 percent by 2030, an ambitious but necessary goal. Electromobility is a key step in achieving this goal. 
 
Electromobility brings countless opportunities and challenges to automakers seeking to adapt to the demands of the industry and the customer. Both are demanding more sustainable transportation options, new materials technology, customizable cockpits, batteries and electric motors, among other features. These factors play a key role for companies that aim to have the upper hand amid this transition to EVs. 

Francisco Garza, President and Executive Officer, General Motors Mexico (GM), highlighted that the automotive industry has a key role in the Mexican economy, as it represents 3 percent of the country’s GDP and employs over 1 million individuals. “The automotive industry has become the engine of Mexico’s economy. However, the industry must transform itself from Internal Combustion Engines (ICE) to electric motors,” said Garza. 

By 2025, GM aims to have 30 EV models in its portfolio and by 2030, it aims for its entire portfolio to be composed of EVs. The company also plans to have emissions-free operations by 2040. The company has 87 years of experience in Mexico and is also working in three key areas to improve the automotive industry: zero collisions, zero emissions and zero congestion through electrification, development of autonomous driving and interconnected vehicles, according to Garza. The automaker is also the top exporter of vehicles in the country, delivering vehicles to more than 40 countries worldwide. 

Worldwide Panorama of the Automotive Industry

Growing nearshoring and offshoring trends bring many opportunities to Mexico, but the country also faces numerous challenges to become a powerhouse in the automotive industry. These include material scarcity, supply chain disruptions, logistics, new regulations that do not seem to incentivize investment and high inflation, which is 8 percent more higher than last year. These challenges need joint actions by the public and private sector. 

Jorge Vallejo, President and CEO, Mistsubishi Motors, highlighted the need for regulations and incentives to support a smooth transition to electromobility. “It is no coincidence that Latin America and the Caribbean are among the top regions of the world with less incorporation of EVs and its technologies. This new business model demands proper support and investment.”