The automotive industry in Mexico is its largest manufacturing sector, and it didn’t get that way by chance. The world’s top auto part and vehicle manufacturers continue to move their operations back to North America, thanks to Mexico’s competitive advantages; here, we break down three of the biggest you need to know.
#1 Duty-Free Trading
One of, if not the, biggest reason automotive manufacturers are drawn to Mexico is the extensive list of Free Trade Agreements (FTAs). Boasting 13 FTAs, Mexico has formed a network with 50 countries across the globe and has access to 60% of the world’s GDP.
What does that mean exactly for your manufacturing operations? In addition to gaining global expansion opportunities, manufacturers can significantly cut down on costs and experience a smoother, more efficient cross-border trading experience. The United States-Mexico-Canada Agreement, for instance, incentivizes North American automotive production by offering reduced tariffs or even tariff-free trading, as long as 75% of components are manufactured in a USMCA country.
The USMCA is a big selling point for any manufacturer that exports to North American markets, especially the United States. The U.S. is one of the top automotive importers in the world, and in 2018, the country imported $101 billion worth of vehicles from Mexico—more than any other good.
#2 Established Infrastructure & Supply Chains
Mexico has a long history of automotive manufacturing, and today, the country is the second-largest producer of passenger vehicles in the Western Hemisphere. This long, steady growth has created a reliable automotive supply chain and unmatched opportunities for global manufacturers. Many big-name OEMs, such as General Motors, Ford, and Chrysler, have set up within the manufacturing clusters spread along the border, and thousands of local Tier 1, 2, and 3 suppliers are ready to supply them.
Mexico isn’t just rich in supply chain options. It houses robust infrastructure, such as an advanced electric grid, seaports and airports, and well-connected highways. There are also numerous industrial parks, which have become a hotspot for automotive manufacturers in Mexico.
Companies that set up within an industrial park get the best manufacturing benefits Mexico offers in addition to state-of-the-art facilities and necessary services, such as electricity and gas supply. Automotive sectors can also be found within close proximity to each other, helping manufacturers reduce the costs of transporting product components. In other words, operating in Mexico, particularly within an industrial park, gives manufacturers all the resources and networks they need.
#3 Fast, Low-Cost Shipping
To stay competitive within North American markets, fast shipping is a must, but shipping from overseas can take weeks and even months. It only takes a matter of days, on the other hand, for parts or finished products coming from Mexico to reach their target consumer.
Shipping from Mexico is not only faster, but also comes with less risk. As many companies experienced during the height of the COVID-19 pandemic, and some continue to experience today, long supply chains are prone to costly interruptions. Many things can go wrong when sending an item worldwide, and more interruptions mean more costs and longer wait times.
Even without unplanned obstacles, shipping auto parts globally is an expensive endeavor. For some manufacturers, costs have recently reached $80,000 per day. Manufacturers in Mexico get a significant cost advantage because of the country’s proximity to U.S. and Canadian markets. In combination with the other cost-saving benefits of operating in Mexico, such as the low labor costs, businesses can reduce spending across their organization.
Reap the Benefits of Mexican Manufacturing With NAPS
Are you ready to take advantage of Mexico’s high-quality, efficient, and low-cost manufacturing capabilities? We’re here to help you with everything from site selection to shipping—so you can stay focused on your production. Contact NAPS about how our Administration and Compliance Management Program sets you up for success in Mexico.