Mexico Manufacturing Passing Brazil as Car Producer

August 7, 2014

Automotive manufacturing in Mexico is on the verge of surpassing Brazilian production, says consultant IHS Automotive. For the first time in over a decade, Mexico manufacturing will oust Brazil as the top automobile producer in Latin America. Automotive manufacturing in Mexico chugged its way ahead of Brazil in the first six months of the year and is projected to stay in the number one spot through 2014 for the first full year since 2002. Overtaking Brazil would put Mexico at number 7 on the list of the world’s largest auto producers– a prestigious title, as the pack is headed by China and the United States.

Their ascension is mostly due to a huge surge in exports, stimulating a surge in factory openings and encouraging record outputs. This is, in part, because of Mexico manufacturing most of its cars for the United States, Mexico’s largest buyer, where auto sales are growing at the highest rate in eight years. Another contributing factor comes in the form of a slump in Brazilian manufacturing; production through June has decreased in Brazil as their domestic demand for cars flags. These conditions came together to create an economic perfect storm, pushing through the shift in leadership much more quickly than expert analysts previously predicted.

In Brazil, output has fallen 17 percent in this year alone. This month, Brazil announced that their light-vehicle production declined 32 percent in June compared to the previous year’s output, to 205,207 units. On top of that, exports plunged 52 percent. Meanwhile, Mexico reported this month that their automobile manufacturing swelled 7.9 percent in June compared to the previous year’s output, to 287,344. In addition, their exports rose 2.1 percent.

The root of the deviation in fates for these two countries comes down to economics. Brazilian cars are simply too costly to export, given that the country has high labor costs and taxes. Most of their cars and trucks go to local buyers, of which there have been fewer. Mexico manufacturing, however, is almost exclusively sent abroad: eight of every ten cars produced is exported, more than half of which go to the United States. Another advantages comes in the form of Mexico’s proximity to the United States, and in the labor costs for carmakers that are about a measly 20 percent of costs in the United States. This gives Mexico more “appeal” as the “production source for North America” according to Bill Rinna, senior manager of North American forecasts for LMC Automotive. That appeal is expounded by recent factory openings throughout Mexico, coming in at a combined $4 billion investment, by Honda, Mazda, and Nissan. Another $1.3 billion will come in the form of a Volkswagen plant specifically built to assemble the Audi Q5.

With the huge investments and favorable conditions in Mexico, it’s easy to see why their automotive manufacturing is growing at such a remarkable rate. At this point, the only disagreement among experts about Mexico surpassing Brazil as the top Latin American car producer is simple: “When?”