Mexico’s Auto Industry Remains on Record-Setting Track
November 25, 2014
Since the 1994 North American Free Trade Agreement (NAFTA) was approved, Mexico manufacturing has seen unprecedented growth. Although the country had been involved in automobile production for many decades, NAFTA removed many of the restrictions on domestic production of vehicles and allowed a flood of foreign investment. Since the passage of NAFTA, automotive manufacturing in Mexico has grown exponentially, especially in recent years, making it a good market for automotive suppliers and other items for auto-related businesses.
Mexico Manufacturing Breaks Records:
As much as 85 percent of the cars produced in Mexico go to foreign markets. About two-thirds are sent to the United States. The rapid growth in the industry is expected to put Mexico in eighth place in automobile manufacturing, and they are expected to bump up to sixth place by 2020. 40 percent of all automobile sector jobs are now found in Mexico, up from 27 percent in 2000. The U.S. and Canada have lost the bulk of these jobs, but Mexico is due to pass Brazil in the number of automobiles produced by the end of 2014.
Mexico’s Free Trade Agreements:
Over the past decade, the Mexican government has arranged some of the most liberal trade agreements in the world, with as many as 44 countries. These agreements have attracted investment from dozens of countries and automakers, such as Volkswagen, Nissan, Mazda and Honda, who are rushing in to take advantage of the favorable terms. Audi, BMW, Mercedes Benz and Infiniti have all announced new plants that are already under construction or will be within 1 year.
The Manufacturing in Mexico Advantage:
Mexico has a young, energetic workforce and historically low wages, making it an attractive draw for automobile OEMs who can pass these savings down to their customers. With the influx of foreign automobile manufacturers, tier 1,2 and 3 automotive suppliers have already begun to flood Mexico, increasing opportunities both for Mexican workers and for the automakers that need a steady supply of materials for their production lines.
Poised For the Future:
Mexico’s geographic location has been one of the keys to its success. With seaports on two oceans, the country can provide shipping for its auto manufacturers to countries throughout the world. About two-thirds of all investment is now centered in central Mexico, or locally known as “The Bajio.” This region, including Aguascalientes, Guanajuato, San Luis Potosi and Queretaro, boasts a population of more than 5 million, which provides a steady supply of workers, eager to make their living in the Mexico manufacturing sector. Over 200 Japanese companies have set up their operations in the region, some in logistics and services, but most in the manufacturing sector.
The Bajio is definitely the fastest growing area of Mexico but other areas are also seeing growth in auto manufacturing. In Sonora and Chihuahua in the northern Mexico, Ford has a presence. Near Mexico City in the town of Puebla, Volkswagon makes its vehicles and Audi is close to opening its new facility to produce the Q5. Honda manufactures near Guadalajara. In Tijuana, Toyota has a plant. In Silao and Coahuila, GM makes its Cadillac Escalade and pickup trucks. With this strong showing, automotive manufacturing in Mexico is likely to have a long and lucrative relationship.