Mexico is currently eleventh in the world in automotive production and the industry is the 8 largest manufacturing industry in the country.
28/02/2008 ::
The automobile sector had a worldwide production in 2006 of more than 68 million vehicles directly employing more than 8 million people. The total turnover for the industry is approximately EUR 2 trillion equivalent to the BNP of the 6th largest country in the world.
The market
The automotive industry in Mexico is currently enjoying a large degree of governmental and public attention as it is considered to be one of the most important industries in the country. The sector counts for approximately 4 % of Mexican GDP, around 20 % of total manufacturing output and employs slightly more thalf a million people. The automotive industry continto be the largest and fastest growing manufacturin Mexico during 2005 and 2006 and this is expected to continue throughout 2007. With approximately 18 million vehicles on the roads in 2005, the number of cars on Mexican roads continues to increase at a rapid rate. By the end of 2007 the figure is expected to soar to more than 20 million. The numbers are a clear indication that the Mexican automotive sector holds tremendous potential, both for investment and exports. Additionally the Mexico-EU Free Trade Agreement is attracting more investments from European-based automobile manufacturers.
Companies in Mexico
Many of the world’s large automobile assembly level players are present in Mexico. These players can be divided in two groups, namely heavy and light vehicle producers. An important thing on the Mexican automotive market is that both the light weight and the heavy weight segments are completely dominated by major foreign vehicle manufacturers. There is no Mexican vehicle manufacturer. The auto parts sector in Mexico is constituted of approximately 1,100 companies where 70% are companies of foreign capital while 30% remain national. From this total, 350 produce first tier products while the remainder supplies raw materials to second and third tier suppliers. Companies present in Mexico in the light vehicle category are: VW, Ford, GM. Dailer Chrystler, Honda, Nissan, BMW and Toyota.
The Auto Part Companies
The National Institute of Auto parts, INA (Instituto Nacional de Autopartes), is Mexico's most important auto-parts manufacturer and distributor trade association, estimates that the number of vehicles in circulation is increasing at a rate of approximately eight percent per year for an estimated total of 17.2 million units by the end of year 2007. 1,7 million cars where produced in 2005, most of them GM, Nissan and DaimlerChrysler. The Big Three are struggling suppliers in order to remain competitive against Asian that are rapidly gaining market share in North America. OEMs are doing efforts to reduce costs, and support the companies in order to increase competitiveness.
Responding to the concentration at the assembly level of the industry the successful Mexican suppliers have made themselves grow or have organized themselves into industrial groups. These large independent suppliers and the industrial groups have considerable financial and negotiation power. They are generally well organized and can deliver competitive vanguard products required by the assembly level. They can do this due to their abilities in product design, technology, production, distribution and administration that they achieve through economies of scale and scope. Many of the worlds leading first and even the second tier suppliers from the US and Europe are also present in Mexico a fact that emphasizes the high demands of the business.
Market Trends
During the recent years the vehicle manufacturers in Mexico have changed their strategy from producing somewhat low-end vehicles to produce more high-end vehicles. Underlining a general confidence in the Mexican automotive market. To be able to produce the high-end vehicles it requires more technology and more investment in the automotive plants.
Production Trends
The large assembly plants normally work with a few key suppliers who deliver entire systems for the vehicles instead of specific components. By purchasing systems instead of components the assembly level companies have in effect outsourced much of their assembly and development work to a few suppliers that they cooperate closely with. The tendency is therefore that the major assembly plants are requiring their suppliers to be located as close as possible in order to reduce inventory volumes and to facilitate just-in-time delivery during the assembly process. This shift in production areas has forced many
first- and second-tier suppliers to move to new areas so that they can produce at lower costs, reduce freight and handling expenses and deliver parts and components very quickly. Most of the first tier companies are located near assembly plants to meet supply and delivery demands.
Import Trends
As the production of vehicles is increasing so is the import of auto parts in Mexico. In 2006 there was a total import of auto parts for the value of USD 17,356 million, approximately 28% more than in 2005. App. 40% of all auto parts used for production in Mexico is being imported.
Market prospects
There are over 1000 suppliers in the automotive industry in México, whom 560 are Tier1 and 500 are Tier2 suppliers. There is a very high concentration of automotive suppliers in mid and north western Mexico. Research has indicated that best prospects for auto parts are (parts currently facing an increasing demand):
• Products related to tune ups, brakes and other general services, A/C parts, engine parts, steering and suspension parts, small and medium stampings, electric and electronic components and automatic and standard transmission parts and components.
Best prospects for automotive aftermarket parts includes:
• Collision repair parts, catalytic converters, steering wheels and sound systems and generally most types of accessories.
Best prospects for accessories are:
• Tires and rims, stereo and CD/radio equipment, alarm and security systems, special shock absorbers, rims, tail lights, floor mats, automotive chemicals such as waxes, cleaners, and additives, paint restoration kits, pick-up truck accessories and automotive tools and boxes.
Related Businesses
Mexicans view their cars as a reflection of themselves. Therefore, car owners are obsessed with the appearance and cleanliness of their vehicles and wash them an average of 2.2 times per week. Car washing tops the list of the most commonly offered but least professional services in Mexico. Labor and cleaning products are relatively cheap. There are very few professional car washing machines in Mexico.
Import Duties
Presently, Mexico has a modern automobile industry with low costs within production and high quality standards. There is an increasing demand for automobiles as well as parts from abroad. With the Mexico-EU Free Trade Agreement, Danish companies can take advantage of the reduction in import tariffs
Distribution/Business Practices
The best way for a Norwegian company to penetrate the Mexican market is to select a business partner or distributor to represent your company’s interests locally. This is important in Mexico, as government regulations often requires local presence in some form. The benefits of cooperating with a local representative includes being able to take advantage of their local client network, market knowledge and facilitate the import procedures of the Norwegian product. A competent and well-connected local representative or distributor, competitive pricing, financing, timely delivery and good technical support are all important for success in the Mexican market.
In addition,
Sources: The Danish Embassy, Swedish Trade Council , Bancomext