Overview of the automotive industry in Mexico
21 Automotive OEMs including Volkswagen/Audi, Mercedes-Benz, BMW, Ford, Toyota and Kia produce in 14 Mexican states. From the year 2000 – 2017 12% of the total Foreign Direct Investment or 60 billion USD were invested in the automotive industry.
Due to the close integration into the North American market, Mexico is a major manufacturer and exporter of vehicles (11% of Mexican exports 2017) and vehicle parts (6.7%). The Mexican Industry produced 3.9 million vehicles in 2018 and registered an increase of 6% in vehicle exports, making it the 4th largest vehicle exporter. Despite political and economic changes, Mexico remains the seventh largest light vehicle manufacturer globally - and the largest in Latin America. The industry and the government expect the continued growth to lead to almost 5 million vehicles being produced annually by 2020.
Within Mexico, the automotive industry hosts more than 800 000 direct jobs. This industry, which is the second largest after food production, accounts for 2.9% of GDP, showing a significantly higher growth (9.4% GDP growth vs. 2.0% average).
Strengths of the dynamic Automotive Industry in Mexico:
- Competitive production costs (labor and logistics)
- Strategic location (in North America, 42 Mio vehicles in Mexico)
- Long industry experience (first automotive plant in 1921)
- Qualified labor force (strong technical universities)
- Developed Infrastructure (communication, highways and ports)
Changes in the automotive industry due to the USMCA agreement
Mexico is an open, developed market with a well-established automotive industry. The new USMCA agreement in North America brings:
- 20% higher local content requirement (from 62.5% to 75% in 2023)
- an average labor wage of $16/hour on 40% of the automobile and 45% in light trucks
- Reduced threat of unexpected trade sanctions by the USA
- Stabilized trade relations with the United States based on a 16-year treaty
With the higher local content requirement and a strong OEM presence, it is not uncommon to see a time-bound pull of key lower tier suppliers into the country. The minimum wage requirement is not directly favorable for the advantages of production in Mexico, however it can act as a kick-starter for higher automation.
Business opportunities for Swiss companies
Due to the above-mentioned changes, now is a great time for Swiss automotive companies to approach the Mexican market and establish or expand the presence. The “Swiss brand” is well known for its high quality and innovation in Mexico. A proactive setup in Mexico offers wider choices and a more in-depth analysis of the selected Mexican partners. Due to the presence of the industry in 14 states it makes sense to settle in a northern as well as in a central cluster.