Tax & Accounting Blog

Mexico as a New Capital of the Automotive Industries

Blog, Global Trade, ONESOURCE March 11, 2016

Every year, the automotive industry has been growing consistently around the world demonstrating that it is a strong and influential sector to the worldwide economies. Certainly if a country is experiencing some sort of economic crisis, this crisis could lead to the fall in vehicle sales. Alternatively, countries will see an increase in automotive sales and high profit margins when an economy is not experiencing a crisis. It would appear because of these facts that the automotive market is becoming increasingly more consistent and profitable around the world.

Mexico and the Automotive Industry

Nowadays, Mexico appears to be a primary focus of the global auto industry as companies worldwide are eyeing to invest in the country. Actually, the wave of investments has already started. Mexico is currently the world’s seventh-largest producer of cars. Six years ago the country only was ranked in the tenth position. Mexico is the fourth-largest exporter for the automotive industry, only after Germany, Japan and South Korea. Mexico is almost reaching Japan to become the number 2 supplier of vehicles to the U.S. market.

To support this information, in 2014, Mexico manufactured four out of every 100 cars in the world. With this speed of growth in the industry and attraction of investments, Mexico could reach the 4th position in automobile producers after China, USA and Japan.

2015 Was a Significant Year in the Automotive Sector in Mexico

The Automotive industry was “la Joya de la corona” of Mexico in 2015, with impressive numbers never seen before. This sector represented more than 3% of the Gross Domestic Product (GDP) of the country. Mexico ended 2015 with a surplus trade balance by about US$50,000 billion and domestic sales above 1.3 million vehicles, and production of 3.4 million of vehicles. Mexico employed 1.7 million people, including direct and indirect jobs in that country for this sector.

Currently, Mexico has eight automotive producers in Mexico: Ford, Chrysler, GM, VW, Toyota, Nissan, Mazda, and Honda[1].

According to Mexican Automobile Industry Association the list of vehicles destinations of Mexico’s exports in the first quarter 2015 were 70% to the United States, 1.8% to Canada, 2.6% Germany, 2.4% Brazil, 2.1% Colombia, 2% to China, 1.3% Saudi Arabia, 0.9% Argentina and 0.5% to Italy.

The Future of the Sector in Mexico

With the advent of new investments announced last year, the country becomes progressively a promising market for the automotive industry. For instance, South Korea’s Kia, Germany’s Audi, the American Ford and Japan’s Toyota have already announced the construction of new plants in the country with a total investment of US $4 billion. Also, by 2017 the Japanese-American Infiniti; 2018 and the German Mercedes Benz, and in 2019, the German BMW announced they would build plants in the country.

The aim of the sector by 2020 is to bring more investment from multinational companies. Mexico clearly is on a path to be among the leading manufacturers and exporters of the world’s vehicles that also possess an attractive domestic market..

Reasons and Facts

Besides the positive numbers, other factors have led to Mexico being at the center of investments in the automotive sector. Mexico stands out for its geographic location as a close door to the U.S. car market noted as the world’s largest with connections to ports to both the Atlantic and the Pacific Oceans. Mexico is also a country with very cheap labor in comparison to other countries, with a good reputation for producing with excellent quality and great production efficiencies.

Also, Mexico is a country with several public and tax incentives, with public policies that make the automotive sector privileged with these incentives in order to promote growth and development.

Finally and personally, I consider one of, if not the most important, as a factor for the automotive industry in Mexico is their extensive network of Free Trade Agreements (FTAs), which provides this sector with access to 45 countries.

Mexico Free Trade Agreements (FTA)

There are many reasons and qualities that Mexico provides as a great place for auto manufacturers:

  • Mexico is strategically located close to the U.S., Canada and Latin America (NAFTA).
  • The Mexican government has negotiated extensively in order to increase the list of countries that Mexico has agreements with.

An organization in Mexico called ProMexico acknowledges that Mexico can boast of a network of 13 Free Trade Agreements (FTAs) with 45 different counties where 32 of these agreements are Reciprocal Investment Promotion and Protection Agreements. There are also 33 countries involved with Mexico of which 9 have trade agreements within the framework of the Latin American Integration Association (LAIA). Mexico expects to see more partnerships with the Trans-Pacific Partnership Agreement. With that, Mexico has access to over 60 percent of the world’s GDP because of their relationships through these agreements[2].

Conclusion:

We may travel a bit through the time, from the first automobile plant in Mexico in 1925, through the crisis in 1983 in which Mexico changed the policy for exports, then the implementation of the North America Free Trade Agreement (NAFTA) in 1994, and finally the “boom” in Mexican production in this century. One thing is clear, with the positive changes in Mexico of recent; this country clearly has become a prime area for manufacturing and especially appealing to those in the automotive industry, noted by the positive growth in this sector.

To learn more about FTA, visit our ONESOURCE for FTA page

Source:

http://mim.promexico.gob.mx/wb/mim/auto_perfil_del_sector

http://www.economia.gob.mx/eventos-noticias/informacion-relevante/11009-pie15-04-17

http://www.elfinanciero.com.mx/empresas/ford-y-toyota-afinan-inversion-de-500-mdd-para-plantas-en-mexico.html

http://www.manufactura.mx/automotriz/2015/04/15/toyota-invierte-1000-mdd-en-su-segunda-planta-en-mexico

http://www.economia.gob.mx/files/comunidad_negocios/industria_comercio/peia_ok.pdf

http://noticias.autocosmos.com.mx/2014/06/27/mercedes-benz-e-infiniti-tendran-una-nueva-planta-en-mexico

http://eleconomista.com.mx/industrias/2014/10/03/llega-nueva-planta-autos-toyota

http://www.bbc.com/portuguese/noticias/2015/05/150524_mexico_boom_veiculos_lgb

http://photos.state.gov/libraries/mexico/310329/july2014/2014_07_AutoIndustry.pdf

http://www.cnnexpansion.com/economia/2015/12/27/industria-automotriz-la-joya-de-la-corona-de-mexico-en-2015

http://offshoregroup.com/2015/12/29/free-trade-agreements-make-manufacturing-in-mexico-prosperous/

https://www.amia.org/

http://wardsauto.com/

http://www.caam.org.cn/english/

http://www.jama-english.jp/

https://www.vda.de/en.html

http://kama.or.kr/eng/K_eng_main.jsp

http://www.siamindia.com/

http://www.anfavea.com.br/

http://www.thaiauto.or.th/2012/

[1] http://photos.state.gov/libraries/mexico/310329/july2014/2014_07_AutoIndustry.pdf

[2] http://offshoregroup.com/2015/12/29/free-trade-agreements-make-manufacturing-in-mexico-prosperous/

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