Mexico is on pace for a record year of automobile exports. The boost in auto production, combined with record oil prices, has resulted in back to back quarters of more than 4 percent GDP growth for the first time in six years

      Automakers such as Ford Motor Co., General Motors, DaimlerChrysler, Toyota and Volkswagen AG have invested sharply in production, driving vehicle exports up 48 percent in the first seven months of the year. Through July, Mexico’s auto exports totaled 886,152 units, up from 591,141 units, in the same time period in 2005. As a result, Mexico is on target for a record year for auto exports.

      According to the Mexican Auto Industry Association, or AMIA, production in July alone increased 21.3 percent from July 2005 to 118,602 units, while exports grew 32.4 percent to 85,725 units.

      AMIA says that production is up 36.9 percent through July, while exports have increased 48.2 percent. The numbers are evidence of the continued rebound in Mexico’s auto industry.

      AMIA President César Flores predicted the full year will see record totals of 1.6 million in exports and 2 million in units produced.

      The auto rebound is generating increases throughout the industry. Aftermarket companies are also reporting booming business. According to the Automotive Parts Manufacturers Association in Mexico:

      •There are about 900 automotive parts manufacturer enterprises in Mexico.

      •230 automotive parts enterprises are affiliated with INA ( Automotive Parts Manufacturers Association in Mexico).

      •More than 80 percent of automotive parts production value is represented in the institution (INA).

      •More than $6.2 billion was invested between 2000 and 2005 by the automotive parts industry.

      •An estimated 433,000 direct employment in the automotive parts industry.

      Bob McKenna is president and CEO of MEMA, the Motor & Equipment Manufacturers Association. Earlier this year he spoke at PAACE Automechanika Mexico in Mexico City, a tradeshow that showcases the automotive aftermarket, heavy duty and original equipment markets in Mexico and Latin America.

      “The event continues to gain momentum and is evidence that the aftermarket is growing in Mexico and Latin America,” he said. “I continue to be impressed by the excitement and positive outlook that aftermarket manufacturers and their customers display at the event. This is certainly an important region that should not be overlooked and underestimated.”

      McKenna said that Mexico can continue to leverage itself as a viable low-cost region for U.S. parts manufacturers to produce their parts and create a resurgence of the maquiladora trend of several years ago. McKenna also warned that Mexico may be in jeopardy of losing some of its competitive advantage of being a low-cost manufacturing country as China and other Pacific Rim countries continue to expend its manufacturing base.

History      Mexico’s auto industry began at the end of the 19th century when vehicles were imported for the first time. Eventually, the importing of automobiles led to a giant trade deficit that resulted in the Mexican government issuing its first Automotive Decree in 1962 to promote a local automobile industry. This resulted in Mexico becoming a low-cost alternative for the production of certain automobile parts and was a prelude to the adoption of NAFTA (North American Free Trade Agreement between Mexico, United States, and Canada).

Production

      The automotive industry generates 16 percent of Mexico’s Gross Domestic Product (GDP), 22 percent of its manufacturing GDP, and employs 18 percent of the working population. The auto part sector is especially important, supporting 408,000 jobs with sales of $19 billion and a growth rate of 6.5 percent. Of particular importance is the fact that 90 percent of auto part firms are supported by foreign capital.

      The Mexican domestic market share of auto sales is allocated as follows: GM - 24 percent, Nissan - 20 percent, Volkswagen - 19 percent, Ford - 16 percent, Chrysler - 13 percent. Other assemblers account for the remaining 8 percent. Mexican automotive exports are allocated as follows: Chrysler - 25 percent, GM - 23 percent, Volkswagen - 23 percent, Ford - 16 percent, Nissan - 11 percent and other assemblers account for two percent of automotive exports.

      Because of tremendous competition from European and Asian manufacturers, major U.S. firms have been forced to find ways of reducing costs. Some have announced the increase of production lines in Mexico. Ford Motor Co. announced an expansion of its Hermosillo, Sonora plant.

      Volkswagen announced it will expand its Puebla plant or open a new plant in the Monterrey-Saltillo area. Daimler Chrysler is increasing light truck plant production capacity in Saltillo. GM has re-designed its Chevy production lines in its Ramos Arizpe plant. Toyota announced an expansion of their Baja California plant. Toyota also announced that it seeks to source the majority of its parts and components from Mexico or south of Mexico for its new truck assembly mega project in San Antonio, Texas. Nissan announced expansion of its central Mexico (Aguascalientes) and Cuernavaca plants. Assembly plants are also being opened for Seat, Renault, Peugeot, and Honda in several states of Mexico.

      Assembly plants now require their suppliers be as close as possible to the plant area in order to reduce inventory volumes and to facilitate Just-In-Time delivery during assembly. This shift in production areas has tremendously reduced the sales of U.S. first- and second-tier suppliers to the large automotive assembly plants that were previously operating in the United States.  U.S. parts and component manufacturers have been forced to open plants close to their clients so that they can produce at lower costs, reduce freight and handling expenses, deliver the parts and components quickly in a JIT program.

      This, however, opens a new field of opportunity to U.S. suppliers of production machinery and equipment, materials, pre-assembled components, molds and tooling, cutting tools and chemicals, automation process equipment, raw materials, engineering and design, and in many cases, finished parts and accessories sold through local representatives or distributors.

      Customers in the automotive sector demand uniform quality control, compliance with international standards, high productivity, lower production costs, Just-In-Time deliveries, and above all reliable local service and maintenance programs. This last factor has become, in many instances, even more important than pricing or financing in the purchasing decision.  Demonstrated commitment to after-sale service has been the most effective tool that third country manufacturers, mostly Japanese, have used to penetrate the market. They offer to have their maintenance personnel at the client’s plant no more than 48 hours after a service call is made. The availability of required spare parts is the natural complement to the presence of their technicians.

Transmissions

      Mexico imports automatic automotive transmissions as they are not manufactured in the country.  However, Mexico is well known as an important manufacturer of manual transmissions and has manufacturing plants throughout the country.

      There are several U.S. manual transmission manufacturing plants in Mexico and the demand for their transmissions has decreased; surprisingly, the demand for U.S. imported automatic transmissions has also decreased.

      The transmissions market in Mexico is basically divided into two categories: light and heavy vehicles.  Within the light vehicle market, 60 percent use automatic transmissions and the remaining 40 percent use the manual ones.  The trend in the Mexican market is to change to automatic transmission or use automatic ones with manual emulation that are currently only found in high performance vehicles.

      Because of Mexico’s topography, manual transmissions seem to be the best option for heavy duty vehicles and more than 95 percent of them are used in such vehicles.  The trend in the transmission sector is to implement manual transmissions with automatic emulation that has the same function as a manual one, but without a clutch, making speed changes softer and easier.

Light vehicles market

      According to the largest aftermarket suppliers, transmissions for light vehicles in Mexico are currently divided into 60 percent share for automatic transmissions and 40 percent for the manual ones, the latter being mostly used for compact cars. It is expected that, the demand for compact vehicles will grow in the coming years due to credit programs that the plants, in conjunction with the car dealers, are offering to low income employees.  Most distributors think that the use of automatic transmission for light vehicles will increase considerably in a couple of years. 

      Over the last couple of years Germany has strongly gained market share, becoming the main automotive transmission supplier in Mexico for both, automatic and manual transmissions of less than 150 kilograms.

      This perception might not have changed yet among spare parts distributors, since Germany just became the strongest supplier in full transmission, not unit components; however, as vehicles with this type of transmission require spare parts, the situation will also change.

Heavy duty market

      Due to the topography and road conditions in Mexico, more than 95 percent of heavy duty vehicles in Mexico use manual transmissions. 

      The largest manufacturing plants located in Mexico are:

      •EATON TRUCK, the largest heavy-duty transmission manufacturer. The plant is located in Nuevo León.

      •TRANSMISIONES TSP - through the well-known Spicer brand, supply rear-wheel-drive manual transmission and components for the medium and heavy-duty vehicle market.  The plant is located in Querétaro.

      •TREMEC, leaders in rear-traction, high-performance manual transmissions for light and medium vehicles. The plant is located in Querétaro.

      •ZF, Sachs Mexico, manufacturers of highly specialized power train components to mechanical transmission for light and heavy duty vehicles, with plants in Jalisco, Mexico, Coahuila and an office in Mexico City.

      •JETCO, Nissan´s subsidiary specialized on CVT. The plant is located in Aguascalientes.

      •LUK, clutches manufacturing plant in Puebla and offices in Mexico City.

      •FEDERAL MOGUL, eight aftermarket manufacturing plants.

      •ARVIN MERITOR, has an axis, brakes  and joints manufacturing plant for heavy duty vehicles in Nuevo León, but imports the transmission from the United States.

      In the heavy duty transmissions market, Eaton truck has about 90 percent of the market, followed by Spicer, with about 8 percent.

      Desc Automotriz is the largest independent auto parts manufacturer in Mexico. Transmisiones TSP (Spicer brand), TTC Automotriz (with office in the U.S.) and Tremec are part of the group.

      The automatic transmission distributors in Mexico said that although the market is not saturated yet, there is an extremely strong price competition among them.  Profits for some components have gone as low as 2 percent, making it too difficult to compete.