DEARBORN, MICH. - There are powerful incentives for U.S. automotive parts companies, particularly those operating maquiladora plants, to broaden their strategies and go after the Mexican national market, according to an international management consultant. Mexico's rapidly growing auto industry, car manufacturers' need to increase local content south of the border and new opportunities for foreign parts suppliers to own Mexican plants are all good reasons for such a strategy, according to consultant Randy Marks.
Marks spoke at a Jan. 25 conference on the Mexican automotive market in Dearborn.
Tax and customs rules governing maquiladora plants in Mexico have changed since implementa-tion of the North American Free Trade Agreement, making it more attractive for foreign operators to switch maquiladora status to that of a domestic Mexican corporation, said Marks, managing director of Inter-American Holdings Co. of San Diego.
Marks said automotive companies ``almost force these [U.S. parts] suppliers to come down to Mexico.'' In fact, a U.S. supplier needs to be in Mexico to protect its domestic business north of the border, he said.
Under NAFTA, Mexico retains until Jan. 1, 2004, its requirement that locally sold automobiles include domestically produced parts. The rule currently requires 34 percent domestically produced parts, falling to 29 percent by 2003.
Many U.S. auto parts suppliers have been reluctant to set up domestic firms in Mexico because of a requirement that such firms be under Mexican control, Marks said. So, companies have formed wholly owned maquiladoras.
But now the auto decree has been altered to permit parts firms to be established in Mexico under the classification of ``national supplier'' with 100 percent foreign equity. Companies have to apply for this change to Secofi, Mexico's Trade & Industry Ministry.
Such domestic corporations, if they export a major part of output, still can benefit from PITEX, a government program that allows equipment, raw materials, components or machinery to be imported duty-free and exported with duty payable only on Mexican-added value, Marks said.
Maquiladora plants also participate in PITEX. But auto parts made by maquiladoras may not be counted as domestic content of vehicles made in Mexico. As a result, using Mexico as a manufacturing export platform ``is a fairly limited vision these days,'' Marks said.
Conference speakers differed as to whether seeking a Mexican joint venture partner is the best approach south of the border.
``Most U.S. companies do not need Mexican partners. In fact, we think that's the worst thing you can do,'' Marks said.
Mexican trade lawyer Andres Ochoa Bunsow said a local partner still could offer an established market, local knowledge and selling experience.
Ochoa, who is based in Monterrey, Mexico, agreed with other speakers who said the crisis of confidence over the peso devaluation will be short-lived. Mexico is not only an attractive manufacturing base but also an attractive market, he said.
The one-day conference was sponsored jointly by Detroit-based Automotive News, a sister publication of Plastics News; accounting firm Arthur Andersen; Bank of America; consulting firm InterAmerican Holdings Co.; law firm Baker & McKenzie; and executive recruitment company Korn/Ferry International.