MONTERREY, MEXICO - A few years ago, Oscar de la Garza was eating breakfast in a Canc£n hotel and watching a television report about Hurricane Gilbert, the worst Atlantic storm ever recorded, and its approach to Mexico's Yucat n Peninsula. The news announcer, broadcasting from Mexico City, reassured viewers that the worst of the destruction probably would be limited to a few coastal areas, such as Canc£n.
So when you ask de la Garza, president of injection molder Industrias Gesta SA de CV, about the most recent storm to hit Mexico - the economic crisis triggered by the December devaluation of the peso - he smiles knowingly and recalls his 1988 breakfast at the hotel.
``What you think about the Mexican economy, like everything else, depends on your viewpoint,'' de la Garza said.
Thus, if you are a Mexican plastics processor tied exclusively to the domestic market, you are most likely hurting and hurting badly. If you are a Mexican processor smart enough or lucky enough to have developed a customer base in the United States, and a source of dollar income, you are exactly where everyone wants to be.
``For the next six months at least, the name of the game is survival,'' said Joel H. Villa-nueva, general manager of Plasticos Villagar SA de CV, an injection molder based in Monterrey. ``I think the future is very bright, if you survive.''
And, perhaps from the best viewpoint of all, the weakened peso has allowed U.S. and other foreign companies operating in Mexico to reap a windfall of cheaper labor.
At Viplasticos SA de CV, manufacturing manager Ernesto Lappe expects the Mexican economy to take ``at least two years'' to shake off the effects of the December devaluation and resulting economic crisis. But Mexico, he said, remains a good opportunity for manufacturers.
``In the long term, we are go-ing to have a better position because with the devaluation, the labor is cheaper,'' Lappe said. ``But the companies that don't try to export now are dead.''
In Monterrey, Viplasticos makes injection molded and extruded parts for Vitromatic, a joint venture between appliance makers Whirlpool Corp. and Vitro Enseres Domesticos.
In late April, Plastics News visited more than a dozen plastics processors in and around Monterrey, Mexico's third-largest city and a key industrial center. In interviews, business owners and managers described their strategies for coping with some of the most wrenching economic changes in decades.
Like most everyone in Mexico, processors were clearly unprepared for the government's surprise devaluation of the peso and the swift and scary destabilization of the economy that followed.
Their stories, although confined to the plastics industry, are typical of what is happening in the economy at large. The government's official statistics source, Inegi, considers the plastics, rubber and chemicals sector to be the third-largest in the manufacturing economy, behind only agricultural products and the metal products and metalworking machinery categories.
Even before devaluation, 1994 had been a difficult year for many Mexican plastics processors.
The North America Free Trade Agreement, which took effect Jan. 1, 1994, opened domestic markets to high-quality U.S.-made plastic products that had an immediate appeal to Mexican consumers. Mexican processors that had established a steady business in a protected economy were often put at an immediate disadvantage.
``We were not prepared for the speed of changes brought byNAFTA,'' said de la Garza, who operates nine injection presses at his Monterrey plant. ``We are still working on improving our productivity.''
Then, as the year wore on, many processors began to feel the effects of soaring resin prices. Pl sticos Industrializados SA, a Monterrey injection molder of crates for the soft drink industry, watched prices for U.S.- and Mexican-sourced high density polyethylene rise 200 percent. At Bag Empaques Flexibles SA de CV, also in Monterrey, prices for PE for blown-film grocery bags have doubled since early 1994.
The devaluation, coming on the heels of higher resin prices, forced layoffs at many processors and shut others down. Consumers restricted purchases to household necessities. In response to the ensuing economic crisis, the Mexican government tightened the money supply, raised taxes and boosted prices on a variety of basic essentials. The result has been a crisis of liquidity, a cash-starved economy.
``In Mexico right now, you cannot buy or sell anything,'' Villa-nueva said, with only a touch of hyperbole. ``Nobody has any money.''
He is optimistic about Villagar's near-term future, even though the firm's seven presses are only running at about 50 percent capacity. Villanueva is forming a strategy to develop market niches, in both custom and propriety molding, and says Villagar has the financial stability to ride out the storm.
Anipac, the Mexican plastics processors association, sees the peso-dollar exchange rate stabilizing around 6.4 or 6.5 pesos to the dollar. On May 8 the peso-dollar exchange rate was 5.81, down from 7.45 pesos to the dollar in early March.
A more stable peso would allow processors to import resin and set prices with more certainty, said Anipac President Rafael Vidales. But with inflation expected to top 50 percent this year, he does not see much likelihood of lower interest rates. Loans for mortgages, cars and credit cards are carrying rates of 80 percent or more.
``All signs are that companies are starting to export more,'' he said. ``There are not many options in the domestic market.
At Electr¢nicos Animados SA de CV, a custom molder of parts for electronic, appliance and auto markets, about 90-95 percent of sales are derived from U.S.-based OEMs. Revenue is expected to double to $5 million this year compared with 1994. President Sergio Villarreal, long before it was fashionable, was investing heavily in new equipment and developing a customer base north of the border.
``Four or five years ago, my friends thought I was crazy,'' he recalls. ``They thought I was investing too much.''
Electr¢nicos Animados, based in the Monterrey suburb of Apodaca, purchases U.S. resins, operates 26 Japanese-made Nissei molding machines, and employs Mexican engineers and shop floor labor.
``Now we're in a global market,'' Villarreal said. ``Now we must export.''
With bank credit unavailable or overpriced, many smaller molders are looking for a partner with cash to invest, he said.
Such partnerships could take various forms: investment in the firm or new machinery, or sending molds and resins south.
As processors pick their way through the rubble of a blasted economy, they continue to voice optimism. In a nation of 92 million people, many of whom still lack basic goods found in the U.S., Mexican business owners are confident the domestic economy will rebound strongly.
``The Mexican market is a market waiting to happen,'' Villa-nueva said. ``This isn't going to happen overnight. But the ones who are going to benefit are the ones who have been in the market for awhile.''