Mexico's growing auto industry means opportunities for suppliers

TRAVERSE CITY, MICH. — The Canadian and American automotive supply base should view the growing Mexican automotive industry as an opportunity, said speakers at the Center for Automotive Research's Management Briefing Seminars in Traverse City.

And while automakers largely have an eye on the obvious savings from lower labor costs, for suppliers that is not the primary factor, said Bernard Swiecki of the Center for Automotive Research.

A survey of about 100 CAR attendees and affiliates, most with manufacturing operations in Mexico, and CAR's own research showed the top factor for suppliers locating in Mexico is because they're following a customer — an automaker sets up a plant in Mexico and wants its suppliers nearby.

“Quite often we hear, simply, that my customer told me to be there. That this product needs to be shipped locally, it's either fragile or there's some reason, and the automaker told the supplier that, ‘I need you there in Mexico,'” Sweicki said.

Shortages have emerged along the local supply chain — Mexico sources most of its resin from the United States and Europe and lacks access to some of the more sophisticated processes — creating opportunities for suppliers that can fill those needs. Particularly, Mexico lacks Tier 2 and 3 suppliers, including suppliers of injection molded parts.

About 70 percent of Tier 2 and Tier 3 basic components used there are imported into Mexico, according to numbers provided by Dietmar Ostermann, PwC's global automotive advisory leader. That includes $6.4 billion in injection molded components.

“It is unfathomable that we still have a situation where 70 percent of Tier 2 components are imported mostly from the U.S.,” he said. “That's a situation that sits not very well with the Mexican government. … It's a situation that doesn't sit well with the major OEMs in Mexico, and it's a situation [on which] the major Tier 1s in Mexico are getting increasing pressure from the OEMs.”

Juan Manuel Solana Morales, Consul of Mexico in Detroit, shared a similar perspective.

“Medium-sized companies, [Tier 2 and 3 automotive suppliers], are doing so well in Michigan today, they are not looking to new different markets and the opportunities in new markets. And I think they should have to put their heads up and starting to Mexico as a huge opportunity,” he said. “We saw the amount of investment that has gone into Mexico. That means that we have huge holes of Tier 3 and Tier 2 products that are not being produced in Mexico that we need.”

That need will only increase, predicts Michael Robinet, managing director of advisory services for consulting group IHS Automotive. Robinet forecasts that 42 percent of new vehicle launches will occur at assembly plants in Mexico by 2018, compared to 3 percent this year.

“Do you have the right capabilities in Mexico to support 40 percent of the launches in North America?” he asked suppliers at MBS. “I would hasten to say that most of you don't.”

An operation in Mexico doesn't necessarily have to come at the expense of American operations, CAR's Sweicki said.

“Think total North American strategy,” he said, citing an example of a Michigan company that built a new plant in Mexico, and was ultimately able to expand its operations back in Michigan as well because it was financially stronger overall.

“There is the potential for some of these win-win scenarios, and as we address both the economic developers and the suppliers, those are some of those critical things that we want to identify,” Sweicki said.

Automotive News contributed to this report.