You're probably going to read a lot about Mexico and plastics in our news coverage this week. The Plastimagen fair kicks off Tuesday in Mexico City, and Plastics News has a team of reporters here taking a detailed look at the local industry.
With that in mind, I wanted to put some attention on one key topic for the North American plastics industry — Mexico's growing importance as an auto manufacturing hub, particularly for smaller cars selling for less than $20,000.
Some analysts say no other part of Mexican industry has benefited as much from the North American Free Trade Agreement as the auto sector.
The challenge, from a U.S. manufacturing perspective, is that Mexico has grabbed the lion's share of new capacity for manufacturing those smaller cars within NAFTA. The implications for the U.S. plastics industry are still playing out.
Since NAFTA started in 1994, Mexican vehicle production has tripled, from 1.1 million vehicles to more than 3.3 million, according to the Mexican auto industry association AMIA.
At the same time, the total number of vehicles made in the U.S. has declined, from 12.2 million to 11.6 million, AMIA said. Canada has held steady at about 2.3 million.
Mexico has gone from 6 percent of the North American light vehicle production in 1990 to 20 percent in 2014, according to an analysis from the U.S. Federal Reserve presented at a conference in Texas last year on Mexico-U.S. manufacturing.
The U.S., by contrast, has dropped from 78 percent to 67 percent of light vehicle production in that time.
Some analysts say that Mexico is not a direct threat to the U.S. auto industry at the moment because U.S. capacity is filling up with trucks and larger vehicles.
This story in Automotive News noted that U.S. light vehicle production grew 660,000 units in 2014, while Mexico only added 280,000 vehicles.
In 2015, U.S. production grew by another 437,062 vehicles — for a total of 11.8 million passenger vehicles, according to data from Automotive News, which is a sister publication of Plastics News. Mexico added. 255,422 vehicles for a total of 3.4 million.
The bottom line is that the United States remains the source of most auto production in NAFTA, but over the last decade, Mexico has seen much faster growth as more assembly plants come on line.
For the plastics industry, the meaning of that shift is not simple.
On the one hand, as my colleague Kerri Jansen noted in this 2015 story, Mexico currently imports about 70 percent of the components its auto assembly plants need from Tier 2 and Tier 3 suppliers
Mexico lacks enough local manufacturing capacity and expertise. Those 70 percent of components include $6.4 billion in injection molded plastic.
That's a significant opportunity for U.S. and Canadian plastics processing firms.
But will it last? There's a lot of pressure to localize more component production in Mexico, both from car makers and the Mexican government.
Mexico's light vehicle production is expected to keep growing, to 5 million vehicles a year in 2020, according to the Mexican association AMIA. Deloitte Touche Tohmastsu Ltd. estimates Mexico will be the world's fifth-largest auto producer by 2020, up from what AMIA said was the seventh largest in 2014.
It's easy to see why Mexico's car industry has grown, with wages of Mexican auto workers, in Deloitte's words, “barely 20 percent” of those in the United States.
“So it should not be surprising that the share of Mexican-produced vehicles entering the U.S. market has grown significantly,” Deloitte said in a May 2015 report on Mexico's development.
If Mexico combines growth to 5 million light vehicles a year with more localization of components, U.S. and Canadian plastics processors will face more pressure to put more production in Mexico.
Mexico's car industry is very much a supply base for the United States and Canada. While its exports to other parts of the world are increasing because Mexico has trade pacts with many countries around the world, about 75 percent of Mexico's car production is still exported within NAFTA.
That's very different than, for example, China, where the auto manufacturing industry is very focused on the domestic market. Mexico at the moment lacks a big domestic market for new cars.
There's a similar trend in auto parts. Since 2001, Mexico has overtaken Canada to become the biggest foreign supplier of U.S. motor vehicle parts, according to the U.S. Federal Reserve.
So the changing picture of the North American auto industry supply chain is one reason why the attention of the North American plastics industry will be focused this week in Mexico City.
Stay tuned. Clearly Mexico's industry is developing, and seems certain to play a larger role in NAFTA's plastics industry.
