Forvia CEO raises questions about Mexico, citing inflation, safety issues

Mexico, long seen as the North American auto industry's low-cost production haven, is becoming more difficult to do business in as security concerns persist and labor and energy costs rise, Forvia CEO Patrick Koller said.

Koller said "new questions" are being raised about Mexico as the French supplier mulls locations for future investments, including a possible factory that would produce hydrogen tanks. He cited local corruption and security issues as particular concerns, saying the company is "losing trucks" transporting parts in the region.

"Security is an issue," Koller told Automotive News at Forvia's North American headquarters in suburban Detroit. "Inflation is high, and labor inflation is high. Labor availability is becoming an issue. I'm not saying it's better in the U.S., but we are also starting to have problems there. So we have to think about it." Automotive News is a sister publication of Plastics News.

Forvia is No. 71 among North American injection molders in North America based on sales, according to PN data with $140 million in sales in the region.

Still, Koller said a major influence on where suppliers locate continues to be the decisions of customers about where to assemble vehicles, especially for large and difficult to transport parts such as hydrogen tanks.

No final decisions have been made about Forvia plants, he said.

Koller's comments reflect the increasingly complicated nature of North American parts sourcing. Forvia and other suppliers must calculate where to invest in manufacturing sites given new demands for more local production and uncertainty about the pace of vehicle electrification.

Against these challenges, Forvia, the world's eighth-largest supplier, has selected a new leader for the North American region. Thorsten Muschal, also the company's head of global sales and program management, took over the regional position in April, replacing Nik Endrud, who left the supplier to become CEO of Veoneer.

Muschal, in his first interview since then, said the company finds itself in a "good situation" in North America, considering the region's overall stable production volumes.

"There are opportunities, but also challenges right now," he said.

North American electric vehicle sales growth has slowed in recent months, and some automakers have pulled back from earlier EV targets. That has sparked concerns from some suppliers about the possibility of establishing EV parts plants that would be underutilized.

Koller said automakers need to be careful to not "change their minds every six months" on the pace of electrification.

"Electrification is definitely the trend," he said. "The question might be the timing, and the answer might be different from one segment to the other. But believing in the U.S. that you can work on ICE and on hybrids only, and not go ahead with EVs, would be a big mistake. You will lose the scale effect."

The pace of electrification is slower in North America than in Europe and China, requiring international suppliers to be nimble and sometimes take different approaches in each region.

"The market is less and less global and more and more regional," Koller said. "We have to get adjusted to this new configuration."

Forvia sees Chinese automakers following a consumer goods model when it comes to developing EVs, resulting in a proliferation of brands and shorter product life cycles than in other regions. That will force automakers and suppliers to drive costs per vehicle as low as possible and require them to develop new technologies at a much faster pace.

Forvia is banking on significant growth in China and more broadly in Asia. Koller forecasts that about 60 percent of the world's new-vehicle production will be located there, including about 35 percent in China alone.

"We have to be pragmatic," Koller said. "The only OEMs that will grow internationally are the Chinese. You have to be in China, you have to be in Asia, and you have to support the Chinese OEMs in their deployment."

Forvia also sees India becoming a major growth market, driven by increased political stability, major investments in infrastructure and a growing middle class. By 2028, Forvia plans to have 70 percent of its global R&D resources located in two hubs, one in India and the other in China, Koller said.

That will mean a redistribution of resources for the company. Forvia already has announced plans to cut about 10,000 jobs in Europe over the next five years and rely more heavily on artificial intelligence in product development. Koller said the company has yet to make significant progress on the jobs target but that the company is committed to using generative AI to make its processes more efficient and competitive.

"We're targeting 50 percent efficiency gains, which doesn't mean 50 percent less people, but maybe to do more with the same amount of people, especially in electronics, where it's not so simple to find software engineers," Koller said.

Forvia, based near Paris, ranks No. 8 on the Automotive News list of the world's largest suppliers, with global sales to automakers of $26.8 billion in 2022.