Auto industry cruises in Mexico

Nation a driving force as global manufacturers set up shop

AGUASCALIENTES, Mexico -- It wouldn't be a huge stretch to describe Aguascalientes in north-central Mexico as the new Detroit.

Mexico's automotive sector is at full throttle, and Aguascalientes is one of several cities primed by foreign car manufacturers to rev its engines. Once a sleepy railway crossroads, Aguascalientes now has two big auto plants and a third on the way. This is making it what one national newspaper called a "mini-Detroit."

"We're going to produce 1.1 million vehicles just in Aguascalientes by 2020," said Rodolfo Esau Garza de Vega, head of economic development in the state.

Nearly every major global automaker now either builds in Mexico or plans to construct an assembly plant in the country. Billions of dollars in investment have arrived.

Mexico has leapfrogged past other auto-producing nations. In 2009, Mexico was the world's 10th-largest auto producer. But it's soared past Spain and France, and earlier this year it surged by Brazil to become the world's No. 7 automaker and the fourth-largest exporter. Experts say Mexico is one of the most dynamic hubs of the global auto industry.

Gone are the days when Mexico produced only compact sedans and pickups. Later this decade, new plants will be producing premium vehicles -- BMWs and Mercedes, Infinitis and Audis. Many Nissan vehicles that roll out of the plants in Aguascalientes are bound not for domestic showrooms or to auto dealers in the United States but for Brazil, Colombia, the United Arab Emirates and dozens of other markets.

The huge growth comes not just because of Mexico's good highways and railways, its healthy steel industry, and its cheap wages. It's also because of plentiful engineers and the skill of global automakers at keeping quality high, wherever their cars are built.

"The quality and cost of Mexican [automotive] products have no equal in Latin America," said Luis Lozano Soto, automotive team leader at the Mexico City offices of PricewaterhouseCoopers, a global consulting firm.

There's another key factor. President Enrique Pena Nieto, in announcing in August that the South Korean automaker Kia would build a $1 billion plant outside Monterrey, noted that Mexico has free-trade agreements with 45 nations. The United States, in contrast, has free-trade accords in force with only 20 countries. Brazil has only eight free-trade agreements.

"We have a unique geographical location with privileged access not only to North and Latin America markets but also those of Europe and Asia," Pena Nieto said.

About 66 percent of Mexico's auto exports currently go to the U.S. market, 8 percent to Canada, 11 percent-12 percent to Latin America, 8.3 percent to Europe, and the remainder to Asia and the Middle East, Lozano said.

The history of Nissan, the Japanese automaker, in Mexico reflects the growth of the auto industry as a whole.

More than half a century ago, Nissan chose Mexico as the site for its first assembly plant outside Asia. Now it dominates the Mexican market, with a 26 percent share. Five of the top 10 best-selling vehicles are Nissan models.

Nissan built its first plant in Cuernavaca, near Mexico City. It built a second plant in Aguascalientes three decades ago. Then in November, it inaugurated a second Aguascalientes plant, which it had built in a record 19 months. Now, its two Aguascalientes plants produce a car every 38 seconds during working hours.

Nissan exports cars it produces in Mexico to 50 countries, spokesman Herman Morfin Ortiz said.

At the new plant, a stamping facility that molds rolled steel into fenders and chassis parts clangs and hisses. But overall, the rest of the factory has little of the racket of older auto assembly plants. Each chassis moves along the assembly line on a silent robotic vehicle that follows a magnetic strip.

Next to the Nissan plant is the Douki Seisan industrial park, home to three component manufacturers. Shuttle vehicles deliver components, like new seats or engine hoses, to the Nissan plant, often more than once an hour.

The direct investment of automakers in cities like Aguascalientes has been huge. But Mexico also benefits from an incoming tide of auto parts manufacturers.

Nissan has about 300 suppliers today, 39 of them Mexican-owned companies, Morfin said.

"In 2013, we had procurement of about $4.4 billion. By 2016, we plan to triple that to almost $13 billion," Morfin said.

When Kia announced its new plant, which will begin making up to 300,000 cars a year in 2016, it chose a suburb of Monterrey, the northeastern industrial hub. In July, BMW said it would build a $1 billion plant in San Luis Potosi to produce up to 150,000 units a year of an unspecified luxury model, starting in 2019.

Overall production is soaring. Mexico built 2.93 million vehicles last year, the vast majority for export, and it is expected to speed past 4 million vehicles by 2017. As production soars and plants hire new workers, different Mexican states pull out the stops to draw automakers to their areas, trying to induce them to invest.

"They offer land and reduction off taxes," Lozano said. "If you have land already, they'll do infrastructure, highways, provide water, build a railway."

About a third of all Japanese investment in Mexico now concentrates in the state of Aguascalientes, whose capital city of the same name has a population of about 1 million people. Garza de Vega, the state's head of economic development, said 70 Japanese companies have set up in the state, some in logistics, services and spare parts for machinery.

Mexico's automotive industry is spread out, and analysts say that is a good thing. Ford has plants in Chihuahua and Sonora in the north as well as Morelos state near the capital. Puebla, near Mexico City, is hub of Germany's Volkswagen. Honda produces vehicles in Guanajuato state and near Guadalajara, both in central Mexico. Toyota builds Tacoma pickups in Tijuana at the border. General Motors makes pickups and the Cadillac Escalade in Silao in Guanajuato state as well as sedans in Coahuila state abutting Texas.

"Car plants have definitely brought some of these cities onto the map. If you look at Hermosillo and the role of the Ford plant, or the Nissan plant in Aguascalientes, it's made a big difference in those cities," said Guido Vildozo, who oversees Latin America for HIS Automotive, a consultancy.

SundayMonday Business on 09/22/2014

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