Phil Biggs covers the automotive industry for NewsTalk 1340 WJRW
April 10, 2012 – 9:30 am ET
COBA MAYA, Mexico – Dotted all along the eastern corridor of Mexico’s Yucatan Peninsula are the resorts and vacation communities that support a significant part of the Mexican economy. These communities that stretch from Cancun to Coba Maya are thriving fairly well despite the faltering U.S. economy and continued global uncertainty. The economic focus here is, without question, all about tourism. Travelers from all over the world come here for the pleasant hospitality and beautiful beaches.
Along Mexico’s northern border, south to Mexico City, the automotive industry has made its presence felt here for three decades. Automakers from around the globe targeted Mexico as a regional manufacturing destination in the mid-1980’s. Looking for cost-savings opportunities, unique maquiladora locations and assembly plants were established by the OEMs in places like Juarez and Reynosa to hail the birth of Mexico as a critical manufacturing epicenter. But, by the late 1990’s, many automakers and suppliers saw four to five-fold cost advantages emerge in China as they began their economic rise. What stopped the wave of automotive focus in Mexico?
Essentially, there were two issues blocking Mexico’s ascendancy in the auto space: First, they did not celebrate education in the same fiercely competitive way that India and China have during the past fifteen years. Thus, the electrical, mechanical and advanced technology engineering students have not been turned out from Mexican universities to populate the auto industry. Instead, these new, young engineers are trained in China, India and now, to an alarmingly lesser extent, the U.S.
Secondly, while China aggressively pushed to build a reliable automotive supply chain in-country last decade, Mexico never did. Mexico seemed content to do simple assembly operations versus the more complex advanced engineering functions. Ceding those challenges to U.S., German and China-based suppliers has cost Mexico dearly, in terms of the preponderance of strategic R&D centers located now in China and the United States, but not Mexico.
However, there are signs that Mexico may see a re-emergence into the auto space. Because of rising oil prices the past several years, the cost of shipping component parts exclusively from China is becoming a thing of the past. The cost of logistics has made cross-region global shipments prohibitive – which fortifies Mexico’s prominance as a major player again.
Also, key automakers such as Nissan, General Motors, Honda, Volkswagen, Chrysler, Ford and recently-announced Audi have made major investments to expand production and build new plants in Mexico. We are now seeing Mexico become an export base to Europe and Latin America, as well as to the U.S. and Canada as its total landed cost becomes more in line with other global manufacturing locations.
The ugly dark cloud hanging over Mexico is the rise of corruption and crime throughout the country. Crime has become so widespread and vicious in places where Americans and others have traditionally felt safe that it leaves auto executives wondering about the viability of future investment. This situation cannot go unchecked. If Mexico is truly able to transform itself to regain its role as a regional power again, it will need to address the cultural issues of crime and education. And, most importantly, Mexican engineers must work hard to own a stake in the dizzying array of new technology that is thrust upon the automotive industry nearly every day.
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