North American consumers are driving Asian automakers to increase their production capacities in the region. Keeping fabrication and assembly in Asia isn't cost-effective for manufacturers whose main markets are in North America. According to Detroit News, IHS Automotive analysts have noted approximately half of vehicles produced in North America are from Asian automakers. Yet Asian producers aren't simply maintaining their manufacturing capabilities in North America - they are expanding. IHS expects Asian companies will invest in extending their production capabilities by nearly 1 million cars by 2020.
However, Asian automakers understand the need to make a profit while still fabricating high-quality products. Automobile magazine reported in 2012 that exporting cars to the U.S. from Japanese facilities wasn't profitable for Honda, which led the Asian-based company to increase its production in North America. According to Automobile, Honda even announced it will open a plant in Mexico to take advantage of the country's close proximity to end markets and its low cost manufacturing environment.
As more companies look to increase their share of the North American auto market, many will send their production processes to Mexico. While manufacturing products in North America is financially better for Asian companies than exporting from Japan or China, creating vehicles in the U.S. and Canada remains expensive. For Asian automakers to see the most benefits of expanding operations to North America, they will need to create a strong presence in Mexican manufacturing. Flexible supply chains to the U.S. and Canada as well as quality labor for great products will encourage more Asian companies to increase their presence in Mexico.
The movement to North America
Numerous Asian manufacturers are following Honda's lead. According to Pickup Trucks, an automotive news source, North American consumers will be increasing their demand for pickup trucks within the next year, and Toyota is taking notice. One of the Asian car company's Mexican facilities is reaching its full capacity of 63,000 vehicles a year and Toyota may need to expand its production volume in order to keep up with demand. According to the news site, the company might be adding another plant in either Mexico or the southern U.S. to keep production high.
In fact, Businessweek reported Toyota is already planning on introducing an additional 37 vehicle models into the North American market in 2014. The number of newly issued models hasn't been so high since 2006, or right before the U.S. economic downturn.
Bob Shanks, chief financial officer at Ford, told reporters in New York that automakers need to stay on their toes if they want to make it in the competitive North American market, Businessweek reported.
"You really can't sustain any competitive advantage, ever," Shanks said. "You've always got to be trying to find that next thing where, for a period of time, you can separate yourself from the others."
Detroit News reported investment in North American manufacturing by Asian companies is boding well for the region's automotive industry.
"Clearly, a larger number of units are going to be sourced here to meet local demand, but there's going to be additional opportunity to take advantage of global opportunities via exports," said Mike Jackson, senior manager at IHS, according to Detroit News. "At no other time in its history has the North American market been as well positioned as it is today."
For Asian businesses to stay profitable, they need to keep their manufacturing costs low. Mexico is the perfect place for manufacturers to produce products for North American end markets. According to Businessweek, automakers don't just need to be able to fabricate a high number of cars, but ensure quality remains strong as well. Mexico's experienced workforce is perfect for Asian companies.