News, Insights and Best Practices for Manufacturing in Mexico

Auto Industry in Mexico and its Growing Supplier Network

14 Aug 2014

Category: Automotive Manufacturing, Manufacturing in Mexico

The Mexican auto industry includes many foreign companies that export their vehicles across the globe. Over the past few years, OEMs in Mexico have recently called out for more tier-two suppliers, and only recently hit a bump in the road during the end of 2016. Despite political rhetoric, the Mexican automotive industry is still growing and in need of good industry suppliers. 

Companies Manufacturing in Mexico Look for Tier 2 Suppliers 

Tier two suppliers in Mexico are more cost effective than importing parts from outside of the country — because of less travel time and easier logistics. Companies that manufacture in Mexico employ high skilled workers for a decent wage. Real Estate and local government relations are also easy to navigate once a company is connected with their location. Additionally, there is a ready market for auto parts in Mexico because the country is becoming a global hub for automotive manufacturing, including U.S., Asian and European companies.

The cost of importing products into Mexico for the industry totals $38.8 billion, but this number can be reduced with tier-two supplies doing the work instead. "It's a question of reducing this $38 billion total to $25 billion by 2019," said Oscar Albin, executive president of INA, the national association of suppliers. "That's our goal."

Automakers in Mexico are manufacturing at a fast pace - at the rate they are building, they beat competitor country outputs for the first time in a decade. If they want to stay at the top, manufacturers will have to continue to produce more tier 2 products, which creates a niche for foreign companies that want to expand.

Although initially, according to Auto News, companies from Japan and Germany wanted parts from their native countries, they have begun to recognize that the products made in Mexico for a fraction of the cost are of equal, if not higher quality than anything made elsewhere.


Up and Coming Industry in Mexico

Another industry in Mexico where foreign business will be coming in droves is the energy sector. Exxon Mobil and BP are both excited to start drilling in Mexico, according to Bloomberg.

"The potential is great," Tony Payan, director of the Mexico Center at Rice University's Baker Institute for Public Policy in Houston, said in an interview with Bloomberg. "If they play it right, Mexico could become a major oil producer and Mexico, the U.S. and Canada could come very close to energy independence."

Companies that build products for the oil sector, such as drill bits or other equipment, could find themselves making a lot of money from the oil sector. Even companies that don't drill or have anything to do with energy will benefit from cheaper gas and electricity as Mexico's production expands. As Mexico continues to foster industry growth on a global scale, manufacturers will continue to use local suppliers.

Find out why more companies are deciding to nearshore manufacture in Mexico.

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