News, Insights and Best Practices for Manufacturing in Mexico

Auto industry in Mexico seeking more tier 2 suppliers

14 Aug 2014

Category: Automotive Manufacturing, Manufacturing in Mexico

The Mexican auto industry includes many foreign companies that export their vehicles across the globe. It has recently called out for more tier-two suppliers, according to Auto News. Those want to take advantage of this shortage must act quickly.

The advantage of tier-two suppliers is they can build in Mexico more cheaply than companies can import the same auto parts from the U.S. Companies that manufacture in Mexico have the advantage of lower wages, along with cheaper land and local governments that are very friendly to foreign companies. Additionally, there is a ready market for auto parts in Mexico because of the vast number of cars under manufacture there, including U.S., Asian and European cars.

Doing the math, the cost of importing products into Mexico for the tier-one industry totally $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."

Companies have begun to look for tier-two suppliers
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 equally high quality as anything made elsewhere.

Automakers in Mexico are manufacturing at a fast pace - at the rate they are building, they might beat Brazil's auto output for the first time in a decade, according to Auto News. If they want to compete with Brazil for prices, they will have to produce tier-two products more cheaply, which creates a niche for foreign companies that want to expand.

Other niche areas where U.S. companies can make money
Another industry 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.


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