Mexico and the automotive industry

by RitaZhao on February 23, 2011

in Diaz Reus News

by Ricardo Ortiz Gil Lamadrid

Mexico provides automotive companies with tremendous business opportunities. This is due to the strength of a unique market that has transformed into one of the centers of the global automotive industry. In the global automotive sector, Mexico has become an export platform. The largest companies in the world are increasingly utilizing Mexico as the sole supplier of some of their newest products. Although the industry has been affected by the economic crisis, its resilience has enabled it to weather the economic downturn. Thus, Mexico has managed to forge ahead and become a strong player in the global market.    

In the past fifteen years, foreign companies in Mexico have established a number of assembly plants. The competitive advantage of vehicles and engines manufactured in Mexico stems from low labor costs and technological innovation. Furthermore, Mexico offers important tax benefits to multinational automotive companies seeking to establish assembly plants in the country.

Even though the global automotive industry is going through its worst crisis, economists predict that Mexico will retain its rank among the world’s automobile producers. This represents an unparalleled opportunity, since the automotive industry makes up 28% of the Mexican economy and employs 4% of the country’s labor force. In light of a 42% drop in automobile production in the first half of 2010, there are certain challenges that need to be dealt with. Nonetheless, several distressed automobile manufacturers, including General Motors and Chrysler, both of which underwent Chapter 11 reorganizations last year, have continued to expand their presence in Mexico.

In recent years, this has led major manufacturers to strengthen their presence in Mexico, solidifying the country’s status as a center of automotive production. These major market players have also invested in “compact" and "subcompact” vehicles, relying on the fact that Mexico offers one of the best platforms to meet the growing export demand for smaller cars by consumers worldwide. Seven of the world’s largest manufacturers have chosen Mexico as their production center and export platform, some of which have been operating in the country for more than eight decades. Only three American manufacturers, GM, Ford, and Chrysler, the leading German carmaker Volkswagen, and major Japanese companies such as Nissan, Honda, and Toyota operate assembly plants in Mexico, and together produce 40 car models in the country.

The role of the automotive industry in the Mexican economy is critical, given the impact it has on other core industries such as steel, glass, and rubber. It is regarded as an industry that substantially impacts the country’s economic welfare. With an output of more than 1.5 million vehicles in 2009, Mexico reaffirmed its position as the tenth largest producer of vehicles worldwide, according to a report of the International Manufacturers of Motor Vehicles. The automotive industry is the second-most strategic sector of the Mexican economy after the oil industry and the most important subsector of the manufacturing industry. Given the geographic proximity and economic and business links between Mexico and the U.S., 81% of Mexican automobile production is intended for export, with 80% of the manufactured vehicles going to North America, 10% to Europe, and 8% to the rest of Latin America.

The automotive industry is highly dynamic. New challenges arise daily requiring the assistance of professionals. Diaz, Reus & Targ covers the full spectrum of services that can help any automotive company succeed, including designing and implementing effective customs and compliance programs, fulfilling a client’s logistical needs in all corners of the world, and effectively representing multinational corporations before government and regulatory agencies. The firm’s broad global reach, as well as its discipline and commitment to excellence, enables it to work around the clock to ensure that the client’s goals are fully attained. As a team of highly accomplished international lawyers and consultants, DRT understands the unique needs and challenges of any multinational automotive company.  

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