Viva Mexico Automotive!

A busy conference centre in the luxury surroundings of the Mexico City Maria Isabel hotel was the venue for the 2019 Automotive Leaders Summit in Mexico City where delegates heard exclusive presentations from industry leaders and participated in several lively and thought-provoking debates about this exciting region - a country which has enormous automotive potential writes Simon Duval Smith

Steven Armstrong

Berenice Egure

Berenice Egure, International Trade and Customs Partner at KPMG in Mexico started the conference with a presentation on the effects of the USMCA agreement, signed in November 2018. She illustrated how 55% of the top business managers in Mexico polled by KPMG considered that the impact of the USMCA on their operations would be positive. The survey included chemicals, textiles and plastics executives. 10% of those polled considered that the impact would be indifferent and 35% negative. Egure gave some important background material on the relative import and export figures to and from the US, Mexico and Canada and detailed the impact of the new agreement, talking of the changes in Regional Value Content, noting that under NAFTA the regional content was 62.5%, this shifts to 75% (over a three year transition period). In autoparts, it will move from 60% to between 65% and 75% according to whether the parts are Complimentary parts, Principal parts or Core parts.

Labour issues and forward strategy

Under the NAFTA agreements, there was no Labour Content Value figures but under the USMCA rules, this is to be 40% for light vehicles and 45% for heavy vehicles and this is predicated around the hourly rate of $16 per hour. Egure spoke of how three months prior to starting any negotiations with China, or any 'non-market' countries, involved parties have to inform the other party (that they are dealing with) not later than 30 days before any agreement with China. This clause will allow the elimination of the USMCA with a six-month delay and the possibility to have just a bilateral agreement between the companies. She summed up that the understanding of the new rules of origin are complex for the automotive industry but that planning of the short-and long-term actions will be the best way forward.

Perspectives of the automotive market in Mexico

Turning the conference's focus to the domestic market, Guillermo Rosales Zárate, Director General, Asociación Mexicana de Distribuidores de Automotores (AMDA) talked of regional variations in domestic sales and the restraints on consumer credit.

Guillermo Rosales Zárate

He showed slides illustrating how the market had declined over the last year, with only SUVs, vans and heavy trucks showing an increase. He noted that heavy trucks represent only 1% of the market. Zárate noted that the performance of the market in Mexico in the first 'semester' this year registered a decrease of 2%, following the estimate of decline for 2019, he said that AMDA expected a downturn in sales of 5.5%, down from 109,000 in February 2018 to 103,000 in February 2019.

Mexican automotive route to market

Zárate was joined on the stage by Berenice Egure and Ricardo Rochman, Secretary of the Mexico Association of Freight Forwarders, AMACARGA to debate the route into the Mexican automotive market. Some questions had been sent in advance and the first of these, given the USMCA agreement, what was the effect on the US GDP and the cost the OEMs likely to be? Would the USMCA really give the boost to the US market that the Trump administration would seem to like to stimulate? Berenice Egure answered this first, saying that, "Mexico and Canada will have a combined gain but that the US will decline. Considering the labour value content element of the agreement, this will contribute to an overall loss to the regions, particularly in the US."

Ricardo Rochman, Berenice Egure and Guillermo Rosales Zárate

Answering a question on whether the Trump administration's actions might rebound and cause higher production costs in the US, Ricardo Rochman said that, "We are looking at this in a positive light; OEMs and suppliers are looking to increase the regional content of vehicles and interestingly, Asian OEMs have a percentage of Mexican local content near to 50%. European OEMs are reaching around 60% so there is going to be an important factor for these Asian companies - these will need to increase their production lines in Mexico. This country is becoming a very fertile place for automotive, not only in terms of labour cost but also in government support and we feel that we are becoming the automotive experts of the region."

Transport infrastructure in Mexico

Berenice Egure answered a question on who should invest in Mexico's road, rail and sea routes to effect improvements by quoting some statistics. She said, "The US ranks in 10th place in the world in logistics performance, Canada in 17th place, and Mexico in 53rd place out of a total of 167 countries. One of the main issues for Mexico is the inefficiency of customs and border management. The quality of logistics services is another major issue."

The largest car park in Latin America

Ricardo Rochman talked about an exciting new initiative in Veracruz - the creation of a vast holding park for vehicles destined for export. "This park would handle around 10,000 vehicles, in and out for export. This will promote more just-in-time delivery but also enable the port to supply services such as accessorisation, vehicle preparation and so on. This guides me to talk about how the ports in Mexico are becoming very specialised in the automotive industry. At this time we have five very important ports that are focusing on automotive, Veracruz, Lazaro Cardenas, Manzanilla but also Mazatlan is becoming very important. Mazatlan is attracting a lot of investment from car companies. I would also like to mention Tuxpan, the nearest port to Mexico City. It has only one negative point, it has no railhead." Rochman went on to talk about the new President of Mexico's aim of spreading wealth more evenly, and promoting industry and therefore improving logistics in the south of the country. John Hyatt of Mexico Business.

Associates asked the panel about the possibility of building a super highway that could rival the Panama Canal in providing east-west transport for inbound and finished vehicles. Ricardo Rochman said that, "This is a project that has been in our minds, as a nation, for some 15 years. It is a great project and at AMACARGA we are hearing a lot about this project; it could well be a reality in a few years. It will promote growth in the south of the country and it would effectively shorten the distance from east to west for the US."

The three year supply plan

Oscar Ramirez of Sumitomo Corporation de Mexico asked Berenice Egure what assurances could incoming and domestic tier 2 to tier X suppliers could have to help them invest and plan for raising the local content element of vehicles within the three year time scale demanded by the previous Mexican administration. Egure said that the three year is 'progressive', "It is not the case that in three years you have to comply with the percentage, every year will see an increase. This will also set the basis for the renewal of contracts with suppliers. We (KPMG Mexico) understand that the new President's administration will back this agreement so this should help the supply chain to continue negotiating throughout the three years."

Dr Lotta Jakobsson, Senior Technical Specialist Injury Prevention
Oscar Ramirez
Volvo Cars Whiplash Protection System
Eduardo Aspero Zanella

Eduardo Aspero Zanella of the Hub Group asked the panel who is going to formulate a major plan to increase the localisation of supply in Mexico. Berenice Egure said that the government's input was likely to be forthcoming but that will need a distinct policy which would require fiscal incentives. "If there are more incentives in Mexico then more companies will want to locate here, or grow here if they are domestic organisations. On the other hand this supply chain development is not new for the industry, it happened under the NAFTA agreement and has happened with all our free trade agreements in the past."

Alfredo Carmona of DENSO Mexico asked the panel if they believed that the resistance to building a cross-Mexico rail or road route was due to such a route possibly being a threat to the Panama Canal. Ricardo Rochman answered by reminding the conference that the Panama Canal was owned by the US for many years. "Why would the US encourage a competitor 'in their own backyard'," he said, adding: "Of course the US is no longer in control of the Canal so I think they have nothing to win or lose by promoting a new route and they [the US] will be a major investor in the Istmo connection [the shortest land route between the Gulf of Mexico and the Pacific Ocean before the Panama Canal was opened]."

High quality Mexican suppliers
John Hyatt

John Hyatt

John Hyatt of Mexico Business Associates talked of how Mexico sourcing needs a holistic approach - and typically will take three months from first enquiry to samples and production getting underway from three good factories. He compared Mexico with China and said that while sourcing components from Mexico might take longer, quality control will be far superior. He talked of the differences in price saying that China agents will quote a fixed price for sourcing something and while they may keep to that price, quality can suffer if the supplier has to absorb costs of mistakes or delays. He said that effective sourcing in Mexico needs purchasing people from the customer in the country, ‘boots on the ground’ and this has to be budgeted for.

Not made in Mexico - truck engines and transmissions

In his presentation on the importance of heavy duty commercial vehicles, Miguel Heberto Elizalde Lizarraga, Executive President of ANPACT pointed out that Mexico has no engine or transmission plants and in answer to a question sent in advance, as to why Cummins or another heavy engine maker had not set up here, he said: “We have many remanufacturers in Mexico and it is a historic situation, the remanufacturers can turn out a hundred as-new engines a day. It is the nature of the modern truck engine that it can be rebuilt to be as good as new several times over. No major engine maker wants to make the investment here. There have been engine plants in the past but when the original NAFTA agreement was made, engine makers carried out analyses and decided to shift the plants back to the US.”

The law and labour issues

Arturo Rangel Bojorges of BORIUS talked about the need to meet constantly changing new standards and how important this would become as Mexico emerged as a larger and more powerful member of the global automotive business. When asked about the law and labour relations, Bojorges said: “Mexico signed the rule 98 of the global labour organisation some 40 years ago but it was not implemented so we must safeguard our employees ourselves.”

Carter Logistics - driving the Mexico supply chain from good to great

After a networking lunch, delegates re-convened to attend a presentation by Richard DeBoer, Executive VP of Supply Chain Logistics, Carter Express, Inc. & Carter Logistics, LLC. De Boer spoke of Carter's Mexico operation, explaining how, in 2013, Carter acquired a Mexico logistics company. He praised Juan Ortiz, Director of Mexico Logistics Services for Carter and spoke of how Ortiz has worked hard to develop the business, yielding growth of 20-30% per year, making Mexico the fastest-growing country in the Carter company.

Richard DeBoer

DeBoer talked of the capital of the company and explained that of $30 million of CAPEXs, of which $20 million relates to the fleet of 150 trucks, costing around $140,000 each. He said that driver 'crunch' or shortages was a major issue, "We expect to lose about 10% of our drivers due to having these cameras on the trucks." Even with this expense, he insisted that cameras were worthwhile to avoid spurious damage claims from crooked motorists and for the added safety element.

Consolidating freight for tier suppliers

DeBoer spoke of consolidation of OEM freight, citing the expansion of the company's Knoxville facility to better support its customers. "Two of our top customers are Asian OEMs and we are going to be developing routes in the south-eastern part of the US, collecting parts from tier 1 suppliers. We have combined routes for these two Asian OEMs in the past but we are going 'full bore' with this, starting in October 2019." He said that it is difficult to manage two OEMs, to get them operating by the same rules and methods but that Carter will achieve this during this year.

Carter have taken the view that all the technology and procedures that it has implemented in the US should be available to speed supply lines in Mexico, as DeBoer said, "This includes standard operating work procedures - obviously working with Toyota, everything is process, process, process and we have done a very good job as far as our process flows have been managed, in the US, and we are putting those same process flows in place in Mexico.”

Hijacking and security

DeBoer showed a heat map illustrating tractor hijacking areas and said: "This is driving rates up, from a Mexican carrier standpoint especially in the Puebla-Veracruz corridor where a lot of these events happens. Hijacking is at an all-time high - 160% growth in the last four years and the fact that the appropriate Federal laws are not in place to reduce this - it is not a felony crime in Mexico - creates the issue of criminals hijacking vehicles numerous times because they are not sent to prison. Due to this we have moved away from some commodities, such as food and household goods - they are so targeted by thieves."

Infrastructure: the Autonomous Vehicles Readiness Index

Ignacio Garcia de Presno, Head of Infrastructure at KPMG in Mexico talked about how the world is at the peak of a transportation revolution. He cited the challenges as cyber attacks and loss of jobs and also how autonomous vehicles will interact with public transportation systems. De Presno spoke of the need for investment in both the vehicles and systems but also the infrastructure needs, from the density of EV charging stations to 4G coverage and the condition of the roads. He showed a slide showing the overall ranking of the global possibilities for autonomous vehicles, with Mexico ranking 23 out of 25 countries. For policy and legislation, Mexico ranked 24th, due to the lack of government drive to stimulate the AV market. There were similar results shown for technology and innovation, with Mexico ranking 23rd, due to the lack of investment in AV technology.

Big Data and Future Transportation

The strategic role of the automotive industry in the Mobility Big Data ecosystem was the subject of the presentation by Eugenio Riveroll, CEO & Co-Founder, SinTráfico talked of the change in personal mobility and how automotive Big Data can not only generate data but also benefit from it.

Ignacio Garcia de Presno, Simon Duval Smith,  Eugenio Riveroll and Fernando González

Riveroll's presentation was followed by a panel discussion on Future Transportation, with Riveroll being joined by Ignacio García de Presno and Fernando González, Director of SEGULA Technologies. This panel saw lively interaction from the delegates on subjects such as infrastructure, who will be the investors in tomorrow's new mobility solutions and how Big Data and connectivity can be made to work in Mexico.

Digitalising truck maintenance
Marcelo Montanha

Marcelo Montanha

Marcelo Montanha, Service Director at Scania in Mexico spoke about the digitalisation, connectivity and the transformation of the maintenance in commercial vehicles. He discussed the human element, and talked of the training of 400 technicians in Mexico on new systems in trucks. On the hardware side he showed the black box in each Scania, which have been fitted since 2014. These black boxes give 3 billion kilometres per month worldwide. 3500 vehicles in Mexico have the boxes and this helps to reduce fuel consumption and the environmental impact of the truck. The box also enables remote diagnostics which help in service and also in the case of a breakdown. For drivers, the use of digitalisation is found in the driver’s vest, a connected device which can help if a driver is separated from his vehicle and should get injured, the driver is constantly traceable. 

The Final Debate - Leaders Insights

Marcelo Montanha joined Arturo Rangel Bojorges of BORIUS and Richard DeBoer of Carter Express to recap some of the day's discussions, debate the overall state of purchasing and logistics in the region and to offer some interesting insights to what the automotive future of Mexico might be like. The overriding impression was that the region has tremendous potential and while it is facing some infrastructure and transportation challenges, there is great will to succeed and overtake Canada in some production respects for example, and improve its ranking amongst the world's greatest automotive centres.