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Septiembre de 2021 Página 1 de 2

Mexican automotive parts industry: between crisis and opportunity

Nancy Garcia, a Mexico correspondent

The pandemic and the shortage of plastic raw materials have affected the sector. However, the T-Mec could tip the balance in Mexico's favor in the long term.

The Covid 19 attack on the industry has been difficult to remedy. After a year in which quarantine restrictions led to a total shutdown of non-core activities for several months, recovery has been slow worldwide.

According to information from the Mexican Automotive Industry Association, auto production in Mexico is 20% below that recorded in 2019, despite having reached in June 2021 its highest percentage increase in 11 years. In the first half of 2021, one million 595 thousand 701 vehicles were assembled in Mexico, representing an annual increase of 31.8%, but, at the same time, showing a drop of 20.3% compared to the same period of 2019.

According to the United States-Mexico Foundation for Science (FUMEC), Mexico is the fourth largest exporter of light vehicles in the world. The automotive sector contributes 36% of Mexican manufacturing exports and generates more than 950,000 direct jobs. Mexico is also the fifth-largest auto parts supplier.

The president of the National Auto Parts Industry (INA), engineer Oscar Albin, points out that Mexico is the fifth-largest auto parts producer, after China, Japan, the United States, and Germany, and ahead of South Korea, Brazil, and India.

Importance of auto parts in the Mexican economy

According to the INA, the automotive industry, which includes the manufacture of automobiles and auto parts, generates close to 3% of the national GDP. In terms of manufacturing GDP, the automotive sector represents 20% and auto parts 10%. This segment ranks second in national manufacturing production, after the food industry. According to INEGI, auto parts production generates some 860 thousand direct jobs.

"The forecast for this year in the auto parts sector is $95 billion," explains engineer Oscar Albin. "In 2019, 99 billion dollars were produced. The drop is because there are assembly factories in the United States that have stopped due to a lack of semiconductors in the sector."

The North American bloc (Canada, the United States, and Mexico) produces between 16 and 18 million vehicles. In a good year, Mexico manufactures about 4 million, the United States 12 million, and Canada 2 million, approximately. The auto parts manufactured in Mexico are for those 18 million cars. For example, all the seat belts for cars manufactured in North America are assembled in Mexico.

The footprints of Covid 19 in the sector

The Covid 19 quarantine caused the automotive industry to shut down for three and a half months and companies had to cover the expenses caused by this situation without generating income. Mr. Albin states that the closure of operations together with the incorporation of the protection measures against Covid 19 affected the companies' cash flow, and it will be until the end of this year that it could be regularized.

We recommend: https://www.plastico.com/temas/Covid-19,-the-industry-responds+133997?tema=3600519

However, a serious setback brought about by the pandemic is the lack of microchips. Due to the restrictions, it was believed that the sale of automobiles was going to decrease, so the assemblers reduced their orders. However, demand in the market continued and they had to reactivate their orders. Computer microchips have experienced an over-demand due to the high consumption of computer equipment and cellular telephony. This situation caused assemblers to go on strike, which also affects their suppliers.

A situation that has mainly affected the plastic auto parts industry, but does not derive from Covid 19, is the lack of specialized resin to produce injection and blow-molded parts. The resin shortage affects the world in general and it is difficult to obtain resin of the required quality.

The T-MEC opportunity

The T-MEC is the Free Trade Agreement between Mexico, the United States, and Canada that came into force on July 1, 2020, displacing NAFTA, and has set new guidelines for the sector. Engineer Oscar Albin affirms that the renegotiation of the T-MEC was a positive thing for the auto parts industry because it forces automakers from Canada, the United States, and Mexico to produce their components manufactured in China, Japan, Germany, and South Korea in one of the three North American countries, which represents an extraordinary opportunity for the growth of Mexican production.

The INA representative considers that Mexico faces problems in attracting foreign investment, because its main competitor, the State of Texas, has a better tax law that is more attractive to private capital. Manufacturing systems are increasingly automated and due to the Mexican tax system, it is more difficult to purchase equipment. All of this is coupled with the fact that electric power for the industry is more expensive than in Texas, making it less competitive. Nevertheless, the country has an excellent workforce and highly qualified engineers to work in the automotive industry.

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