MEXICO AUTOMOTIVE UPDATE WINTER 2016

Transcription

1 MEXICO AUTOMOTIVE UPDATE WINTER 2016

2 Mexico AutoMotive update WinteR 2016 about hickey & associates Hickey & Associates (H&A) is a global leader in site location strategy, economic incentive advisory, and workforce solutions with active projects in the Americas, Asia, europe, Australia, and Africa. utilizing state-of-theart tools and techniques, H&A assists businesses in determining the best location to expand, relocate or consolidate anywhere in the world. Mexico City new York Life tower, 26th Floor paseo de la Reforma 342 col. Juarez, Mexico d.f Detroit 615 Griswold Suite 925 detroit, Mi São Paulo Av. paulista 37 4º Andar São paulo, Brasil New York 1120 Avenue of the Americas 4th Floor new York, ny San Francisco 388 Market Street Suite 1300 San Francisco, ca Hickey & Associates. All Rights Reserved. 2

4 Mexico automotive update Winter 2016 OVerview The past decade has been transformative for the automotive industry in Mexico. As a leading industry in the nation, the sector now accounts for over 20% of Mexican manufacturing. With hundreds of thousands employed by the industry, the sector has also become prominent in the workforce, and one that shows no signs of slowing down. As the industry continues its growth, many automakers are stepping up their investments to take advantage of the lower cost labor and attractive manufacturing and business environment in the country. Mexico has become the seventh-largest worldwide automotive vehicle producer, and first in Latin America after taking over that position from Brazil in recent years. In 2014, Mexico produced 3.2 million automotive vehicles, a nearly 10% increase over the prior year. In comparison, that is approximately 100,000 more vehicles than Brazil during that same period. Employment in the industry has seen increases of over 7% above 2008 levels, which now finds approximately 675,000 jobs directly related to the automotive vehicle sector in Mexico. Automotive vehicle production accounts for 3.6% of the nation s Gross Domestic Product (GDP). This production comes from a diverse array of foreign companies, which represent major automotive brands from America, Asia, and Europe. Not only does one find production of historic American automotive lines, but also significant players in the overseas market, including Nissan, Volkswagen, BMW, Audi, Kia, Honda, and Mazda. Predominately to the United States market, Mexico exported 82% of the automotive vehicles produced within its borders. It is clear, and has been since the early days following implementation of the North American Free Trade Agreement (NAFTA), the success of the automotive industry in Mexico is intertwined with the economic growth of the market powerhouse to the north. Among a list of factors, low labor costs and free trade agreements have provided incentives for many global automotive brands such as Toyota and Nissan to establish plants in Mexico. These companies were able to take advantage of the business environment and platform for exporting to the world, ultimately contributing to Mexico s production growth. Alongside vehicle production, the automotive parts industry is also becoming a major industry for Mexico. Mexico is the second largest importer of American automotive parts. The shared border provides an excellent market for American original equipment manufacturers (OEMs) and aftermarket parts. Automotive sales have shown consistent growth since 2010, from 820,406 units in 2010 to 1,063,363 units in 2013, according to the Mexican Automotive Industry Association (AMIA). Since 2009, U.S. automotive parts exports to Mexico have more than doubled from $12.1 billion to over $29 billion in The automotive landscape in Mexico is expected to continue its growth and attraction of companies seeking to locate and expand these types of activities Hickey & Associates. All Rights Reserved. 4

5 Mexico: Light vehicle production, (millions of unit) /f 2015/f 2016/f Mexico: cumulative fdi received in the automotive industry, (millions of dollars) , ,642 10,533 11, ,150 7, ,291 5,691 1, Hickey & Associates. All Rights Reserved. 5

6 Mexico AutoMotive update WinteR 2016 supply chain in Mexico, there are three key reasons that make it an attractive and crucial supply chain location: an everimproving supply chain infrastructure, a low-cost but increasingly skilled labor force, and successful economic reform efforts. Moreover, Mexico has ample developable land at affordable prices with shorter shipping times compared to Asian countries, such as china and india. Mexico s proximity to the vast u.s. consumer market will always be a major competitive advantage, too. However, when comparing Mexico to china, an industrial giant, it still shows an advantage in many areas. china is becoming burdened by escalating manufacturing costs and lengthy shipping lead times. in this environment, it is an absolute necessity that the automotive supply chain in Mexico continues to attract more and more companies to the market. in order to do so, oems and automotive parts manufacturers must cooperate together and partner with supply chain and logistics service providers. this relationship will allow for the industry to grow and expand, allowing them to keep production lines up and running without pause. As a result, it will reduce the time that it takes to manufacture their products and, subsequently, to transport them to market. improved and developed supply chain channels in Mexico are helping oems bridge gaps that constitute barriers to achieving these ends. in addition to helping manufacturers to reduce their production costs by providing reliable service, superior logistics operations continuously seek to reduce the costs of their own operations. part of any savings gained through the constant efforts of cost-conscious service providers can be passed down to oems and automotive parts manufacturers in the supply chain in Mexico. Significant improvements can still be made in terms of reducing logistics costs. estimates by Mexico s Logistics and Commerce Innovation Center are that between 10-40% of the cost of sales of passenger vehicles that are manufactured in Mexico is comprised of logistics and supply chain input factors. Figure 1. Supply Chain TIER S T2 MAJOR COMPONENTS T1 MAJOR COMPONENTS OEM S PROCESS AFTER MARKET SPARE PARTS CHAIN STORES GARAGE CHAINS MINOR COMPONENTS T1 MAJOR COMPONENTS 2016 Hickey & Associates. All Rights Reserved. 6

7 Mexico automotive update Winter 2016 Labor Trends Since 2010, employment in Mexico s automotive sector has grown at an average rate of 13.7% per year. As one might expect that an influx of new workers could have a negative impact on labor productivity, for transport related equipment manufacturing it has actually increased by 7.3% over 2008 levels, as of May The labor cost index has also decreased by 8.2% over this same period for transport related equipment manufacturing. In 2000, the workforce in Mexico represented 27% of all automotive manufacturing jobs in North America. Today there are over 580,000 automotive industry jobs in Mexico, representing 40% of the North American workforce. Approximately 132,000 of these jobs were created in the period between 2010 and 2012 alone. However, it is unclear if there are enough individuals in the talent pipeline to continue this fast paced growth. Automakers have 18 factories in Mexico, with many of them built in the past decade. Over the next four years, five more are reportedly to be built. The low labor costs is driving a lot of manufacturing companies to invest and expand in Mexico. Today, a worker in Mexico costs automotive manufacturers an average of $8 an hour, including wages and benefits. This is extremely low compared to other major auto manufacturing countries, such as the U.S. and Germany. In the U.S., the cost of an automotive worker is $58 per hour for General Motors and $38 per hour at Volkswagen s factory in Tennessee, which is considered among the lower end of the scale. In Germany, an auto worker costs about $52 per hour Hickey & Associates. All Rights Reserved. 7

8 Mexico automotive update Winter 2016 Business Incentives National leaderhship have realized how vital it is for Mexican investors to have access to similar conditions as competing countries, thus allowing them to successfully position their goods and services in the international trade arena. Given that fierce competition in the global marketplace, Mexico offers foreign investors an array of business incentives to attract them to enter to the county. In addition to the atuomotive sector, incentives are targeted for industries such as telecommunications, information technology, data centers, and food processing. Economic development incentives directly support business investments through the following: Infrastructure Support Human Capital Market Access Project Financing Supply Chain Below are examples of incentive opportunities targeted to the automotive manufacturing industry in Mexico: Manufacturing, Maquila and Export Service Industry (IMMEX) The IMMEX program provides qualifying businesses the possibility to import goods free of the import tax and the Value Added Tax (VAT). Eligible imported goods include: Raw materials, parts and components; Shipping containers and boxes; Machinery, equipment, tools and spare parts used in the production process; and, Equipment and devices used for research and training, telecommunications and computing, laboratory measurements and other uses. Immediate Deduction For automotive manufacturing businesses investing outside of metroplitan areas, such as Mexico City, Monterrey, and Guadalajara, the Mexican government offers a significant tax deduction. Federal Corporate Tax Companies who are establishing their operations in Mexico for the first time could be granted signification reductions of their income tax. R&D Investment Tax Credit Companies investing in research and development (R&D) in the automotive sector may capture a tax credit of 30% of eligible expenditures, including process and design. Innovation Programs Mexico developed several supporting programs for foreign investors and manufacturing companies investing in new innovations and manufacturing technologies. Incentive opportunities include: Technological innovation of high added value; Development and innovation of initial technologies; and, Technological innovation for competitiveness Hickey & Associates. All Rights Reserved. 8

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