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SLOWDOWN IN EXPORTS AND FDI
Decreasing inflow of remittances
Heavy reliance on the US may have repercussions for Mexico’s trade balance
Trump’s protectionist policies will deter investment into Mexican production capacity
There has been a
of Mexican automotive decline in the
of the exports that are exports go to the industry’s y-o-y of Mexico’s FDI
not related to oil United States
Source: EY (USA New Government: Implications for the Mexican Automotive Industry, February 2017), Banco de México
The automotive industry represents
As oil prices decrease, the importance of automotive exports increases
The depedency on exports to the US increases volatility on Mexico’s finances
A decline in the industry’s exports would result
in a deficit in Mexico’s trade balance
United States represents
A decrease in FDI coming from the US would further damage Mexico’s BT
Mexico’s automotive indus- In the end, aside from a dip in 2010, same parts in the United States. Metal
try is a crucial part of the country’s economy and has served as a beachhead for
industrial development in many parts of the nation. Over the past two decades, it has matured from a low-skill, low-wage sector to a diverse economic engine that plays an increasingly integral role in the supply chains of the world’s largest orig- inal equipment manufacturers (OEMs).
IN FOR THE LONG HAUL
Historically, that success story has been as much about riding out rough patches as it has been about avoiding them. Like so much of the world economy, Mexico’s auto industry began to sputter with the 2008 recession. While U.S. automakers struggled for their very survival, Mexico found its automotive sector plunged into neutral and staving off “reverse.” As global investment shrank, so too did internal sales of cars and trucks.
Mexico’s auto industry came through with relatively minimal slowdown. In 2015, the US$52 billion sector made up 3.1 percent of Mexico’s GDP and 18.3 percent of industrial GDP. The indus- try’s 900,000 workers have helped make Mexico the world’s seventh-largest man- ufacturer and fourth-largest exporter of vehicles.
With 2020 now on the horizon, indus- try and government officials envision even more aggressive growth. To get there, they will need to find ways to overcome what seems likely to be a lengthy period of uncertainty.
STRATEGIC STRENGTHS
One reason Mexico has continued to grow despite shifts in the industry is that its structure is geared to low costs. Overall, the cost of manufacturing auto parts in Mexico is about 12.3 percent lower than the cost of making the
components are 16.3 percent cheaper to produce, plastics are 15.2 percent less expensive, and precision components cost about 9.8 percent less.
Mexico’s costs are lower in part be- cause of the peso, which is weaker than the currencies of competing manufactur- ing hubs such as the United States, the European Union, and Japan.
Once the parts are produced in Mexico, it is also less expensive to export them to other countries. Mexico’s nearly unpar- alleled roster of free trade agreements gives it preferential access to 46 foreign markets and 47 percent of the world’s automobile market.
Martín Rosales, President and General Manager of Goodyear México, says that this favorable trade environment has attracted many of the world’s major car companies.
“The Mexican automotive industry has companies from Korea, Japan, and
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