Page 166 - STRATEGY Magazine

INTERVIEW:BMW
ALEXANDER W. WEHR
CEO
BMW Group México, Latin America & the Caribbean
However, the industry expert remains bullish on the region. While it is difficult to generalize across 25 countries, he believes that many opportunities still lie in front of Latin America, whose people are “innovative and dynamic.” With the average age of the population only 28, as compared to the mid-30s for Europe, investors are focused on the vast potential for an increased customer base. Growth rates are competitive with any rapidly expanding part of the global economy, especially in automotive. “If we take the growth rate of our industry, we are talking about fifteen to twenty percent. You don’t find it anywhere, not even in China.”
THE MEANING FOR MEXICO
When focusing on Mexico, Wehr describes an enormous multiplier effect for foreign investment. “There’s a direct linkage to the supplier network” when a manufacturer builds a plant, he explains. If a company invests $1 billion into the local economy, he suggests an impact of up to $4 billion, “taking into account the affiliated industries, especially the first- and second-tier suppliers,” and the local residents they employ.
Another facet of the Mexican economy, the momentum that has gathered behind sustainability and green energy, has been a revelation. “I was surprised to learn that there’s a high demand. I was not expecting that from the region.” This impetus leads automotive and other industries to seek sustainability throughout the entire supply chain. He notes that, thanks to structural energy reforms, investment in Mexico’s energy sector is booming, and not only in oil and gas. The country has made “huge progress” in solar in the last few years. Wehr foresees a synergy between the energy and automotive industries and predicts that the government will seek more initiatives promoting the diffusion of green technology.
A huge population eager to learn and open to the latest technology, a well-developed supply chain, an emergent middle class, trade agreements throughout the world—all these features, according to Wehr, lead to economic opportunities. “Mexico,” he says, “is doing it at this point.”
Mexico is an integral part of NAFTA, but it also enjoys free trade agreements with Europe and South America. Mark this success down to a large population, a skilled work force, a favorable geography, a middle class, stable politics, and a manageable tax scheme.
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Mexico has ascended global rankings to become the fourth- largest exporter of cars in the world. The automotive executive identifies many factors working in the country’s favor, not least of which is its skilled workforce as compared to the rest of Latin America. A large supplier market “worlds ahead” of many other Latin American nations also keeps the automotive industry running.
“Mexico is a country of relatively robust stability” when judged against other emerging economies, observes Wehr. Having the second-largest population in Latin America after Brazil helps Mexico post higher vehicle sales than other nations, but the real driving force behind the automotive industry is the growing middle class. It also bodes well that Mexico has developed manageable and effective tax legislation that favors the middle class.
One drawback to the Mexican automotive market is the lack of available credit tools. Wehr points to the fact that in Mexico, the buyer generally prefers to buy and own a car outright, so the notion of extended credit has never fully developed. “It’s not so much about the tools as it is the demand, actually.” He thinks that the expansion of the middle class will lead to a different set of preferences and that financial tools for credit will evolve. There is potential for a wide variety of financing models, including private lease, that are taken for granted in much of the developed world but do not yet exist in Mexico.
LOOKING AT LATIN AMERICA
The broader picture is more unpredictable. Doing business in Latin America comes with a “certain kind of volatility,” as Wehr calls it. Maintaining political stability is paramount, but a more commonplace challenge is the rate of delinquency. An issue not often addressed, “it is a reality that very much influences the development of a middle class,” he says. Delinquency particularly affects his industry. “It very much hinders economic growth, and that impacts our business.” If the delinquency rate in Latin America could be lowered to the global average, the automotive business would “double or triple,” in his estimation.
We very much believe in Mexico as an export platform,” says Dr. Alexander W. Wehr, the CEO of BMW Group México, Latin America & the Caribbean. Thanks to a mix of many promising components,
Shifting into High Gear
The automotive industry in Mexico is firing on all cylinders. The nation is a dynamic—and sometimes pleasantly surprising—leader in the region. What does the industry mean to Mexico and Latin America? It means a world of opportunity.
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