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Trends in the automotive industry in Mexico with Mike Tracy of The Agile Group

Trends in the automotive industry in Mexico with Mike Tracy of The Agile Group

Mike Tracy, CEO of the Michigan based Agile Group speaks with Tecma regarding the significant growth that has taken place in the Mexican automotive industry over the last several years that seems to be poised to continue into the future, making Mexico the preferred location for automotive industry expansion in North America.

 

Tecma Group of Companies:

Hello. Welcome to another in a continuing series of podcasts put out by the Tecma Group of Companies. Today we are fortunate to have Mike Tracy with us. Mike is the principal, or the CEO, of the Michigan-based Agile Group. The Group works as a consultancy in the automotive, aerospace and other large and heavy industries. Mike, how are you doing today?

Mike Tracy:

Just fine.

Tecma Group of Companies:

Mike,we’re glad that you could join us. Maybe you can tell the listeners a little bit about yourself and your company.

Mike Tracy:

The Agile Group specializes in large scale program management for manufacturing and operations improvement, for automotive, aerospace and heavy equipment. We work with OEM’s as well as with suppliers. We work worldwide. This includes Europe, Asia and, of course throughout the NAFTA region.

Tecma Group of Companies:

Thank you for giving us a synopsis of The Agile Group, and its activities. What we are essentially here to talk about for a few minutes is what is going on in the automotive industry in Mexico. Over the last few years it has been a really fluid and dynamic situation with respect to the amount of investment that has made its way into the country. We’re going to talk a little bit about that. I’ve got a few questions to ask, and would appreciate if you could give us a some information from your perspective, Mike.

Mike Tracy:

I would be glad to. Let’s proceed.

Tecma Group of Companies:

There is quite a number of new automotive assembly plants being built in Mexico, and even more are being discussed, can you tell us about what is behind this movement and what’s driving this?

Mike Tracy:

There are probably four principal factors involved in what is going on in the automotive industry in Mexico today. First, as the North American industry, and actually the worldwide industry has emerged from what we refer to as the “Great Recession,” there was a great deal of obsolete automotive production capacity closed and the gap between capacity and what was to be produced shrank greatly. As the markets have turned up towards, what we’ll call historical trends, there is a need for greater capacity to serve not only the NAFTA region, but Mexico has also secured an interesting place for itself through the free trade agreements that the country has with the European Union and also Japan. Then there are opportunities that will present themselves over the long term with the “nominal” free trade n the automotive industry that has been occurring with Brazil, and future free trade agreements that Mexico is also working on with South Korea.

Add in Mexico’s highly competitive position from a cost perspective, and Mexico, from a cost perspective, for OEMs and suppliers is actually far more attractive, particularly for serving the NAFTA region and, in most respects, the European Union that what people used to think of as building in China.

Tecma Group of Companies:

So, essentially what you are saying is that when some capacity that was not on-line during the recession, when things perked up again it was a nice chance to upgrade facilities. Mexico is a place where people have gone to do that?

Mike Tracy:

That is one key element behind it. You have people that are looking to grow not only their North Amercan market share, but also future growth in their automotive and auto parts exports to Brazil and to the European Union. These people are finding Mexico to be a very desirable place to set up those assembly plants. You have Honda, with a plant that is opening in Celaya in 2014. You have Mazda that is opening in Salamanca in 2014. Audi is just kicking off the construction of a new plant in San Jose Chiapa, which is near Puebla. Then, Nissan is doing an essentially doubling of their capacity in Aguascalientes. Plus you’ve got BMW and Hyundai in additional discussions, and Toyota making many noises about wanting to go to Mexico. This is partially driven by the fact that they are, for at least a few years, buy some of the output of the Mazda plant. That’s likely to require them to need to site a new automotive manufacturing plant in Mexico within the next year or two.

Tecma Group of Companies:

So, it’s safe to say that, in terms of the auto industry, Mexico is booming?

Mike Tracy:

Yes, even Fiat-Chrysler, who is notoriously poor, has got the new van plant that they just opened up in the Saltillo area in the rest of their Mexico manufacturing complex. It’s a very safe thing to understand that the OEMs have identified Mexico as the key location in North America to expand.

Tecma Group of Companies:

That’s one side of the coin. The other side of the coin is the supply base. What do you see happening with the suppliers that serve the companies that you just mentioned in terms of their reaction to the movement that is taking place?

Mike Tracy:

There are two things that go with that: the first rule in automotive supply is that you have plants near where your customers have plants. There is a natural need to grow supplier plants, particularly those that would supply just-in-time, parts that are very large in size that don’t ship well such as stamped panels or certain types of moldings and interior parts. Because of Mexico’s free trade agreements, including the one that Mexico has with Japan, there is an opportunity to actually export automobile parts to other locations in competition with China.

Tecma Group of Companies:

So you are saying that Mexico is a great export platform from which to ship many places duty free, because of the network of free trade agreements that Mexico has built since signing the NAFTA in 1994?

Mike Tracy:

In some cases not all things are fully duty free, but, where there are some duties, they have been significantly reduced from what countries that do not have free trade agreements have to pay when they automotive parts, or complete cars, to other countries.

Tecma Group of Companies:

So, there are cost savings, as well as those related to duties, once the product is shipped? Does that make automotive manufacturers in Mexico more competitive globally?

Mike Tracy:

Absolutely. Mexico is highly competitive in the automotive industry.

Tecma Group of Companies:

There is some geography involved here. Where in Mexico is most of what we are talking about, and what has happened over the last several years, as well as what will happen, occurring?

Mike Tracy:

In the past there was significant activity on the suppliers’ side on the U.S. side of the border and much construction of new automotive plants in the Saltillo – Ramos Arizpe area, but this is now trending down further into the interior in a broad arc ranging from a couple of hundred mile radius outside of Mexico City from the Northwest down to the Southeast. Interestingly enough, in that same arc is where there is growth in the Mexican aerospace industry.

Tecma Group of Companies:

Given what it is in terms of your project management activities, I would guess that you are working with some companies in both the automotive and aerospace industries in Mexico in that geography?

Mike Tracy:

Yes. We’ve been down there It is a very interesting area, and a very good location to do aerospace and automotive manufacturing in Mexico.

Tecma Group of Companies:

What are key issues that you see that companies that go to Mexico as suppliers to the automotive industry face?

Mike Tracy:

There are traditionally, and, in this case Mexico is not different, issue that have to do with infrastructure. That is, the availability and reliability of basic utilities. In particular, these would include electricity, natural gas and, then, the appropriate amounts of water that would be required in the processes. There also needs to be transportation infrastructure that allows for the smooth and efficient movement from suppliers to the customer plants, and for customers to ship their finished products, as well.

Tecma Group of Companies:

So the infrastructure has to catch up with the activity?

Mike Tracy:

Yeah. You are basically putting in large scale manufacturing in Mexico where it has not been before. You also have the need to obtain qualified staff. The industries that we are talking about are not just unskilled labor only. Skilled technicians are needed for the automation, and controls and systems that are required to produce these modern, technically advanced products. That is another significant issue in terms of overcoming the infrastructure questions. The last area that one has to consider is not just the transportation infrastructure, but then all of the supporting company, or supplier, infrastructure that would have to support an endeavor. This would include equipment suppliers, maintenance from those suppliers, actually transportation companies (trucking) and other companies that have the capacity to support you. You don’t want to be in a position to have to do everything yourself. You want to be able to rely on your own supply base.

Tecma Group of Companies:

Obviously, companies go to a country like Mexico to actually manufacture. If they can ally themselves with parties and partners that know the lay of the land that can help them through some of the issues that are not manufacturing related, then that allows them to concentrate on what it is that they are there to do: make their product.

Mike Tracy:

That story is true the world over. In addition of just the types of companies that would be considered automotive suppliers in Mexico, you have got to go down through the third tier, and the tertiary companies, that support those and you are looking to attract and bring those companies in large volumes to support automotive manufacturing in Mexico activities.

Tecma Group of Companies:

Getting the automotive supply chain in Mexico straight is a factor that can either make or break a company. What else would you recommend that automotive suppliers that are moving with this automotive OEM migration to Mexico take into account in terms of proceeding?

Mike Tracy:

There has been the one issue that has reared its ugly head in recent years or Mexico. That’s the security issue, both within your site and for your people, and then for the materials that you transport to Mexico. This leads to issues of getting back and forth across the border to the U.S., in particular. So companies that are going to Mexico have to be cognizant of those issues and make the appropriate plans, and arrangements, such that they have reliable, safe operations for all of their staff. This includes both the locals and those that come in from the customer side, as well as their other support locations throughout the world.

Tecma Group of Companies:

In Mexico, experience most people and myself have had, is that the violence occurs mainly among the people that are involved in the narcotics trade. It pretty much seems to have limited itself to those that are participants in that narcotics trade. I don’t know what your experience has been, but, as far as it affecting Mexican industry is concerned, I can’t think of a case off of the top of my head where that has been an issue. Then again, that is my experience.

Mike Tracy:

I believe that it is almost a regionally differentiated problem. My personal experience in those areas has always been quite good. You have all these very large firms that are making very large investments in those areas. They recognize that with what we’ll call “normal” planning, things should be fine. You just have to plan for everything, and make certain that you go for it. Just don’t ever enter a situation, whether its anywhere and concerning setting up a new shop in a new location, in which you haven’t done your due diligence in all areas. Where are the good suppliers? What is the right location in a given areas that is better? You always have to do things this way. This is true whether you are in the U.S., or in Canada or anywhere else. You always have to take a look at those issues.

Tecma Group of Companies:

That is some very good advice. Its obvious that you have significant experience related to the movement of the automotive industry in Mexico. If someone would like to contact you to get more information, how would they go about doing that?

Mike Tracy:

Usually the best way to get a hold of me is through either a direct phone call. That can be done by calling 517-548-1672, or by email to mtracy@agilegroup.com. I always look forward to talking to folks. There are a a lot of things happening in the automotive industry in Mexico, and a lot of things to watch over the next couple of years in terms of currency, additional trade negotiations and the continuing investment patterns of not only the large automotive OEMs in Mexico, but also automotive suppliers are moving into Mexico aggressively as well.

Tecma Group of Companies:

Thanks for joining me today, Mike. I am sure that we will be speaking in the future, and that you will have more information that will be of interest to the people that listen to these manufacturing in Mexico podcasts.

Mike Tracy:

It is always a pleasure to talk to you. This is a very interesting area. It is a high growth area, and growth brings opportunities for all parties involved.

 

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