The Automotive Sector to Grow by 24% in 2021

The Automotive Sector to Grow by 24% in 2021

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The Automotive Sector to Grow by 24% in 2021

The automotive sector in Mexico expects 2021 to be marked by growth between 12% and 24% from the production and export of light vehicles to the manufacture of auto parts and components, respectively, arising from the positive projections and the favorable environment in the United States and Canada.

Meanwhile, in the domestic market, sales are also expected to recover as long as financing improves and inflation remains low. 

According to Fausto Cuevas, Director of the Mexican Association of the Automotive Industry (AMIA), production and exports of light vehicles are expected to increase 12% this year, reaching 3,404,999 units assembled and 3,003,622 units exported.

Additionally, Óscar Albin, President of the National Auto Parts Industry Association (INA), is confident that the 24% growth for this year in auto parts factoring will be exceeded to reach 96.971 billion dollars, which would not surpass the 97.834 billion dollars achieved in 2019.

U.S. analysts have anticipated that the U.S. car market will exceed sales of 16 million units, after 14,463,000 units were sold last year. Consequently, Fausto Cuevas stated that such growth will drive the Mexican automotive sector to produce and export more units. 

Guillermo Rosales, Director of the Mexican Association of Automotive Dealers (AMDA), said that the Mexican domestic market is expected to increase 11.2% in light vehicles sales this year, so dealers would be selling 1,055,919 new units, considering that a 3.6% growth of the Mexican economy is anticipated. 

According to the World Bank’s “Global Economic Prospects 2021” report, there will be a 4% global economic expansion this year, driven mainly by the initial distribution of COVID-19 vaccines, although the recovery is likely to be moderate. 

This effect has transferred to the automotive sector to resume its position as the foundation of the Mexican economy in terms of contribution to the Gross Domestic Product (GDP), foreign exchange earnings and job creation. 

Mexico Still Attracts Investment in the Automotive Industry

Despite the increase in production costs due to the COVID-19 pandemic, the automotive industry anticipates new investments for the expansion of production lines, platform changes to new models, but not for new production plants.

According to Guido Vildozo, Senior Manager of Americas Light Vehicles Sales Forecasting at IHS Markit, Mexico has attracted automotive investment over the past five years because of the quality of the labor force and logistics costs. 

In a pre-COVID perspective, the industry anticipated that the cost of vehicle production in North America could increase between 4% and 7% due to compliance with the new rules of origin set forth in the United States-Mexico-Canada Agreement (USMCA), given that consumer prices would increase between 1% and 2% and the balance would have to be paid either by the automotive company or the supplier. However, the health crisis has changed the scenario and production costs, so it is more likely for the automotive sector to reinvest in the expansion of production lines or changes in platforms than to attract new investments for the construction of new production plants. 

According to the consulting firm Deloitte, halts in China and the other countries due to the lockdown, which highlighted the dependence of the automotive sector on Asian supplies, made it imperative to have greater diversification and capacity to respond to health emergencies. 

Additionally, Deloitte pointed out that the level of Foreign Direct Investment (FDI) in the automotive industry in the last two years has slightly stopped, however, this was preceded by a period of high uptake between 2012 and 2017. According to data from the Ministry of the Economy, FDI in the automotive industry reached 1.813 billion dollars in the second quarter of last year, which was an advance of 673 million dollars more than in 2019. 

Mexican suppliers’ have a share in the U.S. Market

Over the last decade, Mexico increased its presence and share of the U.S. auto parts market by ten percentage points. However, with the USMCA, it is expected to climb that position and absorb a greater percentage by replacing U.S. imports from China, Germany, Japan and South Korea. 

Mexico is currently the leading supplier of automotive parts and components to the United States, accounting for 38% of U.S. imports, while China accounts for 9%, Japan 8.3%, Germany 6.6% and South Korea 5.3%.

As long as Japan, Germany and South Korea manufacture vehicles in the United States, they will continue to ship auto parts; however, these three countries’ share will decrease proportionally as the required percentages of regional content value of the USMCA progress. 

Undoubtedly, the USMCA’s importance to the United States is clear, since 47% of its imports come from Mexico and Canada, so the objective is to increase regional content. 

Similarly, the automotive industry in Mexico is already working with its production plant suppliers to find more supplies in the country and compensate for the shortage of components produced in Asia.

The future of the auto parts industry is promising, as the U.S. auto sales forecast looks favorable with a recovery that exceeds the 16 million new vehicles that U.S. consumers are willing to purchase. 

Therefore, for this year, the volume of auto parts manufacturing is expected to equal what was produced in 2019, equivalent to 95.387 billion dollars.

Since its founding, Oradel Industrial Center has offered industrial space to international companies interested in establishing their manufacturing operations in Mexico and only 10 minutes from the international bridges to the United States.

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