Mexico Automotive Review 2019/20 by Mexico Business Publishing

2019/20

â&#x20AC;&#x153;This is a moment when (Mexico) could be really benefiting from the general realignment between the US and China and that certainly adds, for me, at least, a sense of urgency to try and grease the skids hereâ&#x20AC;? Christopher Landau, US Ambassador to Mexico

2019/20

As President Andrés Manuel López Obrador’s administration launched its first year in power, the automotive industry watched for clues to the government’s strategy for promoting FDI in the sector. By mid-2019, the governors of Aguascalientes, Guanajuato, Jalisco, Queretaro and San Luis Potosi determined to take matters into their own hands, forming the Center-Bajio-Western Alliance committed to fostering regional economic and social development. At the same time, the National Cluster Network was formally created, representing 10 clusters and more than 500 companies. The new North American trade agreement, USMCA, was also ratified, giving the industry even more to think about.

This book is divided between state chapters and strategic segments of the automotive value chain. The former presents a detailed outlook for Mexico’s top automotive regions, with insights from government officials as well as local and global suppliers. The latter details the strengths of companies participating in insurance, sales, financing, logistics, trade, innovation and Industry 4.0. As with any economic downturn or crisis, there are opportunities. Those, too, are presented in these pages. As this book was set for publication, however, the effects of the COVID-19 pandemic remained unclear. IMF labeled the fallout the worst economic downturn since the Great Depression. Most OEMs had suspended their entire production due to government measures to contain the virus’ spread. One thing is certain: COVID-19 will have a lasting impact.

Mexico Automotive Review is the ultimate business platform for the automotive sector in Mexico. The 20192020 edition records the highlights from the end of a decade and the beginning of another in a sector that represents 3.8 percent of Mexico’s GDP and 20.5 percent of its manufacturing GDP, while providing 980,000 direct jobs.

ALL RIGHTS RESERVED ÂŠ Mexico Business Publications S.A. de C.V., 2019/20. This annual publication contains material protected under International, United States and Mexican Laws and international Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system without express written permission from Mexico Business Publication S.A. de C.V. Mexico Automotive Review is a registered trademark.

The publisher has made all reasonable efforts to provide accurate information, and the information contained in this publication is derived from sources believed to be true and accurate. However, the information in this publication should not be considered to be complete or definitive, and may contain inaccuracies or typographical errors. The publisher accepts no responsibility regarding the accuracy of information and use of such information is at your own risk. The publisher will not be liable to any party for any direct, indirect, special or other consequential damages arising out of any use of information in this publication. The publisher provides no representations or warranties, express or implied, including any implied warranties of fitness for a particular purpose, merchantability or otherwise in relation to any information provided by the publisher in this publication.

I S B N : 978 -1 -73 2 8 2 5 6 -7-3

TABLE OF CONTENTS

STATE OF THE INDUSTRY

MEXICO CITY & STATE OF MEXICO

ORIGINAL EQUIPMENT MANUFACTURERS

NORTHERN STATES

GUANAJUATO

QUERETARO

THE 4.0 REVOLUTION

NATIONAL CHAMPIONS

SAN LUIS POTOSI

INNOVATION, DIGITALIZATION & TECHNOLOGY DISRUPTION

WESTERN STATES

TRADE, INVESTMENT & LOGISTICS

PUEBLA & TLAXCALA

SALES, FINANCING & INSURANCE

Nissan Versa 2020, Mexico City

STATE OF THE INDUSTRY

It is the end of a decade for the Mexican automotive industry. Production records were beaten, sales peaks were reached and a product cycle came to an end. All cycles have their ups and downs but the industry is now in the valley of the cycle and annual results are weaker. However, looking at the bigger picture, the industry has moved from less than 3 percent of Mexico's GDP in 2010 to contributing 3.8 percent, totaling 980,000 direct jobs. 2019 was also the first year of President Lรณpez Obrador's administration and the year in which USMCA was finally ratified, although its enforcement is set for 2020.

The State of the Industry presents an assessment from the federal government, ambassadors and industry leaders regarding the lessons of the past year, as well as the priorities players should focus on for the years to come. One thing is certain: after 2020, the automotive industry will see major disruption, not only in Mexico but across the world.

CHAPTER 1: STATE OF THE INDUSTRY 6

YEAR IN REVIEW: Auto Landscape Is Better Than It Seems

INFOGRAPHIC: Results and Industry Expectations

VIEW FROM THE TOP: Graciela Márquez, Minister of Economy

VIEW FROM THE TOP: Gilberto García, Ministry of Economy

VIEW FROM THE TOP: Yasushi Takase, Ambassador of Japan in Mexico

VIEW FROM THE TOP: Wonil Noh, Ambassador of the Republic of Korea in Mexico

VIEW FROM THE TOP: Fausto Cuevas, AMIA

VIEW FROM THE TOP: Miguel Elizalde, ANPACT

VIEW FROM THE TOP: Óscar Albin, INA

VIEW FROM THE TOP: Guillermo Prieto, AMDA

VIEW FROM THE TOP: Manuel Montoya, Mexican Automotive Cluster Network

VIEW FROM THE TOP: Antonio López, ARIDRA

ANALYSIS: USMCA: New Rules For a New Era

ANALYSIS: Post-Pandemic World Shaped by USMCA’s Uniform Regulations

ROUNDTABLE: What Opportunities Will Emerge From COVID-19?

VIEW FROM THE TOP: Eduardo Solís, Private International Consultant

VIEW FROM THE TOP: Óscar Balcázar, GiPA

VIEW FROM THE TOP: Gerardo San Román, JATO Dynamics

VIEW FROM THE TOP: Manuel Nieblas, Deloitte México

Alberto Torrijos, Deloitte México

VIEW FROM THE TOP: Juan Francisco Torres Landa, Hogan Lovells

INSIGHT: Jorge Ampudia, Accenture

| ANALYSIS

AUTO LANDSCAPE IS BETTER THAN IT SEEMS The last decade ended with a new federal administration in office, a fresh trade pact and strong private and public alliances. Despite declining domestic sales in the latter half, it was an outstanding decade for the Mexican automotive sector. Opportunities will emerge but the industry will first need to face the COVID-19 fallout

A new federal administration, the imminent implementation

As one of the best decades for the national automotive

of a new trade deal, a decline in worldwide production and a

industry ended, so did growth in sales, exports and

devastating pandemic – there is no shortage of critical issues

production. It is the end of an economic cycle, most OEM

facing the Mexican automotive industry. To understand

executives say, accelerated by political, economic and

where the industry stands today, and its opportunities in

a global health scare that gripped the world as the new

the decade to come, it is essential to understand the year

decade began: COVID-19.

and the decade that was.

PRESIDENT AMLO In 2010, after one of the greatest financial crises in history,

President Andrés Manuel López Obrador took office on

Mexico produced 2.26 million light-vehicle units, exported

Dec. 1, 2018. Throughout his campaign, he promised to

1.86 million and sold less than a million (820,413). There

reduce corruption, usher in an era of security and protect

were just seven OEMs, with one, Renault, about to suspend

the most vulnerable. As for the private sector, most of

production in the country. Then it happened. Over a 10-

his projects remained unclear. He appointed Graciela

year period, KIA, Toyota, Audi, Mazda, BMW, JAC and Fiat

Márquez as Minister of Economy. She defined innovation,

– thanks to the creation of FCA group in 2014 – arrived with

diversification and inclusion as the three pillars of President

a long line of suppliers behind them. Call it the decade of

López Obrador’s economic policies. “These pillars are not

expansion. Production grew 66 percent and took Mexico

mutually exclusive; they complement each other. We are

from ninth to sixth place in global automotive production.

in the middle of the fourth industrial revolution, which is

A decade ago, some argued it would be really difficult for

changing the way we understand production of goods

the country to overtake South Korea, Brazil and Spain, but

and services. The challenge is to adopt these technologies

Mexico did it.

inclusively to benefit the entire population,” she says.

10-YEAR GROWTH (2010-2019) 2010

2019

Variation

2,260,774 units

3,750,841 units

65.9%

1,859,512 units

3,333,586 units

79.3%

Sales

820,413 units

1,317,727 units

60.6%

Exports Value

US$4.1 billion (Jan)

US$11.8 billion (Dec)

188.4%

Production Exports

Innovation, diversification and inclusion are the three pillars of AMLO’s economic policy The reaction from automotive leaders focused on setting clear goals and certainty to ensure foreign investors

In 10 years, the automotive industry also increased

continued to find the country an attractive destination.

its contribution to national GDP to 3.8 percent from

“There are still many opportunities to attract more OEMs

approximately 2.8 percent. Exports to the US alone doubled

and their supplier bases, especially Tier 2 companies.

and in 2019, Mexico overtook Canada as second-largest

However, to take advantage of these opportunities it is

supplier of vehicles to the US, just behind Japan. Taking

necessary that public officers and dependencies make an

into account all auto parts manufacturers in the country,

effort to look for new investors,” says former Executive

the value of automotive exports went from US$4.1 billion in

President of AMIA, Eduardo Solís. With the disappearance

January 2010, to US$11.8 billion in December 2019, peaking

of ProMéxico, the country’s foreign trade promotion

at US$13.8 billion in August 2019. After six consecutive years

agency, industries across different sectors became worried

of sustained growth, sales in Mexico reached a peak of 1.6

about how the government would carry on the efforts to

million units sold in 2016. The curve started to decline,

attract FDI into the country. These concerns were heard,

however, and in 2019, 1.3 million units were sold, similar to

says Director General of Direct Foreign Investment at the

2015 levels but still 60 percent more than the number of

Ministry of Economy Gilberto García, adding that he is

units sold in 2010.

aware of the process the industry is experiencing in the

country. “Economic promotion is important to the federal

period for automakers to reach a regional value content

government and the Ministry of Economy. This will not

(RVC) of 75 percent for light vehicles and a seven-year

change now that ProMéxico no longer exists. The new

period to reach 70 percent RVC for heavy vehicles.

economic promotion strategy will now be under the

Second, companies have a three-year period to reach a

jurisdiction of the Global Economic Intelligence Unit in

40 percent Labor Value Content (LVC), which includes

coordination with state and municipal governments and

25 percent high-wage material and manufacturing, 10

the Ministry of Foreign Relations (SRE),” he says.

percent high-wage technology and 5 percent high-wage assembly. Third, 70 percent of steel and aluminum must

Foreign governments have also expressed their interest

be purchased from North America.

in fostering the trade relationship Mexico has forged in the automotive sector over the years. “There are high

USMCA could be enforced on July 1, 2020

expectations from the Mexican government for Japan to increase its trade and investment in the country and we already organized an economic mission with the Japanese Chamber of Commerce and Industry in February 2019 that brought 60 companies from various sectors.” says Yasushi Takase, Japan’s Ambassador to Mexico. South

Stricter rules of origin, plus the ongoing China-US trade

Korea, Mexico’s sixth-largest trade partner, also intends

tensions, have triggered opportunities to integrate new

to improve its trade relationship with Mexico by working

automotive players into the country. Chinese companies

together with the new administration. “South Korea and

are starting to look into Mexico’s automotive hubs to ramp

Mexico are revising their Bilateral Investment Treaty, which

up operations, as has been the case in Tlaxcala, Nuevo

is outdated since it was established more than 10 years

Leon and Jalisco where some Chinese suppliers have

ago. To improve business conditions in Mexico for South

already established operations.

Korean companies, the Korean government is advocating for the establishment of an FTA with Mexico through the

INDUSTRY STANDS TOGETHER

Pacific Alliance,” says Minister Counselor of the Embassy

Over the last year, strong alliances were established

of the Republic of Korea in Mexico Wonil Noh.

between governments and the private sector. Combining the expertise of each state with a strong automotive

NEW TRADE ENVIRONMENT

footprint, the Mexican Automotive Cluster Network was

US President Donald Trump initiated in 2017 a long process

born in July 2019. “Companies come together because

to transform NAFTA into what is now known as USMCA.

there are common issues that need a solution, so the

As an immediate consequence, uncertainty arrived after

cluster tries to manage those ideas objectively. We want

a long number of negotiating rounds led to numerous

every cluster to be shaped in the same way, meaning that

dead ends. Finally, the agreement was signed on Nov. 31,

all companies, big or small, should receive support from the

2018. One of the first tasks for Márquez was to carry on

government and from universities,” says Manuel Montoya,

the paperwork for the agreement to be ratified and to

President of the Network formed by automotive clusters of

bring back much needed certainty. However, there were

Chihuahua, Coahuila, State of Mexico, Guanajuato, Jalisco,

still issues on the table and even after the agreement

La Laguna region, Nuevo Leon, Queretaro, San Luis Potosi,

was signed, rules of origin for automotive goods were

as well as Puebla and Tlaxcala. Combined, they represent

strengthened.

more than 500 automotive companies, including OEMs and Tier companies.

A Protocol of Amendments was signed in December 2019. After that, the legislative branches of each party could

Political and economic partnerships among states with

continue the ratification process. USMCA’s enforcement

a strong automotive tradition were also forged in 2019.

will take place on the first day of the third month after

Aguascalientes, Guanajuato, Jalisco, Queretaro and San

the last of the three countries notifies the others that

Luis Potosi launched the Center-Bajio-West Alliance to

all the internal ratification procedures were finalized.

ensure sustainable economic and social development

Enforcement could take effect on July 1, 2020. However,

in the region. “We are a region and investments do not

due to the health emergency brought by COVID-19, the

recognize state limits. Investors want coordinated efforts.

enforcement of new automotive rules of origin could be

By being complementary, we can create valuable strengths

delayed to Jan. 1, 2021.

for the country in the manufacturing, automotive and aerospace sectors. We all have the responsibility to deliver

USMCA’s new rules of origin for automotive goods are

to our citizens,” says Governor of San Luis Potosi Juan

threefold. First, the treaty establishes a three-year

Manuel Carreras.

| YEAR IN REVIEW

These five states contribute 16.8 percent of Mexico’s

global supply chains. Over the last years, it has been clear

GDP, according to INEGI’s latest annual figures. They

that automating processes is expensive, but it is worth it.

are home to 13 light vehicle OEM and five heavy OEM

“At the industrial level, we have also seen that there are

manufacturing facilities. “We contribute 25 percent of

very concrete efforts for the implementation of Industry

the country’ agro-industrial production and have over 20

4.0. We started promoting this concept and these

million inhabitants with an average age of 25 years. Our

solutions seven years ago and today we are observing

economy is similar to Peru’s,” says Mauricio Usabiaga,

that the adoption curve is growing. We are seeing the

Minister of Economic Sustainable Development of the

results of promoting the concept and explaining what

State of Guanajuato. Unlike other political alliances that

its benefits are,” says Alejandro Preinfalk, Senior Vice

often remain on paper only, real advancements have been made. “The objective of sessions between ministries of economic development is to align social, economic and political goals to drive economic development. The sessions so far have resulted in eight objectives focused on areas like infrastructure, education, security and quality of life,” says Marco Antonio del Prete, Queretaro’s Minister of Sustainable Development.

Mexican Automotive Cluster Network

Center-Bajio-West Alliance

Formed by 10 automotive clusters

16.8 percent of Mexico’s GDP

Represents more than 500 companies

18 OEMs in the region

Common efforts towards common solutions

Common efforts to ensure sustainable growth

“

President of Digital Industries Division at Siemens.

At the industrial level … there are very concrete efforts for the implementation of Industry 4.0” Alejandro Preinfalk, President and CEO of Siemens Mexico, Central America and the Caribbean

EMERGING SEGMENTS Production, sales and exports might be in decline, but other elements of the automotive value chain are actually

TRENDS BECOME THE NEW NORMAL

growing. Armoring, digital aftermarket, telematics and

Sustainability and Industry 4.0 were the industry’s hot

logistics are the emerging segments that will likely

trends at the beginning of the decade. Today, they are

experience healthy numbers in the years to come. The

a must. “There are worldwide discussions about climate

armoring industry used to target C-level executives,

change, CO2 emissions and sustainability. As a German

diplomats and government officials. As the federal

company in Mexico, we have the possibility to generate

government’s austerity policies hit this niche segment,

a true impact and make these relevant topics in the

poor security conditions helped to cover the losses.

industry,” says Andreas Lehe, appointed in 2019 as

According to Esteban Hernández, President of AMBA,

President of Audi Mexico. Audi’s manufacturing plant in

armoring companies in Mexico have combined the

San Jose Chiapa, Puebla, is waste-water-free, with 100

country’s expertise in vehicle manufacturing with their

percent of its electricity coming from renewable sources.

own armoring experience in Colombia and Brazil. “The best of both worlds,” he says.

Sustainable operations are not only important for automakers or auto parts manufacturers. Industrial

Implementing digital sales strategies for the aftermarket

developers are taking them very seriously. “Today, the

segment has proven to be a unique opportunity for

mindset of most developers has changed and it is more

large spare-part distributors. According to ARIDRA’s

common to bet on sustainability, not only through

President Antonio López, the aftermarket is worth US$28

marketing but in real terms. Though the investment is

billion and by embracing digital sales, both workshops

high, it is worth the effort. It can be a decisive element

and distributors have improved the user experience

to close an investment,” says Francisco Rosete, Executive

while growing their operations. Logistics plays a key

Director Central Mexico of Amistad Industrial Developers,

role in aftermarket operations and in any other stage

one of the largest in the country.

of the automotive supply chain. Rather than just-intime operations, logistic companies aiming to increase

The advancement of digitalization and Industry 4.0

their customer portfolio should embrace technology.

among local and global players is driven by efficiency.

“Goods, information and monetary resources are the

Local governments have set a priority to enable local

three elements flowing across the supply chain and we

SMEs to embrace digitalization so they can participate in

need tools that ensure visibility and connectivity to keep

track of them. This includes everything from ERP and

that has integrated the largest EV charger network in

CRM software to Warehouse and Transport Management

the country hand-in-hand with BMW, Nissan, Porsche

Systems (WMS and TMS). We also need strategic tools

and Jaguar-Land Rover. For EVs, it is a matter of when

that help companies design their supply chains and

rather than how.

transform data into useful information,” says ConaLog’s President Guillermo Godoy.

CASE VEHICLES Connected, Autonomous, Shared and Electric (CASE) will be the characteristics of coming vehicle models. An entire supply chain revolution has already begun. It is a time for innovation and engineering development, and whether

Mexico has more than 7,000 public and private charging points for EVs

companies want it or not, CASE vehicles are arriving. The C and A are already present in most recent models

COVID-19

through ADAS systems and safety features, which has

As an outstanding decade fades, a new one starts with a

required close collaboration between automakers and

major challenge: a pandemic. In December 2019, the COVID-19

tech companies. “The C-V2X protocol handles the multiple

disease was detected in Wuhan, China as a health hazard

connections that vehicles will have with other devices,

brought by a new strand of coronavirus dubbed SARS-

such as traffic lights, other vehicles and cellphones.

CoV-2. Contagion grew exponentially, forcing the Chinese

Their adoption will be like the process that safety belts

government to shut down all non-essential economic activity.

went through, expensive at first, but mandatory later.

During 1Q20, most manufacturing activities were suspended

Regulation will play a key role in adopting these new

and automotive supply chains began to be disrupted. OEMs

safety systems, which must include not only vehicles

in mainland China started to suspend operations and as the

but all devices involved,” says Ricardo Anaya, Product

virus spread through Europe, so did suspensions. Eventually,

Manager Mexico of Qualcomm, the technology company

the virus reached Mexico.

behind most cellphones’ processors. For shared vehicles, Audi and Nissan have a clear vision of how an on-demand

US OEMs were the first to suspend operations in late March

vehicle subscription service could work. In fact, Nissan

at all North American plants. Shortly afterward, most OEMs

Switch is the company’s beta program in the US to test

followed and over a one-week period, 10 of the 12 light-vehicle

how consumers accept this new scheme.

OEMs in Mexico suspended operations for at least two weeks plus the regular Easter break. The situation escalated in

E is for EVs, and there is an ongoing debate among

Mexico as it did in other countries. Social distancing measures

automotive executives, from suppliers to OEMs, over

were implemented, companies began implementing home

whether the electrification revolution will wipe out

office for their employees and eventually, all non-essential

completely the combustion engine. Most agree that if

businesses were closed. By mid-April, all OEMs in the country

this is to happen, it will take a long time. In the meantime,

had extended the suspension of operations until May 4. It was

OEMs are already preparing their electric and hybrid

not until May 12 that the government deemed the automotive

vehicle offer. In Mexico, green vehicle sales, including

industry as essential, allowing companies to restart operations

hybrids and EVs, have accounted for a total of 56,221

as their health and safety protocols were approved.

units sold since 2016, with an annual average growth of 35.5 percent. I particular, government efforts to tackle

The health emergency disrupted exports, sales and production

pollution have boosted sales of green vehicles.

across all industries and it set the global economy into what the International Monetary Fund (IMF) called The Great

Skeptics believe Mexico does not have the sufficient

Lockdown: the worst economic downturn since the Great

infrastructure for these vehicles to circulate, but, just

Depression. In march, domestic sales experienced the biggest

in the Santa Fe area of Mexico City, there are more EV

annual drop since 2009 and AMDA projected an annual

chargers than gas stations. “The lack of infrastructure is

reduction of above 90 percent in April and May.

a myth. It is true that it needs to grow, but Mexico has 2,500 public charging points and almost 100 percent

AMIA, INA and ANPACT are yet to release estimates but

of them are free. Consumers have no idea of that. We

considering IMF’s forecast of an annual 6.6 percent GDP

have installed more than 7,000 chargers, both public and

contraction for the Mexican economy in 2020, the scenario

private. In early 2020, we are installing between 200-250

will be worse than in 2009. As of April 2020, the outlook

chargers per month, nationwide,” says Rodrigo Centineo,

remained uncertain as the pandemic progressed. Most

Founding Partner of E•DRIVE, the Mexican company

observers agree, however, that the impact will be lasting.

| INFOGRAPHIC

RESULTS AND INDUSTRY EXPECTATIONS The automotive industry’s performance over 2019

as the sixth-largest vehicle producer in the world. The

provided confirmation of the end of a product cycle after

industry also contributed 3.8 percent of the country's GDP,

record figures achieved in 2016. The 3.98 million light and

0.3 percent more than in 2018. Moving into a new cycle,

heavy-vehicles produced were not that far off the 4 million

leaders from the main industry associations define the

many expected. Overall, the country consolidated its place

priorities for further development and growth.

Production Exports

2015

4.0

MEXICO'S ANNUAL LIGHT VEHICLE PRODUCTION AND EXPORTS

3.5

3,399,076

20 16

3.0 2,758,896

3,465,615

2.5

2,768,268

3,911,093 8

3,449,201

156,893 3,750,841

150,889

2019

2017

106,161

The automotive industry in Mexico reached a production value of US$143.3 billion in 2019 representing 3.8% of Mexico's GDP

152,903 114,251

200

18 20

147,727

150 198,100

MEXICO'S ANNUAL HEAVY VEHICLE PRODUCTION AND EXPORTS

168,265

2019

Production Exports

20 1

190,978

176,794

3,253,859

3,333,586

2015

3,933,154

2017

With an annual production of 3.98 million light and heavy vehicles in 2019 (4.3% of global production), Mexico is now the sixthlargest vehicle producer, according to OICA

100 Source: AMIA and Ministry of Economy

GRAPH TITLE

DISTRIBUTION OF AUTOMOTIVE FDI (1999 - 3Q19)

Total FDI 1999-3Q19

US$72.73 billion

60.2% Auto parts 37.3% Light vehicles 2.5% Heavy vehicles

GRAPH TITLE

MEXICO'S AUTOMOTIVE PRODUCTION VALUE IN 2019

Heavy vehicle production

Bodyworks a

Light vehicle production

Heavy Vehic

US$143.3

Auto Parts Production billion in total

44.20% Light vehicles 39.92% Auto parts 14.96% Heavy vehicles .92% Bodyworks and trailers

PRIORITIES OF THE MEXICAN AUTOMOTIVE INDUSTRY (as presented by main trade associations) STRENGTHENING THE DOMESTIC VEHICLE MARKET AND IMPROVING THE ENVIRONMENT • Promoting new-vehicle sales through financing and fiscal incentives • Maintaining control measures on used-vehicle imports • Modernizing the local vehicle park through scrappage programs • Incentivizing the adoption of hybrid and electric

technologies and self-driving vehicles and fostering the required infrastructure • Fostering professionalization of SMEs to boost vehicle renewals • Adjustments to regulations applicable to circulating vehicles and auto parts

vehicles, as well as advanced motorization IMPROVEMENT OF THE LOCAL BUSINESS ENVIRONMENT AND COUNTRY COST • Improving security levels for vehicle and auto parts transportation on roads and railways • Ensuring the existence of sufficient

• Strengthening productive chains in the national automotive industry • Boosting communication with civil society

qualified human resources at both the

including trade associations, media and

technician and professional levels

academic institutions and research centers

• Promoting competitive incentives to continue attracting and developing national and foreign investments • Simplifying the legal framework for the sector to prevent overregulation and differentiated criteria betweeen various public dependencies and government levels • Promoting actions against contraband and economic informality • Ensuring permanent communication with

• Eliminating obstacles in the logistics chains for vehicles and auto parts in Mexico • Substituting REPUVE with an efficient digital platform in which the government is responsible for vehicle sales statistics through vehicle registration • Boosting transparency and the fight against corruption and impunity • Ensuring access to water and energy resources in an appropriate quantity and quality and at internationally-competitive prices

federal and state governments INTERNATIONAL NEGOTIATIONS AND ACCESS TO INTERNATIONAL MARKETS • Mantaining, defending, revising and improving Mexico's current trade agreements

• Negotiating new trade agreements that allow the country to diversify its exports markets

RESEARCH, TECHNOLOGY DEVELOPMENT AND INNOVATION • Creating competitive tax incentives for R&D operations for the automotive industry with multi-annual support • Creating a sectorial fund for the automotive industry that promotes investments in R&D operations

• Strengthening the linkage and interaction of the industry with academic institutions and research centers with a focus on innovation and technology development programs for the automotive industry

Auto Parts

Light Vehicle

| VIEW FROM THE TOP

NEW ADMINISTRATION FACES SHIFT IN TRADE STANDARDS GRACIELA MÁRQUEZ 12

Minister of Economy

Q: What will be the Ministry of Economy’s guiding

and Programa para la Productividad y Competitividad

principles during the current federal administration?

Industrial (PPCI). We are confident that innovation will

A: The Ministry of Economy is responsible for generating

help us close inequality gaps created in the past decades.

wealth and increasing the well-being of all Mexicans, both of which are also the main objectives of President López

The second pillar – diversification – is essential to promote

Obrador’s administration.

exports of goods and services of all productive fields in the country, integrating those sectors and regions that have

Mexico closed the second decade of the 21 century with

been left out of global market participation. Investment

a trajectory of low growth rates and enormous regional,

in logistics, easier paperwork and the provision of market

sectorial and social disparities. Over the past 12 years,

information will be the springboards that help national

the country has averaged annual growth of 2.1 percent,

producers participate actively in international trade.

of which 69 percent originates with foreign companies, while national businesses contributed 31 percent. Mexico

The third pillar that we will boost is inclusion, which

still must take advantage of its close ties to the global

means promoting collaboration of marginalized regions

economy and at the same time strengthen its productive

and population segments in high-productivity activities.

force. In other words, the virtuous combination between

The combination of these strategic pillars will allow

the global economy and the domestic market will help

us to contribute to the country’s growth and to the

the country find the path to sustained, sustainable and

consolidation of our strengths according to our industrial

inclusive growth for the coming years.

calling and cultural identity.

Our objective is not only to reactivate growth at high

We will articulate a real industrial policy through collaboration

and sustained rates but to do so with a focus on solving

between the conjunction of the national industry, society and

existing inequalities. This means generating wealth

the government, which will increase the well-being of the

without leaving any social sector, production segment

national population. The greater challenge is to close the gap

or region of the country behind.

between regions and between segments of the population.

We have set three main pillars that will guide our policies:

Q: What is the ministry’s strategy to strengthen the

innovation, diversification and inclusion. These pillars

automotive industry while helping the local market

are not mutually exclusive; they complement each other.

to recover?

We are in the middle of the fourth industrial revolution,

A: The automotive industry in Mexico is globally

which is changing the way we understand production

competitive. The country’s sixth position in vehicle

of goods and services. The challenge is to adopt these

production and fifth in auto parts manufacturing are proof

technologies inclusively to benefit the entire population.

of that. In addition, over the past decade, the country has achieved several records, mostly in vehicle exports.

Innovation is key for our economic policy. We are convinced that only by adapting to and adopting new

Today, we enjoy a modern and productive infrastructure

technologies, will we be able to produce new goods

for automotive goods that complies with international

and services based on an efficient, competitive and

standards. The foundations that have boosted the sector

productive supply chain that integrates national added

will be reinforced during this administration. Mexico has a

value. The Ministry of Economy will support innovation

solid regulatory framework, a broad network of free trade

through programs such as Programa para el Desarrollo

agreements, a privileged location, as well as competitive

de la Industria del Software y la Innovación (PROSOFT)

production costs in workforce and logistics.

The automotive industry plays a very important role

North America. An increase in the regional content value

in Mexico’s economy and its leadership as a currency

(VCR) from 62.5 percent to 75 percent in light vehicles

and employment generator makes it a strategic

further reinforces and consolidates production chains and

sector. This administration will foster actions that will

promotes greater use of inputs sourced in North America,

strengthen wealth generation through innovation,

providing greater opportunities for Mexican suppliers.

inclusion and diversification while contributing to the industry’s opportunity areas. Among these actions are

Operational costs for automotive manufacturing in

strengthening Tier 2 and Tier 3 companies, boosting

Mexico are competitive and offer advantages over most

supplier development throughout the entire supply

countries in Southeast Asia. At the same time, VCR

chain with a special focus on raw materials and tooling

requirements are an additional incentive for companies to

equipment, while fostering human capital specialization

set up shop in Mexico. Although complying with stricter

according to the industry’s demands.

VCR standards will be challenging, the auto parts industry has developed significant capabilities.

The Ministry of Economy will support the entire sector, setting the stage for a more solid and more competitive

Furthermore, Mexico offers greater competitive

market with effective rule of law to attract investment,

advantages when compared to other USMCA members.

liaise with different elements of the supply chain and

This treaty, in particular regarding the conditions

promote companies’ participation across different

established for the automotive industry, reflects US efforts

industry levels. At the end of the day, all these elements

to relocate manufacturing production to US territory, as

have a positive influence on sales in different industries

well as the need for a strategic manufacturing partner

and sectors.

in the region. Mexico has the opportunity to strengthen European and Asian production chains, creating more

Q: How is the new federal administration planning to

incentives for more companies to establish operations

provide the needed certainty to investments in the

in North America.

automotive sector? A: Mexico has broad competitive advantages in the

It is important to highlight that the labor component

automotive industry, not only regarding manufacturing.

included in USMCA’s rules of origin has several

Today, we have engineering centers from global

compensation alternatives through investments in

automakers and auto parts manufacturers. We know

R&D activities that will favor the profile of automotive

the automotive industry demands qualified labor to

companies established in Mexico.

adequately supply in quantity and quality. Human capital availability and automotive industry infrastructure are

Q: How will the Ministry of Economy help local suppliers

main production elements that will bring a long-term

to comply with USMCA’s new rules of origin for the

impact to the industry. The new administration will

automotive sector?

offer opportunities to the population to develop the

A: The federal government has programs that even though

required talent, while incorporating them successfully

are not exclusive for the automotive industry, are available

into the industry.

to support the industry in developing human capital, as well as investments and technology development. These

Legal certainty and resource availability that promote

programs, together with the addressing of specific needs,

greater specialization and inclusion from more companies

will have the potential to impact positively in developing

into the global supply chain will be key in the industry’s

local suppliers, having social benefits as they help to

development, both locally and internationally. Regardless,

modernize production processes while they promote

competitiveness in the automotive industry and the

inclusion of new competitors.

great business opportunities the country offers are the main guarantee that investments will maintain a

The Ministry of Economy will provide guidance to

privileged dynamism.

companies regarding the availability of these federal programs, as part of a public policy that will boost

Q: What opportunities will USMCA’s implementation

industrial competitiveness.

bring to Mexican automotive suppliers and automakers with operations in the country? A: The first thing we can highlight from USMCA is that

Graciela Márquez is the first woman to lead the Mexican Ministry

Mexico maintains its preferential access to the US market.

of Economy. She was a professor and researcher at Colegio de

The changes agreed in rules of origin will boost a greater

México. Márquez majored in economics and has a Master’s in

degree of integration for the automotive industry in

economics from UNAM and a Ph.D. from Harvard University

BMW 3 Series, Mexico City

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INCLUSION, DIVERSIFICATION, INNOVATION: PILLARS FOR FDI ATTRACTION GILBERTO GARCÍA Director General of Direct Foreign Investment at the Ministry of Economy

Q: What is the administration’s strategy to continue

want SMEs to increase their participation. Moreover, five or

promoting the country after the termination of ProMéxico?

six products represent 40 percent of Mexico’s exports, which

A: Economic promotion is important to the federal

are mainly destined for the US. We need a diversified export

government and the Ministry of Economy. This will not change

chain in terms of products and destinations as this will allow

now that ProMéxico no longer exists. Our goal is to take the

us to minimize risk. Regarding innovation, our goal is to be

best practices developed by that organization and others and

more competitive in areas with higher added value, which

apply them to continue stimulating economic development.

will also permit the generation of better work conditions

The new economic promotion strategy will now be under the

in Mexico. The federal government is greatly interested

jurisdiction of the Global Economic Intelligence Unit directed

in working with foreign companies to develop Mexico’s

by Sergio Silva, in coordination with state and municipal

economy and capabilities.

governments and the Ministry of Foreign Relations (SRE). The objective is to replace ProMéxico’s 46 offices with 150 points

Q: What are the main elements that manufacturing companies

of contact across the world focused on foreign trade. We

must take into account when investing in Mexico?

are also coordinating with state governments and economic

A: The first is to focus on human capital and consider whether

development units to properly channel economic support

the employees they need are available in the region in which

from the federal government to companies that need it.

they want to establish. The second is quality of life. When opening a branch in a different country, companies should

Q: How will the new administration’s trade promotion policy

look after the quality of life of the employees they bring

make Mexico a more attractive investment destination?

with them. The third is the overall business environment.

A: In previous years, there was only a vague definition of

Some states in Mexico have advanced significantly in terms

the strategic areas and products that should be a priority in

of transparency, certainty, rule of law, speed in opening a

investment and trade promotion, which led to the poor use of

business and security.

resources and results. Now the parameters will be very clear. We will use data mining to accurately determine Mexico’s

Q: What types of investment are necessary to improve local

strategic products and sectors and to identify interventions to

automotive supply chains in Mexico?

promote growth. We will analyze each region to evaluate their

A: The automotive sector is going through a transformational

capability to produce added value products, which will in turn

process and technological changes will determine the

generate better jobs with better salaries for our population.

success of automotive companies in the next few decades.

Our strategy will also take into account an analysis of the

Value chains in the automotive sector must adapt to these

global supply chains in which Mexico participates.

technological changes in the short term to be successful at a global level. We are now developing a route map to

The Ministry of Economy follows three pillars: inclusion,

understand how automotive companies can enter the value

diversification and innovation. Inclusion refers not just to

chain for electric mobility. The plan will include everything

companies that can enter global supply chains but also

from the improvement of lithium production to attraction of

those that can support the economic development of the

battery manufacturers and how to support local governments

communities where they are located. Our inclusion strategy

interested in implementing electric public transport.

also targets exports from more regions in Mexico, as most exports originate in just 11 or 12 metropolitan areas. The Direct Foreign Investment direction is part of the new Global

In terms of diversification, our goal is to grow the number

Economic Intelligence Unit of the Ministry of Economy. It is in

of companies that export their products. At this point, 90

charge of designing the economic promotion strategy for Mexico,

percent of all exports are done by big companies and we

in collaboration with the Ministry of Foreign Relations

| VIEW FROM THE TOP

NEW AGREEMENTS SHAPE ECONOMIC FUTURE YASUSHI TAKASE Ambassador of Japan in Mexico

Q: What conditions have been met to give Japanese

have also had a chance to meet with several ministers from

investors confidence regarding their projects in Mexico?

the administration to provide our input on infrastructure

A: The major contributor to investor confidence is the

and human capital development, as well as the federal

Economic Partnership Agreement (EPA) between Japan

government’s plan regarding the southern region of the

and Mexico, which was implemented in 2005. Beyond a

country. There are high expectations from the Mexican

diplomatic relationship, EPA included a chapter focused on

government for Japan to increase its trade and investment

investment and another focused on creating a committee

in the country and we already organized an economic

to establish the right conditions to foster an attractive

mission with the Japanese Chamber of Commerce and

business environment. This committee has met over 10 times,

Industry in February 2019 that brought 60 companies from

bringing together government officials and private sector

various sectors.

representatives from both countries. Q: How will CPTPP boost the trade relationship between Trade between Japan and Mexico has more than doubled

Japan and Mexico?

since EPA’s establishment. Over the past five years, the

A: CPTPP will set the standard for the 21st century not only

number of Japanese companies in the country has doubled to

in trade but in investment, services, intellectual property

a total of more than 1,200 players. Half of these companies are

protection, e-commerce and even relationships with state

established in the Bajio region, including automakers, parts

corporations. The agreement will be the basis for a new value

suppliers, construction and logistics companies and bankers.

chain established throughout the Asia-Pacific region and focused on a free, open and fair business environment. More

Q: What strategies has the Japanese government

countries are interested in joining the agreement beyond the

implemented to foster collaboration with academic

original 11 members, which in turn will fuel growth in Mexico.

institutions to bolster the capabilities of the Mexican workforce?

Q: How important is Mexico’s relationship with the US for

A: Through the Japan International Cooperation Agency

Japan and how will USMCA impact Japanese companies’

(JICA), we are working with local governments in the Bajio

development strategies?

region — especially with Aguascalientes, Guanajuato and

A: The US is among the largest economies in the world and a

Queretaro — to develop training courses in the automotive

key market for Japanese companies, which means Mexico is

industry. The number of Japanese companies in the country

in an advantageous position to act as a platform for Japanese

has created a large demand for talent and our efforts have

companies to reach the US.

paid off in the availability of quality engineers. USMCA will change the business environment for Japanese Q: What is Japan’s strategy to cooperate with President

companies in North America. New rules of origin established

López Obrador’s administration?

in the agreement will force corporations to find a new strategy

A: Japan has a long tradition in Mexico. Japan’s Minister

to manage their investments and source more components

of Foreign Affairs visited Mexico in August 2018, while his

locally. The Japanese government and the private sector have

Mexican counterpart visited Japan in October 2018. We

together devised strategies to foster growth among local suppliers and supporting industries in Mexico. We are even bringing in Japanese experts to train Mexican suppliers and

Yasushi Takase is the top representative of the Japanese

increase their capabilities so they can participate in Japanese

government in Mexico, with over 35 years of experience in

supply chains. These companies must meet Japanese quality

diplomatic affairs. He is responsible for overseeing diplomatic

standards and be capable of delivering components on time

and trade relations between both countries

and on spec.

VIEW FROM THE TOP |

MORE OPENESS, MORE BUSINESS WONIL NOH Minister Counselor of the Embassy of the Republic of Korea in Mexico

Q: What role does the automotive industry play in the

the first in Latin America and we also reached a deal with

bilateral trade relationship between South Korea and Mexico?

India, the US, the EU, China and eventually with Canada.

A: South Korea is Mexico’s sixth-largest trade partner in terms

Our FTA with Mexico was an exceptional case. In 2006,

of exports and imports. Mexico is very important for South

negotiations were not fast enough, and in 2008, both

Korea, as trade volumes between both countries are similar

countries reinitiated negotiations, again in vain. In 2016,

to the total trade volume between South Korea and Brazil,

after the South Korean president visited Mexico, there was

Chile and Colombia combined. According to our statistics,

a compromise to reinstall negotiations in 2017. However,

South Korea’s 2018 trade volume with Mexico was about

that was the year Trump decided to review NAFTA, thus

US$16.5 billion; according to INEGI, it was approximately

most Mexican negotiators focused on it. Not surprisingly,

US$20 billion. The difference is because INEGI takes into

possible changes in NAFTA created reservations in the

account the made-in-Korea label even when the product

steel and automotive industries. Today, after continuous

comes from the US or Canada. South Korea’s total investment

investments from South Korean companies in Mexico in

in Mexico is US$6.5 billion, which puts South Korea in second

the automotive and household appliances sectors, there

position among Asian investors in Mexico, following Japan.

is less reluctance to do a deal with South Korea.

Meanwhile, Mexico is South Korea’s 15th main trade partner, being ninth in terms of exports and 24th in imports.

Q: What role do you think South Korea will play in the development of the Mexican automotive industry?

Q: What programs are the Mexican and South Korean

A: Many Mexican companies have established partnerships

governments implementing to promote trade?

with Korean companies, not only in the automotive

A: To improve business conditions in Mexico for South

sector but also in the electronics, steel and chemicals

Korean companies, the Korean government is advocating

industries. Several state governments, such as Yucatan,

for the establishment of an FTA with Mexico through the

State of Mexico and Queretaro, want to attract South

Pacific Alliance. We expect an FTA with Mexico will increase

Korean investment in the automotive sector to grow their

trade and investment in the automotive sector. This is the

economy and to create jobs. At the embassy, we support

most important pending issue for our embassy. Members

Mexican companies in exploring or finding business

of the Pacific Alliance and the Korean government have

opportunities with South Korean players. Particularly

agreed to initiate negotiations. By September 2019, they

for the automotive sector, these efforts are made

had already held a meeting on terms of reference, the

through the Korea Trade-Investment Promotion Agency

schedule of the negotiation, the structure of the working

(KOTRA), whose function is to promote South Korean

group and the structure of the text.

exports and investment attraction. Every year, KOTRA’s office in Mexico City organizes the Korea Autoparts

At the same time, South Korea and Mexico are revising

Plaza Mexico to promote partnerships between South

their Bilateral Investment Treaty, which is outdated since it

Korean and Mexican auto parts manufacturers or Mexican

was established more than 10 years ago. The Ministries of

automakers. In April 2019, 40 companies, including

Finance of both countries hold a joint economic cooperation

South Korean and Mexican auto parts manufacturers,

committee every one or two years to discuss pending issues

participated in this event in Celaya.

to facilitate trade, investment and economic cooperation. Q: What obstacles have prevented Mexico and South Korea

Wonil Noh is a South Korean diplomat and Minister Counselor

from reaching an FTA?

for Economic Affairs at the Embassy of the Republic of Korea

A: Since 2002, the South Korean government has

in Mexico. He is responsible for overseeing diplomatic and

established many FTAs with its trade partners. Chile was

economic relations between both countries

| VIEW FROM THE TOP

COVID-19 A TURNING POINT FOR THE INDUSTRY: AMIA FAUSTO CUEVAS Director General of AMIA

Q: How has AMIA tried to convince the government to

and sales levels. The goal now is to get back on track and

label the automotive industry as essential during the

look forward to regaining pre-pandemic levels.

COVID-19 crisis? A: We have remained in close communication with different

Q: What other impact will the COVID-19 pandemic have on

players in the executive and legislative branches, including

the Mexican automotive industry?

the Ministry of Economy, the Ministry of Foreign Relations,

A: Mexico is highly dependent on foreign trade. Around 88

IMSS, deputies and senators. The automotive industry

percent of what is produced in Mexico goes abroad, mainly

generates 3.8 percent of Mexicoâ&#x20AC;&#x2122;s GDP, 20.5 percent of the

to the US, Canada, Europe and Latin America. Regarding

manufacturing GDP and approximately 980,000 direct jobs.

the internal market, 64 percent of what is sold in Mexico

Given its relevance, we approached different players and

is imported. We depend greatly on international trade,

finally received the approval for the automotive industry

so much so, that the reignition of the industry should be

to be labeled as essential. Coming tasks are focused on

aligned with the recovery in other affected markets. It is

resuming operations.

not sound to produce vehicles that do not have an end customer. Demand will grow gradually.

As the industry gets ready to resume operations, we offer an optimistic perspective to return to the new normal. We have

On the other hand, we should get used to a new normal.

talked with IMSS about the health and safety protocols that

Specifically, all health and safety protocols that are going

must be followed. The most important element in resuming

to be applied when resuming operations most likely will

operations is to ensure the health and safety of company

prevail for a certain period of time to provide certainty that

collaborators. It is necessary to set all necessary measures to

the pandemic has indeed ended and there are no risks of

prevent contagions at the plant. Going back to work should

new contagions. This new normal will change the way we

not mean an increase in cases.

produce and sell. We have yet to see how this new socialdistanced world will affect economic activities, including

Q: What production levels should the industry expect in

automotive. The automotive industry will get back on track

the short term?

under a different reality than what we were used to.

A: Production and exports have remained close to zero given that most OEMs and plants remained closed in April. This

Q: How feasible is it to delay the enforcement of USMCAâ&#x20AC;&#x2122;s

situation is unprecedented. We have never experienced that

new rules of origin?

in the history of the industry. However, we need to remember

A: The alternative transition regime is a figure that is

that the situation is global. Other countries around the world

only applicable to automotive rules of origin. It is not an

have gone down this path at different paces. As for Mexico,

instrument that could be applied to other sectors. This

we have a two-to-three-week time difference compared to

was just published on April 30 as these kinds of regimes

the US and Europe in terms of COVID-19 cases. In Asia, as of

are a feasible option that each company in each country

early May, people had already returned to work. The global

should decide on. This offers the possibility for companies

pandemic will have significant negative effects. It will be

to extend the time frame under which new rules of origin

really difficult for the industry to recover lost production

should be met. The treaty as it is today established that new rules of origin should be met within a three-year period. However, under alternative transition regimes, this could

The Mexican Association for the Automotive Industry

be extended to five years or longer depending on the plans

(AMIA) is a civil association formed in 1951 with the goal

that each company has regarding compliance. Having said

of representing the interests of vehicle manufacturers

that, this regime could only apply to light and heavy OEMs,

established in Mexico

not to the entire automotive supply chain.

VIEW FROM THE TOP |

GOOD TIMES AHEAD FOR MEXICO’S HEAVY VEHICLES MIGUEL ELIZALDE Executive President of ANPACT

Q: What challenges and opportunities will Mexico’s heavy-

operations in these regions, they have another 10 percent

vehicle segment encounter after USMCA?

covered. The remaining 30 percent can be met with normal

A: Mexico negotiated USMCA from a defensive position,

manufacturing operations with high salaries. As a result, the

focusing on retaining as much of the success it had achieved in

main area of opportunity for the Mexican supply chain is in

the development of an automotive industry. The country is the

hogging the other 55 percent.

sixth-largest producer and fourth-largest exporter of heavy vehicles worldwide and the No. 1 exporter of tractor-trailer

Q: How will USMCA impact used heavy-vehicle imports from

units worldwide. Through USMCA, the US government aimed

the US to Mexico?

to recover part of the automotive industry that had moved to

A: USMCA, as well as NAFTA before it, allows for the import of

Mexico in the last decades, but that strategy focused more on

used trucks and buses to Mexico. However, a decree published

the light-vehicle segment. ANPACT worked with the Mexican

by the Ministry of Economy requires these trucks and buses

authorities, and with its US counterpart, to differentiate the

to be 10 years of age or younger and to pay a 10 percent

light and heavy-vehicle sectors during negotiations. Our goal

tariff to enter the Mexican market. Authorities need to monitor

was to establish different transition times for the light and

compliance of this norm because truck documents are often

heavy-vehicle industries to comply with the new rules of origin

forged. ANPACT is in favor of importing used trucks inasmuch

defined in the new agreement. As a result of this strategy,

as these units are as new as possible. We are aware that the

truck and bus OEMs will have seven years to comply with

least safe and most polluting vehicles tend to be the oldest.

new standards, which will be parallel to the introduction of emissions standards in 2024 and 2027.

Q: How did Mexico’s heavy-vehicle industry fare in 2019? A: Production and exports of heavy units increased by 19.8

USMCA’s ratification will offer certainty for more companies

percent and 19.7 percent in the first 10 months of the year,

to invest in Mexico. ANPACT expects that investments for

compared to the same period of 2018, respectively, powered

final assembly will continue landing in Mexico. However, salary

by rising demand for new trucks in the US market. In terms

requirements will force OEMs to source engines, transmissions

of domestic sales, the heavy-vehicle segment has performed

and batteries from high-salary countries, which will harm

well, but ANPACT expects this trend will be short-lived.

Mexico’s attractiveness for the production of those systems. The country’s transportation industry faces challenges related Q: What are the most important changes in regional content

to truck robberies, rising fuel prices and vehicle cost increases

requirements that USMCA establishes?

as a result of new technologies and a volatile exchange rate.

A: USMCA requires heavy-vehicle OEMs to increase their

These factors would usually disincentivize fleet renewals. The

regional content from 62.5 percent to 70 percent and to

enforcement of NOM-044, however, dictates that all trucks

source 45 percent of that content from high-salary regions.

and buses produced in Mexico or imported to Mexico must

This means good and bad news for Mexico because while

meet Euro V or EPA 7 emissions standards since July 2019.

USMCA will provide new growth opportunities, some of them

This has forced transportation companies to anticipate truck

will stay in the US and Canada. There is room for heavy-vehicle

purchases. The pre-purchase effect will fade once this norm

OEMs to add more Mexico-made components as long as they

is enforced.

are not engines, transmissions and advanced battery packs. Salary content requirements will be met in three ways.

The National Association of Bus, Truck and Tractor Trailer

Companies that are producing engines, transmissions or

Manufacturers (ANPACT) represents heavy-vehicle and engine

advanced batteries in high-salary regions have already

manufacturers based in Mexico. It promotes the development

covered a 5 percent content requirement. If they have R&D

of the commercial-vehicle industry in the country

| VIEW FROM THE TOP

USMCA RATIFICATION WILL LEAD TO INVESTMENT CERTAINTY, GROWTH ÓSCAR ALBIN Executive President of INA

Q: How can Mexico maintain its position as the fifth-largest

Another aspect that limits growth is job security. The new

supplier of automotive components worldwide?

Federal Labor Law establishes significant changes in the

A: Mexico has several characteristics that make it attractive

employer-employee relationship and both sides need to

for the production of automotive components. One is its

learn how to best work together. This change is necessary

geographic proximity to the US and Canada. We are the

and mandatory, not only because of USMCA but also

only low-cost country in the North American region, so

because of Mexico’s commitment to the International

the 17 million vehicles produced in the NAFTA region have

Labor Organization.

Mexican auto parts. The strength of the US market has given us the opportunity to grow in past years. We are the most

Q: Now that USMCA is almost enforced, how are INA and

important supplier of auto parts to the US and Canada.

its members working to comply with new local content

Another advantage is the renegotiation of NAFTA, now

standards?

USMCA. Its successful renegotiation provided guarantees

A: These new standards will benefit auto parts producers

to investors and companies in Mexico to continue producing

across North America. Companies that use components

for the NAFTA market.

that are imported from outside the region will have to find a way to buy them or produce them locally. This will

The automotive and auto parts industry in Mexico is

surely lead to investments in all three countries. It will be

very dynamic. Domestic consumption is decreasing but

a gradual process and Mexico could use it to attract more

export activity is robust. Brazil is also helping exports

FDI. Still, we need political and investment security and a

grow. Since the Brazilian economy is expanding, we are

robust implementation of USMCA.

exporting more to the country. Moreover, in March 2019, Mexico and Brazil launched a free trade agreement, which

Q: How is INA supporting smaller suppliers to help them

boosted our commercial relationship. Although demand

comply with quality standards and speed up the process

from Brazil will not equal that in the US, it will help us

of complying with local content requirements?

boost our exports.

A: Rather than helping them to develop manufacturing and quality standards, we are helping smaller players to

Q: What main threats could hamper the growth of the

connect with Tier 1s through opportunity identification

Mexican auto parts industry?

programs. If they do not see a business opportunity,

A: A main risk is the availability of qualified labor, which

companies will hardly invest in new machinery and quality

includes blue-collar workers, technicians and engineers.

processes. We have developed a supplier development

Some parts of the country are practically saturated but

program, with SE’s support, through which we visit

other areas have no space to continue growing. Migration

around 150 suppliers, audit them and link them with

toward industrial areas is not ideal because it generates

potential clients.

social problems. The ideal solution would be for the industry to move toward cities with workforce availability. This is

Q: How on track is Mexico to reach fourth place among

something the government needs to promote through

the largest automotive component manufacturers in

federal policies.

the world? A: We are very well on track to reach Germany’s production volume. As a consequence of the commercial

The National Auto Parts Industry (INA) is the organization

war between the US and China, North America will have

that represents auto parts companies established in Mexico.

the opportunity to attract more Chinese investment

It promotes the growth and development of its member-

for auto parts production and we will surely see some

companies in the original equipment and aftermarket segments

Chinese companies arrive to Mexico.

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MEXICAN DEALERSHIPS HIT BY MARKET CONTRACTION GUILLERMO PRIETO Chairman of AMDA

Q: What factors are preventing the country from bouncing

in this sector are family-owned Mexican companies. They

back from its sales downturn?

are a key source of tax revenue and employment and

A: The sales downturn is a consequence of both internal

constantly invest in the country.

and external factors putting pressure on the Mexican vehicle market. While international geopolitical events such as

Overall, the Mexican automotive industry accounts for

USCMA’s negotiation have impacted Mexican consumer

2 million jobs, around 3 percent of Mexico’s GDP, 20

behavior, internal issues such as economic contractions and

percent of the country’s manufacturing GDP and is the

lower consumer confidence are also worthy of consideration.

main export-related currency generator with a positive

Macroeconomic factors such as inflation, exchange rate

trade balance of over US$70 billion.

volatility and high interest rates are creating uncertainty among consumers. People are becoming much more cautious

Q: What have depressed vehicle sales meant for Mexico’s

when making purchases of durable goods such as vehicles.

vehicle-financing sector? A: A drop in vehicle sales necessarily means a contraction

To reverse this situation, we need economic growth as

in the automotive financing market as approximately 66

well as more certainty regarding USMCA, which will have

percent of all car sales in Mexico are on credit. There are,

a positive impact on consumer confidence. Mexicans must

however, other factors hampering the vehicle financing

also increase their purchasing power. While inflation has

market. High interest rates make car loans more expensive,

been controlled, real salaries have lost ground. Additionally,

while overly elongated credit periods mean greater risks for

several austerity policies from the federal government have

the companies that offer them. Despite this situation, past-

had a direct impact on vehicle sales. If economic variables

due portfolios in the vehicle market are usually less than 2

improve, we could sell above projections. Segments such

percent of all loans, which has enticed commercial banks

as luxury and sports have identified a mature population

to offer more of these financing products and win ground

niche. However, the biggest potential for growth is in the

against financial branches and self-financing companies.

compact and subcompact segments. Q: How is digitalization impacting dealerships’ Q: How can the government participate in the development

business models?

of the national automotive industry?

A: The market is moving toward online vehicle sales,

A: Players in the Mexican automotive industry must be

which puts pressure on dealership groups to increase

attentive to government decisions. Automotive is already

efficiency and productivity and improve customer

an overly regulated sector in which dealerships must report

service. At the same time, vehicle ownership is no longer

to and meet regulations of Mexico’s Tax Administration

as alluring given the new mobility schemes that are

Service, the Ministry of Communications and Transport,

arising thanks to digitalization. Shared ownership and

the Federal Consumer Protection Office, the Ministry of the

the rise of ride-hailing services are changing the game

Interior, the Ministry for the Environment and the Ministry of

worldwide. In Mexico, however, the lack of competitive

Labor, among others. This means regulatory changes could

public transportation entices vehicle ownership among

pose new difficulties for the entire market.

local consumers.

AMDA is working to establish communication channels with the new federal government to raise awareness of

The Mexican Association of Automotive Dealers (AMDA) was

the importance of the automotive industry for Mexico’s

founded in 1945 and now represents the interests of around

economy. The country’s dealership sector, which AMDA

2,390 dealerships located in more than 210 cities throughout

represents, includes close to 2,300 dealerships. All players

the country

| VIEW FROM THE TOP

AUTOMOTIVE CLUSTERS PROTECTING SUPPLIERS AMID COVID-19 MANUEL MONTOYA President of the Mexican Automotive Cluster Network

Q: What spurred the creation of an automotive

parts of the industry continued working but in most places

cluster network?

the industry ceased operations.

A: The Mexican Automotive Cluster Network has its precedent in the Automotive Cluster of Nuevo Leon (CLAUT), which was

In North America, sales in March plunged 40 percent. People

created in 2007 as a civil association following a model from

are not buying cars, which is also affecting the supply chain.

the Basque country. After consolidating our operations, we

The main issue is that plants have suspended operations.

helped other emerging clusters like Guanajuato, Queretaro,

Some states in the US have not yet granted OEMs permission

the State of Mexico, Puebla and San Luis Potosi. After that,

to operate and the Mexican government itself has not openly

presidents of the clusters started getting together informally

granted the industry permission to operate. We are working

from time to time, at the events organized by AMIA, for

in that regard but disruptions to supply chains between

example. About three years ago, we started formally sharing

Mexico and the US, which are greatly co-dependent, will

our experiences and information on what was happening

not allow the industry to operate properly. Today, it seems

in every state. We started implementing strategic planning

there is no coordinated effort, not only between the US and

in December 2018, which is when we realized we needed

Mexico but also among US states. Supply chains must be

an inclusive entity for all clusters in the country. Finally, on

synchronized, otherwise it will be impossible to operate.

July 28, we formally constituted the Mexican Automotive Cluster Network.Â

To restart formal operations, the industry needs government approval, which we expect might come soon. Some OEMs are

We agreed to create a management board to help us

expecting to resume operations on May 18 but we have yet

ground the ideas that come up in meetings, just like we do

to receive an official government announcement. Whether

in every cluster. Companies come together because there

it is on May 18 or not, the fact is that the industry needs

are common issues that need a solution, so the cluster tries

to restart operations. Mexico itself needs the automotive

to manage those ideas objectively.

industry. Out of the four pillars of the Mexican economy, only one, the automotive sector, is somehow still standing.

Q: How has COVID-19 disrupted automotive supply chains

Remittances are declining, while tourism and oil remain at a

in North America?

standstill. Which sector will able to reignite the economy? It

A: Since it started in China, there was concern about the

is the automotive industry. In fact, the Mexican government

effects of COVID-19 on the automotive supply chain. Plants

shares this view and has used the sector as a pilot to start

started to stop operations in China and some suppliers

implementing health measures at different plants so that

in North America might have faced some difficulties that

people can resume work safely. Other industries will follow

were eventually solved. When COVID-19 arrived to Italy,

but the automotive industry remains a model sector.

again some suppliers faced some issues but they were handled. The worst impact from COVID-19 began in North

Q: What strategies have been implemented to protect Tier

America when OEMs chose to stop operations at the

2 and Tier 3 companies in Mexico?

behest of several governments. In Mexico, the automotive

A: Local suppliers and smaller companies have the least

industry was not considered essential. In the US, some

resources. There have been companies, as I can tell from the Nuevo Leon Automotive Clusterâ&#x20AC;&#x2122;s experience, that have indeed taken care of their supplier base. Some have

The Mexican Automotive Cluster Network was established in

advanced their payments, while others have designed billing

July 2019 and includes the clusters of Chihuahua, Coahuila, the

strategies to maintain cash flow. Tier 2 companies have also

State of Mexico, Guanajuato, Laguna, Nuevo Leon, Queretaro, San

taken care of their own suppliers. Overcoming this situation

Luis Potosi, Puebla and Tlaxcala

is a joint effort.

VIEW FROM THE TOP |

CREATIVITY WILL DRIVE THE POST-COVID-19 AFTERMARKET ANTONIO LÓPEZ President of ARIDRA

Q: How has the COVID-19 pandemic affected aftermarket

and ARIDRA’s attorney is advising members on how

operations?

they can best address this issue to protect employment

A: First, as there has been a reduction in the circulating

while remaining competitive. We have taken care of all

vehicle park, this has led to less wear and tear on vehicles

necessary measures to prevent contagion. All health and

and thus fewer spare parts needed. Second, people are

safety protocols announced by the federal government

taking greater care of their money. Third, the exchange

have been implemented and not a single ARIDRA member

rate, which went from MX$18.75 to MX$25 per dollar, is

has been closed down due to this situation.

also affecting sales. In addition, all spare parts imported or produced in Mexico have been introduced with new

Q: How have ARIDRA’s members handled supply chain

prices. Finally, we are expecting supply chain disruptions

disruptions?

due to the halt in operations. Stocks are limited, which

A: A shortage in supply will undoubtedly have

means prices will rise in line with demand.

consequences. First, there will be difficulties getting a spare part. For those who can, the parts will be more

One of the priorities of ARIDRA members is overdue

expensive. In addition, there is no single producer that

payments. All of us are forecasting that we will face

can satisfy all the demands the Mexican market has in the

overdue accounts. We are not yet sure how serious the

aftermarket segment. There are more than 700 models

problem will be but every ARIDRA member will face this.

and more than 50 brands in the market. It is one of the

Money collection has also been an issue for our members.

largest vehicle parks globally, which translates to many

We will organize a webinar on the subject in which

market needs. A large number of spare parts sold in the

ARIDRA’s attorney will provide his perspective on how

country, either original or spare, are imported, mostly from

each company should address this issue. The contingency

Asian markets where the pandemic hit first.

is economic, health-related and social. We hope to enter the new normal soon.

Q: What opportunities will COVID-19 bring to the aftermarket segment?

Q: What other initiatives is ARIDRA taking to support

A: There are two key elements that will become evident

its members?

after COVID-19. First, companies will need a positive

A: It is also important to mention that the aftermarket

attitude to brave the coming challenges. Second, there

supply chain has remained active during the pandemic.

will be many spaces to be filled. For instance, NAPA auto

This is a big achievement. Since March 31, when the

parts announced the definitive closure of its operations

health emergency was declared, we have been operating

in the country. That is bad news but for some it can be

as an essential activity. On April 8, the Ministry of

an opportunity to tackle the market. Crises are major

Communications and Transportation detailed essential

opportunity generators. It is best to think about a solution.

activities would include vehicle fleet maintenance,

A major trend emerging from COVID-19 is that consumers

workshops and related services. There have even been

and companies have realized that e-commerce is the

many requests from related companies to become

most important trend in the market today. Disregarding

members of the association due to our results. It is a great

e-commerce will mean bankruptcy for companies.

moment for ARIDRA to grow. Another important element to highlight is that from the

The National Association for Representatives, Importers and

very beginning of the pandemic, ARIDRA recommended

Distributors of Spare Parts and Accessories (ARIDRA) - is a

that its members take care of the human element. We are

civil association that integrates manufacturers, importers and

aware of the effects COVID-19 will have on employment

distributors of spare parts and accessories in Mexico

| ANALYSIS

USMCA: NEW RULES FOR A NEW ERA After a long period of deliberation, a finalized USMCA will bring certainty to the industry. As stricter rules of origin are enforced, new investments and expansions are likely to take place in the short and middle terms, changing the region's automotive landscape just as NAFTA did

Under pressure from US President Donald Trump, Mexico,

year period to reach a 70 percent RVC following NCM. “These

Canada and the US redefined their trade relationship in North

new standards will benefit auto parts producers across North

America with a renegotiation of NAFTA that started in August

America. Companies that use components that are imported

2017 and evolved into a new deal: USMCA. Trump based

from outside the region will have to find a way to buy them

his determination to force a new agreement on protecting

or produce them locally. This will surely lead to investments in

jobs, industries and workers, and after a long wait, the US

all three countries. This will be a gradual process and Mexico

Congress ratified the new deal in January 2020, just months

could use it to attract more FDI. Still, we need political and

after Mexico. Canada has also ratified the treaty but formal

investment security and a robust implementation of USMCA,”

notification to its counterparts was still pending in April

says Oscar Albin, Executive of President of INA.

2020. For the automotive industry, the agreement will have major implications as stricter rules of origin are implemented,

The second rule of origin is a newly created Labor Value

including the additional Protocol of Amendments signed in

Content (LVC) requirement. It establishes a three-year

December 2019.

period for light-vehicle producers to comply with a 40 percent standard regarding manufacturing and technology

According to Minister of Economy Graciela Márquez: “The

development made at a certain salary rate. For light trucks

first highlight from USMCA for the automotive industry

and heavy vehicles, the standard is 45 percent. Of the 40

is that Mexico maintains its preferential access to the US

percent required for light vehilces, at least 25 percent

market. Changes agreed in rules of origin will boost a greater

should be linked to high-wage (US$16 per hour) material

degree of integration for this industry in North America. An

and manufacturing expenditures, no more than 10 percent

increase in the regional value content (RVC) further reinforces

to high-wage technology expenditures and no more than 5

and consolidates production chains and promotes greater

percent to high-wage assembly expenditures. For heavy and

use of inputs sourced in North America, providing greater

light trucks, the percentage related to high-wage material and

opportunities for Mexican suppliers.”

manufacturing expenditures is 30 percent.

Three major rules of origin for vehicles were introduced

Executive President of AMIA Eduardo Solis says the LVC rule

in USMCA, which are outlined in Chapter 4 of the treaty,

is not intended to increase Mexican workers’ wages. “Salary

in Annex 4-B, Chapter 87 and in Appendix to Annex 4-B:

content requirements in USMCA are meant to attract auto

Provisions related to the product-specific rules of origin

parts production operations to the US and Canada rather than

for automotive goods, articles 3, 4, 6 and 7. Later, further

incentivizing salary increases in Mexico, as wages of US$16 per

changes were introduced in the Protocol of Amendment,

hour can only be found in those countries. However, the treaty

amendment 2.A.

offers a way to reduce those percentages. For instance, if a company produces advanced battery packs, transmissions

The first rule refers to RVC, which is the percentage of the

or engines or engages in R&D operations in the region, it is

vehicle that must be manufactured in North America to be

possible to play with the percentages,” he says.

traded tariff-free. This can be calculated according to two different methods: the Net Cost Method (NCM), referring to the total cost of the vehicle minus sales promotion, marketing, after-sales service costs, royalties, shipping, packing costs and non-allowable interest costs; and the Transaction Value Method (TVM), meaning the value of the vehicle determined in

CALCULATING REGIONAL VALUE CONTENT Formula

Whereby

Net Cost Method (NCM)

RVC=(NCMVNM)/NC x 100

Transaction Value Method (TVM)

RVC=(TVMVNM)/TV x 100

accordance with the Customs Valuation Agreement. The RVC rule is different for light vehicles and trucks than for heavy vehicles, both in terms of percentage and the time companies have to comply with this new rule. Light vehicles and trucks will have a three-year period to reach a 75 percent RVC, according to NCM, while heavy vehicles will have a seven-

RVC = percentage of regional value content TVM = transaction value of the good, excluding shipment costs NCM = net cost of the good VNM = value of nonoriginating materials including those of undetermined origin

Finally, USMCA's third rule establishes special requirements

steel’s coating stage. The new requirement does not apply to

for steel and aluminum used in passenger vehicles, light and

raw materials used in steel manufacturing processes. Ten years

heavy trucks. The original version of the agreement stated

after USMCA’s enforcement, countries would set appropriate

that a vehicle would be considered regional only if 70 percent

requirements to consider aluminum as regional.

of the vehicle producer’s purchases of aluminum and steel (by value) come from North America. The Protocol of Amendment

USMCA is expected to advance the Mexican automotive

added that in a seven-year period, for steel to be considered

industry another step ahead. Fifty-six percent of MAR19/20

regional, all its manufacturing processes must occur in at

interviewees believe the new agreement will have a positive

least one of the three countries, except for metallurgical

impact on the national industry. “USMCA’s enforcement will

processes involving the refinement of steel additives. Such

help to curb uncertainty,” says Manuel Nieblas, Partner and

processes range from the initial melting and mixing to the

Manufacturing Industry Leader of Deloitte Mexico.

NCM TVM

60 20

75 85

72 82

66 76

69 79

100

67.5 77.5 64 74

70 80

65 75

63 73

62.5 72.5

100

65 75

62 72

100

20 100

Regional Value Content Core components

Autoparts Regional Value Complementary Principal Content

100

70 80

64 74

60 70

60 20

20 0

Year of enforcement

60 70

54 64

100

50 60

Principal

Autoparts

100

Complementary

Heavy Vehicles

Passenger Vehicles and Light Trucks

REGIONAL VALUE CONTENT AFTER USMCA'S ENFORCEMENT (percentage)

First year Second year Third year Fourth year Seventh year after enforcement after enforcement after enforcement after enforcement after enforcement

LABOR VALUE CONTENT (LVC) AND STEEL AND ALUMINUM REQUIREMENTS Percentage of LVC

Expenditure Distribution Deadline

High-wage material and manufacturing (%)

High-wage technology (%)

High-wage assembly (%)

At least 15

No more than 10

No more than 5

Year of enforcement

At least 18

No more than 10

No more than 5

First year after enforcement

At least 21

No more than 10

No more than 5

Second year after enforcement

At least 25

No more than 10

No more than 5

Third year after enforcement

SPECIAL REQUIREMENTS FOR STEEL AND ALUMINUM Aluminum

OEMs demonstrate that 70 percent of their aluminum purchases come from North America. Ten years after entry into force of the USMCA, countries will reconsider this rule.

Steel

In a seven-year-period, 70 percent of the steel used in all vehicles in North America will be originating. To be originating, all steel manufacturing processes must occur in North America, except for metallurgical processes involving the refinement of steel additives. The new requirement does not apply to raw materials used in steel manufacturing processes.

Source: UMSCA

| ANALYSIS

POST-PANDEMIC WORLD SHAPED BY USMCA’S UNIFORM REGULATIONS As COVID-19 put the Mexican automotive sector in a corner, USMCA’s final procedures were set in place. Despite historic lows reached on production, exports and sales, industry experts remain optimistic about the regionalization of the automotive supply chain detailed in USMCA’s uniform regulations

COVID-19 disrupted supply chains across the world, while

UNIFORM REGULATION

having an unprecedented impact on automotive production,

Despite the pandemic, the ratification process for USMCA

exports and sales. In Mexico, Banxico forecasts an 8.8 percent

stayed on course. After the US Trade Representative, Robert

contraction in Mexico’s GDP in 2020. On March 30, the

Lighthizer, notified the US Congress that Canada and Mexico

Mexican government declared a national health emergency

had taken the necessary measures to comply with the

where non-essential activities, including automotive, remained

agreement, USMCA was set for enforcement on July 1, 2020.

suspended and, as in most countries worldwide, lockdown

However, uniform regulations, which detail the specifics on

measures were implemented to limit people’s mobility. The

procedures and definitions, were still being negotiated at the

IMF published an early report in April in which it labeled the

time. On June 3, the Mexican Ministry of Economy announced

pandemic, “The Great Lockdown: Worst Economic Downturn

the conclusion of the negotiations and made available both

Since the Great Depression.”

documents to the public. The texts will be subject to legal revision by all three parties and the final texts will be published

The impact on the Mexican automotive industry, one of

on July 1. “These uniform regulations have the objective to

the engines of the national economy, was immediate. “This

provide practical and useful orientation to better complement

situation is unprecedented. We have never experienced this

the referred USMCA’s rules and procedures,” said the Mexican

in the history of the industry. However, we need to remember

Ministry of Economy in a statement.

that the situation is global. Other countries around the world have gone down this path at different paces,” said Fausto

Uniform regulations are twofold. The first document refers

Cuevas, AMIA’s Director General.

to the specific methods to comply with the provisions established by USMCA in Chapter 4: Rules of Origin and

As Mexico began to feel the economic impact of COVID-19,

Chapter 6: Textile and Apparel Goods. The second document

leaders in the industry, including AMIA, INA, ANPACT and

focuses on the interpretation, application and administration

AMDA, urged the government to reconsider its approach

of procedure provisions established in Chapter 5: Origin

toward the automotive sector. In the first weeks of May, the

Procedures, Chapter 6: Textile and Apparel and Chapter 7:

automotive sector in the US started to resume operations and

Trade Facilitation. Three new rules of origin were introduced

pressure came from both sides of the border as US senators

in USMCA. First, the treaty establishes a three-year period

urged the US State Department “to coordinate with the

for automakers to reach a regional value content (RVC)

Mexican government to clarify Mexico’s definition of essential

of 75 percent for light vehicles and a seven-year period to

businesses to avoid disruptions in the US supply chain.” Finally,

reach 70 percent RVC for heavy vehicles. Second, companies

on May 15, the government issued a decree where mining,

have a three-year period to reach a 40 percent labor value

construction and transport equipment manufacturing were

content (LVC), which includes 25 percent high-wage material

to be considered essential and should resume activities as

and manufacturing, 10 percent high-wage technology and 5

soon as IMSS approved the sanitary protocols they were to

percent high-wage assembly. Third, 70 percent of steel and

enforce when reopening their plants.

aluminum must be purchased in North America.

Despite the unprecedented situation, experts agree that a

Of particular interest are the details of the LVC rule. The

post-COVID-19 scenario is the perfect moment for Mexico

document provides definitions for high-wage assembly plants

to strengthen its local supplier base. “The new rules of origin

for passenger vehicle or light truck parts, high-wage assembly

established in USMCA are stricter in terms of obligations

plants for heavy truck parts, high-wage labor costs, high-wage

to centralize supply manufacturing in the region. Stricter

technology and high-wage transportation or related shipping

rules of origin indeed could bring new opportunities under

costs. For instance, high-wage transportation is defined as the

a de-globalization effect in North America. USMCA and the

“provider paying an average base hourly wage rate to direct

COVID-19 pandemic will take Mexico to nearshoring practices,

production employees performing these services of at least:

which is contrary to the offshoring practices seen in previous

(a) US$16 in the United States; (b) CA$20.88 (US$15.4) in

years,” says former AMIA President Eduardo Solís.

Canada; and (c) MX$294.22 (US$13.4) in Mexico.” (Sec.12-1)

ROUNDTABLE | The evolution of the COVID-19 pandemic from China to Europe and the US and then to Mexico caused supply chain disruptions across the sector. During April and May 2020, vehicle and auto parts manufacturers remained shut down as lockdown measures were enforced. OEMs and suppliers are gradually resuming operations. However, the damage has already led to historic lows for production, exports and sales. Amid this reality and

WHAT OPPORTUNITIES WILL EMERGE FROM COVID-19?

facing USMCA’s coming enforcement on July 1, what are the opportunities for the industry in a post COVID-19

scenario and how can Mexico's automotive hubs take advantage of these?

A: We will have different opportunities. Our first priority is to strengthen our local supplier base. Companies are realizing that even if a crisis like this does not happen again, the regionalization of supply chains is essential. If we combine COVID-19 with USMCA’s new rules of origin, there is no doubt that the Puebla and Tlaxcala region, as well as all suppliers across the country, must strengthen their capabilities. We have already drawn up a local supplier development map. First, we need to identify the short-term, middle-term and long-term needs of our members. The Tlaxcala and Puebla governments have been closely involved in

MÓNICA DOGER Director General of CLAUZ

this process. We expect their support in terms of promoting investment, political certainty and human development.

A: The lesson for most companies from the pandemic is addressing home office. In some cases, companies can achieve better performance as this creates a more favorable environment for employees with health conditions, pregnancies or disabilities. In some countries, there is even a scheme in which simple assembly operations can take place at home. COVID-19 opens our mind to other forms of labor where heavy logistics operations are not needed and employees can better use their time. Joint efforts with other states will be useful to create new synergies. We need to be open-minded about the participation of non-automotive states in the sector to help tackle income inequality in the country.

ALEJANDRO VERAZA President of the San Luis Potosi Automotive Cluster

A: We have a clear mindset about the cluster’s role during and after the pandemic. Just recently, the cluster presented its Strategic Alignment 2020-2024. In this strategy, we define clearly our cause, which is to establish a trustworthy liaison that can guide the automotive sector to a bright future. Our dream is to build a community that is at the forefront of mobility thanks to the development of highly competitive and socially committed companies. We are used to thinking about the sector as auto parts and vehicle manufacturing when in fact, at a global level, there has been a shift in the sector toward mobility, the environment and innovation. This is what is driving the industry today and what we aim to strengthen as a cluster.

RENATO VILLASEÑOR President of the Queretaro Automotive Cluster

| VIEW FROM THE TOP

MEXICAN AUTOMOTIVE INDUSTRY IS READY FOR THE NEXT LEVEL EDUARDO SOLÍS Private International Consultant and Former Executive President of AMIA

Q: What should be the industry’s priorities as it resumes

could bring new opportunities under a de-globalization effect

operations?

in North America. Both, USMCA and the COVID-19 pandemic

A: The main priority for companies should to be to implement

will take Mexico to nearshoring practices, which is contrary

the appropriate health and safety measures as they resume

to the offshoring practices seen in previous years. We must

operations. To protect the life and the well-being of our

not confuse the decrease in demand caused by COVID-19

employees is our priority, which will imply following all required

with the strengthening of the North American region through

sanitary protocols. Of course, we are part of the global supply

USMCA. Although both will foster the transfer of operations

chain. Mexico is the No. 1 auto parts supplier for the US and

to closer locations, USMCA’s new rules of origin will imply a

we are the fifth-largest auto parts exporter and fourth-largest

restructuring of OEM operations.

vehicle exporter. Mexico is a really important, relevant player in the industry. For this reason, resuming operations will be

USMCA’s rules of origin are really complex, which could make

fundamental to our trade partners as well, including the

it difficult for OEMs to comply given the short transition times.

US and Canada. We will experience a gradual, safe restart,

There are two elements about USMCA that need to be put

with all collaborators aware of the required protocols. At the

on the table. First, we need uniform regulations. These will

beginning of June, production levels will be at 10 percent for

be published at the beginning of June given that the three

most companies, while others will work at around 20 or 30

countries are still negotiating. Having uniform regulations at

percent capacity.

the beginning of June will mean having less than three weeks to understand them and to apply them. These regulations

Players agree that June will be the month when production

are the guidelines under which rules of origin will be applied.

escalates, taking into account new vehicle demand levels. The

This really short amount of time will put OEM purchasing and

sector needs to acknowledge that demand will be different

strategic planning departments in a difficult spot.

from pre-pandemic levels. In Mexico, production dropped by about 4 percent in 2019. For 2020, I forecast a fall between

Given these conditions, OEMs will have to face the second

25 and 30 percent annually, similar to the US market’s decline,

element that needs to be put on the table: transitional

which will mean that in the coming months we will have

regimes. These particular regimes will give OEMs a waiver on

production declines of 40 percent or more compared to 2019.

the immediate application of the rules of origin. This will have

Everyone should bear in mind that in the short term there will

to be analyzed on a case by case basis where each OEM will

be a need for OEMs to refill their inventories. Beyond those

have to negotiate its plan to comply with the incoming rules. I

peaks, demand will drive the industry to lower levels than

am confident that many OEMs will abide by these transitional

those in 2019.

regimes in certain specific models.

Q: Will the post-COVID-19 scenario be the perfect moment

Q: As a key player involved in making the automotive industry

for Mexico to strengthen its local supplier base?

one of Mexico’s economic drivers, where do you think the

A: Absolutely. The new rules of origin established in USMCA

industry is heading?

are stricter in terms of obligations to centralize supply

A: It is clear that we are all on a train moving into a new

manufacturing in the region. Stricter rules of origin indeed

digital era, new production methods and a new generation of vehicles that include hybrid, electric and autonomous models. Mexico is already there. We manufacture hybrid models at

Eduardo Solís was Executive President of AMIA for 12 years,

different facilities in the country and starting this summer, an

contributing to the development of the national automotive

EV will be produced in the State of Mexico. The transition has

footprint. Nowadays, he is an international consultant on

been really smooth, so much so, that some are even surprised

economic affairs

that Mexico is already participating in these advances.

VIEW FROM THE TOP |

NEW BUSINESS NICHES PROMOTE GROWTH IN STABLE SECTOR Ă&#x201C;SCAR BALCĂ ZAR Director America Region of GiPA

Q: How is the downturn in vehicle sales impacting the

Although many complain that illegally imported auto parts

automotive aftermarket?

or cheap auto parts are hurting the industry, the truth is that

A: Traditionally, car sales promote growth in the aftermarket.

low cost brands saw a boom around 2008 and 2009. Today,

Any situation with fewer car sales will have a negative

they do not represent the fastest-growing segment. After

impact on aftermarket sales. However, the negative effect

the economic crisis of 2008 passed, the premium segment

is not perceived immediately. Moreover, there are many

experienced significant growth. However, for the past two

other factors that impact results more directly than vehicle

years we have seen an increase in the intermediate segment

sales, one of which is the need for fewer maintenance and

that offers quality without being overpriced.

corrective services. Today, Mexican passenger cars require aftermarket services around 2.48 times per year on average,

Q: What is boosting growth in the intermediate auto parts

which is 40 percent less than 10 years ago. Drivers are

segment above low-cost and premium brands?

also circulating less, which means car parts do not wear

A: Aftermarket retailers do not want to sell original

out and last longer. Inadvertently, high-quality parts like

equipment, while car dealerships are not interested in

tires or brake pads have worsened the problem, since

selling auto parts to independent resellers. A spare-parts

manufacturers are constantly updating their technology

shop, if it has the piece in stock, can deliver to the client

and people have less need to change these parts. Even if

in two hours. A car dealership cannot do that. This means

the vehicle park continues to grow, the aftermarket industry

there is more space for growth for intermediate brands.

will not necessarily experience this growth. Q: How can OEMs and other automotive players contribute Opportunities are different. The vehicle park is growing but

to the growth of the Mexican aftermarket industry?

every vehicle is worth less in terms of aftermarket sales

A: It is all about finding new business niches to develop

because you need to make fewer replacements. Companies

within the aftermarket segment. Motorcycles are a good

need to understand that since the aftermarket is not

example. Although it is not a major market, it will continue

growing, they will need to take market share from others.

evolving, given the appearance of new businesses where the

Another important opportunity lies in understanding that

motorcycle is an important component, such as Rappi or Uber

in Mexico, around 55 percent of passenger cars are 10 years

Eats. Cars that work with Uber, DiDi, Cabify and even regular

old and getting older. A significant part of aftermarket sales

taxis present another area of opportunity. This sector has

should be destined to cars with older technology that have

grown and even though it will not surpass private vehicles, it

a more constant replacement cycle.

is worth creating specific value propositions that cater to it.

Q: What are the main regulatory challenges hindering the

We also need to understand that socio political conditions

development of the aftermarket sector?

impact the performance of the aftermarket. The uncertainty

A: More than regulatory challenges, there has been

that surrounded 2018 and 2019 did not help to mitigate

an increase in the number of brands in the market,

risks and it was common for people to delay aftermarket

which generates more competition. For instance, we

expenses that were not absolutely necessary, such as

have aftermarket brands that were typically destined

changing oil or tires.

to a premium segment that today are trying to enter an intermediate segment. There are also cases where dealerships that had a very defined role are venturing into

GiPA is a market intelligence agency with presence in over 30

the market with their own brands. Today, it is key for market

countries. The company has been in Mexico for 15 years and

leaders to transmit the advantages of their products to

specializes in the generation of aftermarket intelligence for

workshops and aftermarket distributors than to drivers.

auto part manufacturers and distributors

| VIEW FROM THE TOP

COMPETITIVE CREDIT KEY TO TRIGGERING PURCHASING DECISIONS GERARDO SAN ROMÁN Head of Latin America for JATO Dynamics

Q: What are the most important challenges for Mexico’s

eventually entice banks to start purchasing debt portfolios

vehicle financing market?

from each other by offering more competitive interest rates.

A: Longer maturation periods and lower down payments demonstrate that buyers look for the most affordable

Q: What opportunities does the used-vehicle segment offer

options available. People would rather make smaller down

in a low new-vehicle sales scenario?

payments even if that means extending their loans. In 2014,

A: Financial products usually target only the new vehicle

the longest credit available was 48 months while in 2019

segment but used vehicles generally offer better profit

credits of up to 60 to 72 months took the lion’s share of

margins for dealers. Lower new-vehicle sales mean growth

credit sales.

in the used-vehicle sector, which offers new opportunities for players in this segment. While traditionally the used-car

Q: Why are long-term loans a burden for financing

business is riskier for buyers because most transactions are

companies?

done between individuals, conducting transactions through

A: Nobody wins when financial commitments are extended

intermediaries such as Mercado Libre or Soloautos can help

because it introduces more risks and increases financial

mitigate these risks. Additionally, the used-car segment

costs, while consumers demand low monthly instalments.

offers huge opportunities for financing companies to use

This trend has enticed financing companies to start

their digital credit approvals.

experimenting with new products to both increase sales volumes and take advantage of balloon payments. The goal

Q: How can dealership groups, financing institutions and

is to refinance debt for a profit and reduce loan periods to 36

OEMs help the Mexican market recover from the sales slump?

or 48 months to mitigate risks. Still, long-term car loans are

A: All players involved in vehicle sales must continue offering

here to stay because the Mexican vehicle market is adapting

conditions that incentivize better results. They need to

to this offering. These loans will allow financing companies

remain creative and offer new and interesting experiences

to capture customers in new population segments that had

that attract potential buyers. Mexico faces the challenge of

been traditionally underserved.

low financial literacy, which sometimes causes people to lose sight of interest rates and end up paying high financial costs.

Not all financing companies have the same appetite for risk,

This offers many opportunities for financing companies to

though. Financing institutions aim to maintain a healthy

create innovative products that help companies grow in new

debt portfolio to include buyers with quality credit records

market segments while also making better profits.

and low risks. Companies take advantage of mechanisms such as the credit bureau to assess risks based on credit

Q: What is the best strategy for Mexico to play an important

records. However, commercial banks’ participation in the

role in the electrification revolution?

vehicle financing market puts pressure on OEM financing

A: Mexico will continue to be a world-class vehicle producer

branches. Because banks have a stronger capacity to absorb

and exporter, but the country needs to start developing a

risk, it is easier for them to offer credit to more potential

supply chain for electrified vehicles. As more markets bet

car buyers. This has led banks to increase their share in this

on EV production, Mexico could fall behind competitors

sector at the expense of the financing arms of OEMs and will

should it fail to adapt. OEMs like Audi, BMW, Ford and FCA Group have plans to assemble hybrids and EVs in Mexico but the country needs suppliers that can develop

JATO Dynamics is a business intelligence provider specialized

advanced components for those cars. The country must

in the automotive industry. The company has created special

also get involved in design and engineering operations

consulting solutions for vehicle and component manufacturers,

to stop being considered as a low-cost destination for

distributors and fleet managers

manufacturing operations.

VIEW FROM THE TOP |

THE LONG ROAD TO USMCA

MANUEL NIEBLAS Partner and Manufacturing Industry Leader of Deloitte México

ALBERTO TORRIJOS Partner and Automotive Sector Leader of Deloitte México

Q: How has Mexico advanced toward the production of future

locate their capital. Mexico needs to continue investing in the

vehicles and their components?

development of its domestic market and its skilled talent.

MN: The Mexican automotive industry has started to react to the electrification trend but there has not been a major

Q: How can Mexico adapt to this changing trade environment?

change in focus toward these products. An OEM has

MN: Around 82 percent of Mexico’s vehicle production is

announced plans to start assembling an EV model at volume

exported. While USMCA will bring several challenges for

scale in the country and some suppliers based in Mexico are

the sector, Mexico has the advantage of an extensive FTA

preparing for the shift. Local production of EVs will boost

network. Mexico needs to develop a diversification strategy

a change in perspective toward new technologies and will

for its vehicle exports in the medium to long term. However,

entice suppliers to start working on new components and

to achieve that, the country must start building the cars that

systems. At Deloitte, we are constantly raising awareness

those markets demand. Mexico’s automotive industry builds

about the concepts of smart mobility and smart cities so our

the cars that US buyers want and only a few OEMs have

client companies know where to direct their development

invested in producing the cars that other markets demand

strategies related to e-mobility.

to make Mexico an assembly hub for the global market.

AT: While changes related to electrification are still incipient,

AT: OEMs are starting to assemble global models in Mexico.

there have been several efforts by consumer-products

These companies see in their Mexico-based plants the

companies based in Mexico that invest in electrifying their

possibility to expand their operations to cater to more markets

delivery trucks. Because these players have large-sized fleets,

by producing newer vehicles and engines. OEMs’ newest

they care about increasing the efficiency and sustainability

plants are designed to be extremely flexible so they can easily

of their operations through vehicle electrification. Among

change the models that are produced there, which also offers

its clients, Deloitte is also promoting mobility, sustainability

the opportunity to build more hybrids and EVs locally.

and even development of initiatives focused on supporting e-mobility strategies in various regions of the country.

Q: What are the main areas of opportunity for collaboration between the public and private sectors to promote FDI

Q: How do you expect USMCA to impact Mexico’s

attraction?

attractiveness for automotive FDI?

AT: The establishment of R&D centers offers many

MN: The arrival of FDI to Mexico has been extremely

opportunities for collaboration. There are many companies

inconsistent since 1Q18 as a consequence of investment

interested in partnerships with academic institutions and

uncertainty. This has taken a toll on the Mexican automotive

the government to develop technical centers and labs, to

industry. Companies were waiting for some gaps regarding

create connectivity solutions, to optimize value chains and

USMCA to be filled. USMCA’s enforcement will help curb

to take advantage of Industry 4.0 technologies. The success

uncertainty but Mexico needs to continue its efforts to attract

of these collaboration strategies will depend directly on

FDI. It is important to offer incentives so Mexico can remain

the Mexican government’s commitment to offer platforms

an attractive destination. Additionally, issues related to rule of

and infrastructure that underpin the effectiveness of these

law and crime are some of the most common worries among

collaboration schemes.

potential investors and ratings agencies. AT: There are many opportunities for Chinese and other

Deloitte Touche Tohmatsu Limited, more commonly known

Asian companies to enter Mexico, which is good news for

as Deloitte, is a conglomerate of independent firms that offer

the sector. The trade war between the US and China has

professional services including audit, tax, consulting, risk and

enticed Chinese companies to diversify the places where they

financial advisory services

| VIEW FROM THE TOP

USMCA: SPRINGBOARD TO TECH DEVELOPMENT JUAN FRANCISCO TORRES LANDA Partner at Hogan Lovells

Q: What opportunities will USMCA’s rules of origin bring to

storage capacity, for example, thus aiming at ensuring

Mexican suppliers in terms of electrification?

autonomies of 800 to 1,000km.

A: The new rules of origin may not be ideal for some but they ensure continuous development of the automotive

Q: If demand for internal-combustion vehicles plummeted,

industry in the face of political uncertainty. Moreover, new

where would that leave Mexico?

wage requirements will create opportunities for Mexico

A: Certain regions in Europe and the US are projected to ban

to participate in added-value manufacturing and design

these vehicles in the next 10 to 20 years. This will be a turning

activities. Overall, USMCA will help the country transform

point for the industry and manufacturing companies will need

from a manufacturing country to a technology investment

to migrate toward EV components rapidly. While internal-

destination, which is crucial for Mexico to remain a leader

combustion and hybrids drivetrains have around 700 moving

in the industry. While companies like Rassini or Nemak are

components, EVs only have five or six. For many companies,

great examples of Mexico’s automotive capabilities, the

this would mean an imminent end to their business, which is

country still needs to improve its local supplier base by

why some like transmission manufacturer ZF Friedrichshafen

promoting investment in R&D operations and persevere to

are investing aggressively in the development of new

really collaborate with big players in the industry.

components for the EV market.

Q: What advantages can carmakers find in collaborative

Having said that, internal-combustion vehicles will remain part

development of components and systems for EVs?

of the mainstream, especially in developing countries where

A: Being capable of supplying such components is both a

it is difficult to develop electrification infrastructure. Most

race against time and a matter of survival for automotive

vehicle exports from Mexico target the US and there are also

companies. Vehicle electrification will shake the industry to

shipments to European markets to a lower extent, so demand

its very core. In the 20th century, engine size and power output

for electrified vehicles in those markets will set the pace for

were the main differentiators for vehicles. In the 21 century,

the Mexican industry to migrate toward electric platforms.

the number and quality of added-value services that vehicles can offer will be the most important factors in the clients’

Q: What are the main sources of uncertainty at the moment

decision-making process.

in terms of investment and how can they be addressed? A: Issues such as the cancellation of NAIM impacted

Several world-class OEM groups, including Daimler and

investment certainty, which made 2019 a complicated year

BMW, have announced their willingness to collaborate to

for the country. At the same time, there are obstacles to be

develop technology for EVs, while others, such as Ford and

tackled for the industry to grow effectively. Infrastructure in

Volkswagen, are on it already. This is a matter of efficiency.

areas such as telecommunications, ports, railroads and roads

The more companies, resources and people are involved in

must be improved to ensure medium and long-term growth.

the development of electrification technologies, the less time

Security concerns are also impacting the automotive industry,

it will take to come up with innovative solutions to not only

since companies can see their assets threatened by possible

survive but grow in a fiercely competitive market. Technology

criminal activity.

companies are also key elements in these partnerships. Some are helping to develop smaller battery packs with greater

The automotive industry is the sector with the most employers nationally, so it is important to preserve it. Hogan Lovells has been in talks with the Ministry of Economy and

Hogan Lovells is a world-class law firm that advises

the federal administration and we have been assured that

automotive clients on complex legal issues. It has counseled

the development of Mexico’s automotive industry will be

leading automakers, automotive parts manufacturers and

safeguarded and even boosted. This is a strategic area and

distributors

will be treated and sponsored as such.

INSIGHT |

KEEPING UP WITH GLOBAL TRENDS JORGE AMPUDIA Director for the Products Industry of Accenture

Despite innovation, the foundations of the automotive

While CASE trends are related to the product, OEMs should

industry have not changed significantly throughout the

think about user experience as well if they want to gain

years. However, recent developments will bring a major

and retain clients. “The industry has taken too long to add

transformation to the sector in the near future, according

value to its services beyond its main product (the car).

to Jorge Ampudia, Director for the Products Industry of

For customers, the overall experience in the automotive

Accenture, a consulting firm. “The automotive industry has

industry is quite broken. Car sales have not changed for

been experiencing an accelerated transformation over the

over 100 years and there are still many hindrances in

past five years. Customers have higher expectations than

aftersales services throughout the vehicle’s useful life time,”

before, originating from experiences in other industries

says Ampudia.

and these are being transferred to the automotive industry,” he says.

Adding value to the different stages of the customer experience requires a well-prepared strategy in which

The industry is shifting toward a connected, autonomous,

OEMs collaborate with the broader ecosystem. Ampudia

shared and electric (CASE) future and OEMs are already

highlights the fact that Accenture has been working

investing resources to face these global trends. “Cars are

closely with some OEMs in developing their customer

and will be more complex, including more electronics than

experience strategy. “We identified key capabilities that

mechanics, and now are digital extensions of their users.

OEMs should develop based on customer insights, end-to-

All OEMs are investing in vehicle connectivity, autonomous

end customer knowledge and future trends to transform a

vehicles and electrification,” Ampudia says. The idea of

traditional OEM operating model to become a truly mobility

car ownership is also changing as a result. Ride-hailing

company,” he says. “We also focused on how to change the

companies are changing the industry’s paradigm by helping

way the customer lives the sale, aftersales and ownership

people to move from owning a car to just consuming it.

experience, coming up with alternative sales models,

“OEMs need to think now about their future role in mobility.”

including direct sales models.”

Technology is quintessential to improve the connected

Technology is an ally when creating new experiences

car’s performance and vehicles will need to generate and

and for Ampudia, digitalization and analytics are key to

manage data efficiently. Accenture is collaborating with

understanding customer behavior. OEMs should focus

some Tier 1 suppliers in developing a new generation of

on understanding what their customers are looking for

digital components so OEMs can improve the connected

during the sales and aftersales journey to identify ways to

user experience. “We are investing financial and human

improve their overall experience and engagement. “Digital

resources on innovation and research to address these

and emerging technologies such as augmented reality, can

areas, especially considering that several of our Top clients

help in specific steps of the journey to enable both physical

are automotive companies,” says Ampudia.

and digital experiences,” he says.

Although advanced trends have not been fully adopted

Considering the ongoing slowdown in the Mexican

in Mexico, they are gaining strength. In the MAR 2018

automotive market, dealerships cannot afford to lose

interviewee survey, 36 percent of the interviewees

a potential client. “OEMs and dealerships need to make

expected at least a 10 percent level of penetration for

their processes and structures more efficient to capture

electric and hybrid vehicles in the Mexican market within

as many opportunities as possible in this winding market.

five years. Meanwhile, 44 percent of the interviewees

They cannot miss the opportunity to provide a superb

considered car ownership is losing some importance

experience in every interaction with customers to increase

among Mexican consumers.

their chances to land a sale,” says Ampudia.

Audi Q5, San Jose Chiapa, Puebla

ORIGINAL EQUIPMENT MANUFACTURERS

2019 represented the end of a cycle for most brands established in the country as production, exports and sales faced a downward trend. OEMs agreed the industry reached the bottom of the curve. In this chapter, each brand presents its strategies to face the challenges the industry will face in 2020 and beyond.

More efficient operations and customer services, digital tools and marketing strategies directed to a new consumer generation will be the basis to boost sales in the new decade. At the same time, OEMs are really pressing the accelerator in their efforts toward CASE vehicles, which they all agree will be the new normal for the industry while differing on the time frame. Finally, industry leaders expect USMCA will provide the certainty the industry was hoping for while automakers and suppliers face the enforcement of new rules of origin.

CHAPTER 2: ORIGINAL EQUIPMENT MANUFACTURERS 38

ANALYSIS: A Tough Year for the Industry

INFOGRAPHIC: Leaving Uncertainty Behind

VIEW FROM THE TOP: José Román, Nissan Mexicana

VIEW FROM THE TOP: Horacio Chávez, Kia Motors México

VIEW FROM THE TOP: Claudia Márquez, Hyundai Motor de México

VIEW FROM THE TOP: Edgar Pacheco, Honda de México

VIEW FROM THE TOP: Miguel Barbeyto, Mazda de México

VIEW FROM THE TOP: Tadashi Tahara, SUZUKI Motor de México

VIEW FROM THE TOP: Magda López, Renault México

ANALYSIS : Mexico’s Oldest Manufacturing Partners Adapt to Industry’s Downturn

VIEW FROM THE TOP: Nazareth Black, Zacua

VIEW FROM THE TOP: Patrick Yang, BAIC Mexico

VIEW FROM THE TOP: Elías Massri, Giant Motors Lationamérica

VIEW FROM THE TOP: Andreas Lehe, Audi México

VIEW FROM THE TOP: Jaime Cohen, Mercedes-Benz México

INFOGRAPHIC: COVID-19's Effects on the Industry

VIEW FROM THE TOP: Philipp Heldt, INFINITI Mexico

VIEW FROM THE TOP: Dai Hosoya, Subaru México

VIEW FROM THE TOP: Raymundo Cavazos, Volvo Car México

INSIGHT: Raúl Peñafiel, Jaguar Land Rover México

VIEW FROM THE TOP: Guillermo Echeverría, VUHL

VIEW FROM THE TOP: Rodrigo González, Ferrari Mexico

VIEW FROM THE TOP: Martin Josephi, Lamborghini, Aston Martin, Caterham,

Morgan & Rimac Mexico

VIEW FROM THE TOP: Adam Gron, McLaren Automotive

VEHICLE SPOTLIGHT: Tesla: Redesigning the Meaning of Groundbraking

VIEW FROM THE TOP: Gaspar Aguilar, Cummins

VIEW FROM THE TOP: Enrique Enrich, Scania México

VIEW FROM THE TOP: Flavio Rivera, Daimler Trucks México

VIEW FROM THE TOP: Leandro Radomile, MAN Truck & Bus México

VIEW FROM THE TOP: José Armenta, FOTON México

| ANALYSIS

A TOUGH YEAR FOR THE INDUSTRY Mexico is the fifth-largest exporter of auto parts in the world and first in auto exports to the US. However, 2019 was the third year in a row with a drop in automotive sales. Economic deceleration, uncertainty regarding the outlook and the fall in automotive loans have created a difficult landscape

It’s a tough time to be in the automotive business. The

While Nissan remains a leader in sales, it also saw the

economy is slowing, sales are down and the outlook

largest decline in 2019, with a 14.1 percent drop on sales of

from the current vantage point remains uncertain. It is an

268,156 units. GM followed with a decrease of 10.2 percent

uneasy moment for OEMs, but the industry always moves

and the sale of 211,987 cars; Volkswagen, with a decrease

in cycles and bright spots on the landscape suggest a

of 8.5 percent and 143,649 vehicles; and Toyota, with a

better future could emerge.

fall of 2.8 percent and 105,663 units sold.

For now, though, carmakers are dealing with the hard

Toyota, which previously had weathered the sales

facts of decline. The automotive industry in Mexico

storm, also saw a turn of fortunes in 2019. The Japanese

closed 2019 with sales of 1,317,727 new light vehicles,

maker sold 105,630 cars in Mexico, 2.8 percent less

a 7.7 percent drop compared to the previous year, the

than it registered a year earlier and the company’s first

biggest stumble since 2009 when it sank 26.4 percent.

decline since 2010. Tom Sullivan, the company’s country

According to INEGI, of the 27 car brands sold in Mexico,

president, told El Financiero that the result was due to

16 posted negative results compared to 2018. Four of

low domestic demand. However, he stressed that the

these 16 brands represent 58.2 percent of the country’s

company feels satisfied because it has maintained its

total vehicle sales.

level of 100,000 cars sold per year, a steady performance the company has maintained since 2016. Toyota also

The negative trend in Mexico continued into 2020, with

sold around 16,980 hybrid units, or 16 percent of the

sales of new vehicles in March totaling 87,517 units, a

company’s total sales.

25.5 percent decline compared to March 2019, according to figures from INEGI and AMDA. This marks only the

ABOVE WATER

beginning of a year full of expected challenges, for which

Despite the storm, there were some bright spots. Kia is

the OEMs in Mexico are already preparing.

among those that stood out, posting 1.4 percent growth on sales of 95,539 units. The South Korean multinational

Nissan remains first in sales with a market share of 20

has diversified its models in Mexico. In particular, it has

percent, followed by GM with 15.6 percent Volkswagen

enjoyed a positive reception for two vehicles made at its

Group in third, with 14.6 percent. The brands that saw the

plant in Nuevo Leon: Forte and Rio.

largest drop in sales in March 2020 were Nissan, down 31.1 percent, and Volkswagen, which fell 15.1 percent. After the

The company also credits its alliances with dealership

data was published, General Director of AMDA Guillermo

groups, financing and insurance companies for its

Rosales said that these figures confirm the continued

success. “We have promoted our vehicles through them

negative trend for the automotive sector that started in

and received a rather good response. Our alliances …

June 2017.

have helped Kia Finance earn a solid share in the Mexican

MARKET SHARE OF OEM’s IN MEXICO (percentage) 2018

2019

21.9% Nissan 16.5% General

20.3% Nissan 16.1% General

13.8% Volkswagen 7.6% Toyota 6.6% KIA 5.9% Honda 5.2% FCA Mexico 4.1% Mazda 4.8% Ford 3.5% Hyundai Ford Others 10.1%

13.8% Volkswagen 8.0% Toyota 7.3% KIA 5.5% Honda 4.8% FCA Mexico 4.6% Mazda 4.4% Ford 3.5% Hyundai Ford Others 11.8%

Motors

2018 Nissan

KIA

General Motors

Honda

Volkswagen

FCA Mexico

Motors

2019 Nissan

KIA

Hyundai

General Motors

Honda

Hyundai

Others

Volkswagen

FCA Mexico

Others

car-loan market, improving Kia’s sales,” said Managing

be necessary for the industry to make adjustments to

Director of Kia Mexico Horacio Chávez.

its workforce, including fewer work hours, voluntary leave and compensation. Although the firm refused

In 2019, South Korea established itself as the fifth-largest

to provide a global number for future layoffs derived

automotive force in the country, with a market share of

from technification or electrification efforts, last year it

7.3 percent at the end of 2019. “Without a doubt, we have

reduced its payroll by 6,800 people.

become one of the main players in the Mexican vehicle market. In only three years since we arrived, we have

To meet the major challenge of a contracting industry,

become the fifth top-selling OEM in the country and we

AMDA delivered to the Office of the President a proposal

want to continue improving,” said Chávez, who remains

for a “countercyclical program,” including actions to

positive despite the market’s overall conditions. “Despite

curb the fall of the domestic automotive market. The

this landscape, the company has enjoyed growth and is

proposal includes legislative modifications to spur a

on track to sell 100,000 Kia vehicles per year.”

recovery in auto sales, which is in line with the authorities’ agenda and the Ministry of Finance and Public Credit

Another success story in 2019 was Spanish company

(SHCP) comments regarding a financial reform to be

SEAT. Its performance consolidated the company one

outlined in 2020.

of the strongest automotive players in the world with sales that made it one of the leaders in production. SEAT

AMDA also said that it expects a drastic drop in car

closed the year with the largest volume of cars sold in

sales in Mexico in April and May due to the crisis caused

its history at 574,000 cars worldwide, exceeding its 2018

by the COVID-19 pandemic. Analyzing the behavior of

results, at 517,600 units sold, by 10.9 percent. In Mexico,

the automotive market in countries that suffered the

SEAT sold 24,300 cars in 2019, which represented 5.4

pandemic earlier, such as China, Europe and the US, and

percent growth compared to 2018. Although León is still

taking into account the declared health emergency in

SEAT’s flagship car and its sales leader, a big driver for

Mexico, which led to the suspension of non-essential

the company was its SUV segment.

activities, a higher drop of 90 percent, or even 94 percent, is expected in the month of April, Rosales said

TOUGH OUTLOOK

at a conference in March. AMDA expects a very slow

For the time being, more of the same is anticipated across

recovery for the rest of 2020.

the industry. Consultancy IHS Markit said it expects continued low sales and does not foresee an increase in

The industry is also fighting against used-vehicle imports

car production worldwide before 2025, while projecting

coming from the US, referred to as “chocolate” cars. In

a reduction of 10 million units in 2020 compared to

2019, the private sector acknowledged the decision of

2017. This is due to the change in the preference of US

President López Obrador to extend into 2020 a decree

consumers for light trucks and internal market stagnation.

that regulates the number of definitive imports of used vehicles that come into the country.

The COVID-19 pandemic also put a cloud over the sector. At the beginning of April, 10 of the 12 companies that

These vehicles are sold well below their commercial

produce vehicles in Mexico shut down their plants, which

value in the domestic market and there were proposals

forced closures at their auto parts suppliers, due to low

to scrap the decree and allow for an unregulated number

demand worldwide and the closing of borders as countries

of cars to enter the country. The proposal, however, was

took draconian measures to contain the outbreak.

refuted and the decree ending in 2019 will be extended to December 31, 2020. From Jan. 1, cars from the US can

In the US, the three big automakers, GM, Ford and FCA,

be imported as long as it can be demonstrated that the

closed all their production plants due to the spread of the

vehicle was manufactured in North America.

virus. However, most analysts believe that automakers will recoup much of the loss in the second half of 2020, if the

The first steps in this regard are already being taken. In

pandemic recedes over the next three months.

Tijuana, Baja California, the government began operations throughout the state in February to detect the circulation

Long-term, the switch to electric cars is expected to

of these units, which according to official estimates,

generate opportunities, but will impact employment in

exceed 1 million. The state Congress is also considering

the short term, according to Bosch CEO Volkmar Denner.

an initiative to create the Institute of Vehicle Identity

"Ten workers are needed to manufacture a diesel injection

and to Combat Pollution, which in turn, incentivizes

system, three are need for a gasoline-based system and

the development of a recurrent census of regular and

one for an electric motor." As a result, Bosch said it will

irregular cars.

| INFOGRAPHIC

LEAVING UNCERTAINTY BEHIND Uncertainty regarding USMCA, changes in the federal

remain the same as last year, but notably, Honda went

administration and a decrease in global demand influenced

from the 10th to eighth position, overtaking Audi and

automakers in the country. Production dropped 4.1 percent

Mazda. Despite being second in terms of sales, GM took

compared to 2018, while exports decreased 3.4 percent. For

first place in terms of production and exports in 2019,

José Román, President of Nissan Mexicana, "2020 will be

ahead of Nissan (Mexico's best-selling brand) and the FCA

quite similar to 2019 although I believe the downward trend

Group, respectively.

has stopped. What we have experienced is not a crisis but As sales continue to drop, most automakers reported

a regular cycle and we have reached the bottom." 40

negative growth numbers by the end of 2019, leading to Honda surpassed Audi and Toyota, advancing from 10

to seventh place in production. The Top 5 exporters

total sales of 1.31 million units, a contraction of 7.7 percent compared to the 1.42 million vehicles sold in 2018.

MEXICO'S VEHICLE PRODUCTION, EXPORTS AND DOMESTIC SALES (million) 4

3.93

3.5

3.47

2.76

3.75

3.45 3.25

3 2.5

3.91

3.33

2.77

89% of

2 1.5 1

1.61 1.35 2015

2016

— Production

1.53 2017

1.42 2018

— Exports

MAR19/20 interviewees believe under USMCA, Mexico will still be an attractive destination for new OEMs

1.31 2019

— Sales

MEXICO'S MOST PRODUCED AND EXPORTED VEHICLES IN 2019 (THOUSANDS UNITS) MEXICO'S MOST PRODUCED AND EXPORTED VEHICLE MODELS IN 2019 (number of units)

12.34%

Tiguan

6.50%

11.42%

Silverado 2500 Doble Cabina

5.86%

10.89%

Jeep Compass

5.79%

10.55%

Sentra

10.40%

Equinox SUV

5.54%

6.86%

RAM 2500

— Production

— Exports

Market share (%)

100

150

200

250 Sources: AMIA in INEGI

PAGE

MEXICO'S VEHICLE PRODUCTION, EXPORTS AND DOMESTIC SALES BY BRAND IN 2019

FC A

Fo rd

25 5

24 9, 60

7 4,74

7 58 0,

1 25

Germ 16.7 an %

415,921

Production share by OEM

443,414 pa

3 0. 9 %

N PA

Honda

Toyo ta

0 ,70 672

191,

Ma zd a

191,83

,83

89 70 ,8

0 0,0

00 0,0 70 00 0,0 60 00 0,0 50 00 0,0 40 00 0,0 30 00 0,0 20 00 0,0 10

A GERM

sa Nis

Volkswagen

US OEMs have the largest production share with 44.6 percent

44.6% US

156,6

Chinese uth Soorea .1% K .6% 7

,248 442

,127

204,414

156

24 ,75 5

179,174

AUD I

669

Production Exports

55 4,2

0,1 41

43 827,8

864,14

JAC

3,333,568

a Ki

Total exports

TH U EA SO OR K

3,750,841

Gr ou p

INA CH

Total production

MEXICO'S TOP LIGHT-VEHICLE PRODUCERS AND EXPORTERS BY NUMBER OF UNITS (2019)

PRODUCERS

EXPORTERS

1 2 3 4 5

General Motors was the No. 1 light-vehicle producer and exporter in 2019

| VIEW FROM THE TOP

THE INDUSTRY WE ARE ABOUT TO LIVE IN JOSÉ ROMÁN President and Managing Director of Nissan Mexicana 42

Q: What are the most valuable lessons that the Nissan family

process. This technology also enables advanced mobility for

has taught you?

the elderly. When the gap between vehicles and infrastructure

A: Nissan is a company that teaches you and gives you a true

disappears, I imagine a Mexico City center full of autonomous

sense of what a global company is. Our executive committee

vehicles and less traffic.

is composed of people from all nationalities because what matters most is that you are good at your job. Although

The market will change quickly and profoundly. We should be

the company retains its Japanese manufacturing model, its

ready for new customers and technological trends that will

business management is international.

shape the future challenges of the industry.

I do not consider myself a disruptive manager, but I do

Q: How is Nissan’s Intelligent Mobility strategy ramping up

work on disruptive projects. A leader’s role should be clear,

in the country?

transparent and focused on constant effort. We have to be

A: This has been part of our core business for over 12 years.

careful about creating waves in a large organization such as

We were the first to equip vehicles with parking cameras 10

Nissan with more than 16,000 employees. A leader should

years ago. Those details are part of what makes a Nissan

manage disruptive projects and business thinking with a long-

vehicle. At the time, these components seemed disruptive,

term view. We have more than 58 years of traditional history

but they quickly became the new normal. Today, we are

in Mexico. Now, we should think about the future.

launching a new Versa model that has all those features and more. Intelligent Mobility is not a slogan. We have truly made

Q: What will Nissan’s future look like?

technology the core of our vehicles.

A: At Nissan, we think about the vehicles we will launch five years before they reach the market. After spending over

Technology developments also will translate to advances

three years in Japan, I can tell you that what is coming will be

that the customer will find useful. A car full of technology

unbelievable. EVs are a fact now. In Mexico and Latin America,

with little customer application is not practical. There are

EVs will arrive hand-in-hand with technologies such as

customers who cannot conceive of a car without a camera

e-power. E-power is an electric powertrain with a combustion

or proximity sensors, for instance, because these make their

engine that supports and charges a battery, which is the

life easier. Nissan Intelligent Mobility has already arrived in

opposite of a hybrid vehicle that has a combustion engine

Mexico, although it will require several stages before being

supported by a battery. EVs provide outstanding performance

fully implemented. It is a platform we use to constantly offer

and this is what will attract customers. Technology adoption

our customers a better product.

is a matter of time. Similar to the cellphone experience, the electrification trend will ramp up within 10 years in

Q: The Nissan Switch program has already explored shared

Latin America. An obstacle for this technology, however, is

mobility in the US. What are your plans for the Mexican

infrastructure development, which should be the responsibility

market in this regard?

of cities and governments as well as the private sector. The

A: We will use Nissan Switch in Houston as a beta program.

EVs that will land in the region will be e-powered units that

The project is really interesting because it makes total sense

will not require a large number of charging stations.

in large cities like Mexico City. The beta program will help provide a clearer picture. What is certain is that shared

Autonomous driving will arrive as well. I have driven fully

mobility schemes are coming. It will be focused on certain

autonomous Nissan models in Japan. The technology is

cities and customer segments rather than being a mass-scale

ready, it is just a matter of making it available. Cities must

program. We do not want a Nissan Switch in Mexico just for

be connected to vehicles, which is why I see this coming in

the sake of it. We want it because it will be useful for our

the midterm, and Nissan will have some advantages in this

customers.

Q: How has Nissan maintained a harmonious relationship

Q: Nissan is the second-largest producer in the country. What

between dealerships and the brand?

are your expectations for vehicle production in 2020?

A: There are three elements in this equation: us as a brand,

A: It will be quite similar to 2019, although I believe the

dealerships and our financial arm. The endgame is to offer

downward trend has stopped. What we have experienced

the best service to the customer. Without a solid financial

is not a crisis but a regular cycle. In the automotive industry,

brand solely focused on automotive operations, success

we have five to seven-year product cycles. In Mexico, we had

can be elusive. I have been in seven countries and this is

over 10 years of continuous growth, which could not go on

always the case. Although some banks work with OEMs

forever. We have reached the bottom of the cycle now and

and dealerships, their core business is not the automotive

will begin to see slightly positive growth before the industry

industry. CrediNissan’s specialized focus, for example, gives

starts to ramp up again.

it an added value. We take care of our customers and are always looking at how we can make our products better.

In each market, the cycle is different. The Mexican market

Not everything is about price. Customer service is key to

was closed 25 years ago and today it is carries a volume of

improving competitiveness. We do offer a competitive price,

1.3 million cars. At its worst, it is still a big market. To reach

but we also offer outstanding service.

the 2-million mark, we need to work with the government. The public sector has to create a whole mobility plan that

The Mexican market is entering a new phase. All dealerships

includes not only cars but public transportation. Vehicles are

from all brands, not only Nissan, are reaching a stage where a

just a fraction of the mobility equation.

traditional service is no longer enough. New technologies are arriving and over the next 10 years, business models will move

Q: What is Nissan’s strategy regarding local supplier

toward digitalization and service. We will see dealers who

development?

pick up cars at the client’s house for maintenance and who

A: We do not necessarily look for local suppliers, we look for

help with the legal permits for getting a license plate. People

world-class suppliers and it turns out that Mexican suppliers

have less time than before, so they need someone who can

are world-class. We do not add companies to our supplier

make life easier for them. Dealerships will become a help

base just because they are Mexican. They have to be good and

center for customers. The use of Big Data is really important

Mexican suppliers have proven they can deliver global quality.

in this regard. As cities are growing, a dealership with an

Our products are exported to more than 80 countries, which

originally very good location might not be as successful

means our quality has to be world-class. That is a challenge

today. We have to keep up with the growth of cities.

companies have to deal with.

Q: What are Nissan’s strategies to reach 24 percent

Q: What is the role of Nissan’s R&D center in Toluca?

market share?

A: The center is focused on product R&D. Over the five-year

A: Having a 24 percent market share is not a goal but a

development period of each new vehicle, we perform multiple

consequence. If we launch new models, take care of our

safety and engineering tests. For instance, the NP300 sold

customers, improve our dealerships, train our salesforce and

in Chile is manufactured in Mexico and must withstand an

offer a competitive price, I have no doubt that we will reach

altitude of over 5,000m. We replicate those conditions at

that mark and go beyond it. Our true objective is continuous

our R&D center to improve the product. It is a very simple

improvement, which requires attention to different variables.

continuous improvement process but it demands a great

The recipe that is working for us is offering a better customer

deal of technology and research. Our facilities are filled with

service with an unbeatable product. Versa 2020 is an

engineers and state-of-the-art labs that measure different

example. We expected good results due to our market

specifications. For example, we freeze vehicles and then heat

intelligence analysis, but we did not think the results would

them up to 150°C.

be as positive as they were. Versa, in its different versions, is selling 10,000 units a month despite the additional

We are also creating a technology development hub at our

specifications the model had to comply with and that

new headquarters in Mexico City. We will also create a human

ultimately were passed on to the customer. However, when

resources hub that will provide service to the Americas and

the customer sees the value in the product, they respond to

supply all the talent that Nissan needs on the continent. If any

it. Within the next 18 months, we will renew 60 percent of

Nissan employee has a problem, a Mexican will take care of it.

our product portfolio. We are the first Mexican-Japanese brand in the market. Our

Nissan Motor Corporation is part of the Renault-Nissan-Mitsubishi

almost 60 years of history in the country mean something.

Alliance. Nissan Mexicana has been the top-selling brand in

We are fully integrated into the Mexican imagination and are

Mexico for 10 years straight. It has three manufacturing plants in

perceived as local even through our brand is Japanese.

the country, plus another dedicated to the INFINITI brand

| VIEW FROM THE TOP

DESIGN, TECHNOLOGY KEY TO SOUTH KOREAN OEM SUCCESS HORACIO CHÁVEZ Managing Director of Kia Motors México 44

Q: What alliances does Kia need to keep its sales momentum?

both buyers of new Kia cars and the brand to create a client

A: We have generated alliances with dealership groups,

base that will purchase a new vehicle after entering the Kia

financing and insurance companies, promoting our vehicles

family with a used unit. Since its launch, Kia has expanded this

among them and receiving a rather good response. For

program to a network of 17 Konfidence showrooms, plus eight

instance, our alliance with Cetelem, formerly BNP Paribas,

more in 2019. Most of the vehicles that we sell are certified

is key because it acts as Kia’s financial branch in Mexico.

before reaching the showroom, which helps us maintain

Together, we have developed a robust vehicle financing option

warranties on used cars.

for customers. Our financial product lineup is innovative and attracts interest from potential car buyers, which has helped

Only 35 percent of all cars sold in these showrooms are Kia

Kia Finance earn a solid share in the Mexican car-loan market.

because there are few Kia customers that have concluded their repurchase cycle, which in Mexico lasts five years. The

Q: What are the main factors behind the success of South

first 11,000 units that Kia sold in Mexico upon entering the

Korean OEMs in the Mexican market?

country in 2015 are reaching the end of their repurchase cycle

A: Kia cars are associated with eye-catching designs and

and customers are only now starting to change their current

for coming equipped with plenty of safety and connectivity

Kia for newer models.

equipment. We were a completely unknown brand when we entered the country, so we focused on generating the trust

Q: How has the Mexican market reacted to Kia’s hybrid lineup

factor among consumers, which entailed developing some of

and what challenges do green vehicles face?

the largest showrooms in Mexico to avoid being perceived as

A: Price is the main challenge these vehicles face to become

a small brand. We also offer warranties that cover seven years

more commonplace, but economies of scale will make green

of use or 150,000km to convey that Kia is a quality brand. This

cars more affordable eventually. Kia’s hybrid Niro has achieved

was our main letter of presentation to Mexican car buyers.

our expected sales of around 80 units per month. This SUV

Kia also offers the lowest maintenance costs in the Mexican

is attractive to Mexican consumers because of the great

market, which is decisive for customers who are looking for

mileage it offers. We are analyzing the introduction of more

a new car. Kia has also implemented a significant marketing

green vehicles from Kia’s global lineup to Mexico that could

campaign to communicate that it is a vibrant, quality brand.

fit the Mexican market with the goal of expanding our hybrid and EV lineup. This is, however, not an immediate option. It

Q: How has the Mexican market reacted to Kia’s Konfidence

is still difficult to acquire an EV in Mexico and even harder to

program for pre-owned vehicles since its launch in 2017?

drive it over long distances. For us, the future are the hybrids

A: This program was launched too early and no customers

that offer full autonomy and have great fuel efficiency while

wanted to trade in their car to acquire a new Kia model.

reducing polluting emissions.

However, it was a good way for us to understand and prepare for Mexico’s pre-owned vehicles market. This program is

Q: What are the most important factors hampering the

intended to generate a solid resell value for Kia cars in the

recovery of the Mexican vehicle market?

Mexican market. Not only do we earn a solid gross profit

A: There is still some level of uncertainty despite the Consumer

margin on each used car sold but this program also benefits

Confidence Index showing positive results. These levels of consumer confidence are not reflected in the pockets of buyers. Interest rates also are high. We are also missing the

Kia Motors is a South Korean OEM that entered the Mexican

influx of private investment and the government has reduced

market in 2015 and in 2016 began its local production in the

public expenditure. We hope to see a market reactivation that

municipality of Pesqueria, Nuevo Leon. In only three years, the

can help the Mexican vehicle market to recover from the steep

brand became the fifth-largest seller in the country

sales drop it has experienced.

VIEW FROM THE TOP |

QUALITY AND SERVICE UNDER A CUSTOMER-ORIENTED SCHEME CLAUDIA MÁRQUEZ CEO of Hyundai Motor de México 45

Q: What are Hyundai’s differentiators in a highly

We have advanced well in terms of digital sales strategies.

competitive market?

To this end, we work alongside our dealerships to link our

A: Quality and customer trust. Quality is present throughout

systems, make financial quotes and provide information

our entire supply chain and good quality translates to savings

online. Clients can use the website to select the settings for

for the final user. Hyundai’s designs are unique and even

their vehicle. It also includes Hyundai Live, a livestream tool

though this relates to customer preferences, Hyundai tries

that lets salespeople interact directly with the user. At the

to integrate its designs with the human factor. For example,

dealership, clients can customize their vehicle and almost

the success of the Creta and Grand i10 models is due to their

instantly get the financial quote electronically.

accurate design and the addition of the equipment customers are looking for, no more and no less. Our aftersales service and

Q: What are your views regarding electric and hybrid

innovative features are also advantages over our competition.

vehicles? A: Both are really important for the industry. Mexico needs

Q: What elements have led to a reduction in Hyundai’s

to foster their adoption in terms of infrastructure. The

production output in Mexico?

electrification trend began almost 15 years ago and there is

A: Most OEMs have reduced their production numbers given

still not enough infrastructure to support these units. Last

the supply and demand adjustments in the country. We are

year, we launched a facelift of Ioniq, which has been a major

adjusting our production at the global level focusing on the

success in the market. We support these models and we

most in-demand products. Our goal is to operate according to

proudly represent the electrification trend within our portfolio.

a long-term vision. We have to adapt and avoid accumulating stock. Whether new Hyundai models will be produced in

A great myth surrounding EVs is that they do not have enough

Mexico is still undetermined but customers can definitely

autonomy or efficiency. But vehicles have developed more

expect new Hyundai models launched in Mexico during 2020.

capacity. It is important for customers to use one of these vehicles and experience them first-hand.

Q: How does Hyundai develop its dealership network? A: We have a training academy in Toluca where we train

Q: What is your vision for Hyundai Motor de México?

dealers in both the product and aftersales service. We have

A: We are preparing for a promising year in which we are

a strong dealership network supported by an association

going to present upcoming models. Hyundai is a wonderful

that establishes how we seek to redirect or realign the brand

brand. Our priority is to look for integral growth for both the

depending on the national demand. We have 68 dealerships in

brand and our dealerships under a customer-oriented scheme.

the country, all with a focus on service, attitude and product.

This is easier said than done, especially in a moment when the industry is not as strong as we would like it to be. What I want

We are certain we need to work side-by-side with our

to establish is an appropriate strategy for our products to

dealerships. We have all the knowledge about upcoming

reach the market share we want. We want our dealerships to

models, global sales strategies and our own expertise.

be healthier than they are now. As for the industry in Mexico,

However, dealerships close the deal with the final customer.

if sales results remain stable, it will be a good starting point

They represent us and two brains are better than one.

for a new sales cycle.

Within our dealership association we have committees in different areas: aftersales, commercial, financing and network development, among others. We bring important issues to

Hyundai Motor is a South Korean OEM founded in 1967. The

the table for discussion. Together with dealerships, we set a

company started selling its vehicles in Mexico in 2014 and is

strategy to be presented to the general committee and where

now the 10th-largest brand in the market with a 3.5 percent

we have the final saying on which strategy to execute.

market share in 2019

| VIEW FROM THE TOP

QUALITY CAPTURES CUSTOMER LOYALTY EDGAR PACHECO Commercial Director of Honda de México 46

Q: How have you improved your sales through data

Today, in other countries we have a family of entirely

management and how has that influenced your

electric and hybrid vehicles and we also offer hydrogen-

sales strategy?

fueled models. In Mexico, we have the Insight model, a

A: Honda is a high-fidelity brand that has cultivated great

hybrid vehicle that is between Civic and Accord. Its motor

customer retention. Around 98 percent of our clients

works with battery cells fed by a combustion engine. We

come back to us for their first maintenance service and

are betting on a variety of technologies because there will

95 percent do so for the second one. Our Recompra

not be a clear winner dominating the entire world. Instead,

(Repurchase) program rewards that fidelity by giving

the winner will be defined by region. Because we are a

customers the option to resell their Honda vehicle to the

global company, we need to be prepared.

dealership. Honda vehicles retain a high value when resold. The program also benefits customers because the blue

Honda’s plans are definitely focused on being a clean

book pricing at the dealership tends to be between the

company. One goal of the Honda 2030 Global Plan is

upper-middle and upper range, providing a better price for

to convert most of our models to clean energies. How

the customer. Sometimes, we even repurchase the vehicle

fast that is adopted in Mexico will rely on the country’s

at a price above the upper range.

characteristics. This means that if the priority is to go electric, then focusing on charging points is necessary.

When we repurchase our vehicles, we generate more

If it is hybrid, policies must assure the vehicle remains

business for dealerships and we renew the purchasing

accessible to all markets. Without government incentives,

cycle, while keeping our customer happy and allowing

it is very difficult to integrate these vehicles into the

them to move from an HRV to a CRV, for example. Around

Mexican market.

40 percent of the vehicles sold through a dealership come back to us through the Recompra program.

Q: What are the biggest challenges to move your supply chain operations from Jalisco to Celaya?

Q: What role will EVs and hybrid models play in Honda’s

A: Bajio is fully developed in the automotive sector. Many

midterm plans for the Mexican market?

OEMs are already in Celaya, suppliers are well-developed

A: We were pioneers in this segment launching our Civic

and train lines are useful with the ferroférico project in

hybrid more than a decade ago. When we launched the

the city. Thus, concentrating our auto production in

CRZ hybrid, we were ahead of the times. At that moment,

Celaya did not represent greater costs. As of today, both

traffic and pollution were not the problems they are now.

plants are producing HRV models. Accordingly, we are

Demand has increased today as a result of government

not going to produce something new, the product will

policies and because of people’s environmental awareness.

remain the same. What we are doing at the global level

Honda has always cared about the environment. In fact,

is to adapt production plants based on market demand.

all our models have a green button called ECON, which

The Guadalajara plant is now focused on the US market

enables the vehicle to work under our “Earth Dreams”

and the Celaya plant is focused on the US, Canadian and

technology. This implies clean technologies, energy and

Mexican markets as well as other countries.

fuel efficiency. As the product evolves, we need economies of scale so we can supply adequately to all markets. The Celaya plant Honda de México started operations in 1985 with a plant located

is producing at full capacity, which is enough to supply

in El Salto, Jalisco. In 2012, Honda started the construction of its

global demand. The plant produces around 700 units daily

first plant in Celaya and one year later started the construction of

and 200,000 units annually. Furthermore, it is a new plant

a second plant for transmissions

and totally state-of-the-art.

VIEW FROM THE TOP |

MEXICO: NOBLE MARKET WITH OPPORTUNITIES MIGUEL BARBEYTO President of Mazda de México 47

Q: What is Mazda’s strategy to boost customer

Q: What was the main factor behind Mazda’s increase in

satisfaction in Mexico?

vehicle production and sales in 2018?

A: Rather than just satisfaction, our goal is to fascinate

A: In July 2018, we launched the sedan version of Mazda2,

customers and aftersales service is usually the most

which helped us increase our production in Salamanca

critical part of that effort. We have a department

and our total sales in Mexico. This new version also helped

specifically focused on customer experience and training

us enter a segment in which Mazda was not present. The

and around 35 percent of Mazda’s corporate staff works

rest of our lineup also enjoyed a solid sales performance,

in areas related to customer experience and developing

with growing results for our CX-5 and CX-6 SUVs. Brand

a strong service culture. If Mazda’s employees are not

awareness has also been key in this process. After 14 years

convinced about the way we are treating customers, the

in Mexico, Mazda has gained recognition and gathered a

effort behind all customer satisfaction programs is lost.

group of loyal customers that come back for new Mazda cars or take their vehicle to our shops. Rather than target

Q: What is Mazda’s strategy to stand out in the

a particular sales figure, our main goal is to maintain our

Mexican market?

market share in Mexico.

A: Mexican consumers have traditionally reacted well to Mazda’s new technology and vehicle launches. Brand

Q: How has the Mexican market received the new

value is at the core of Mazda’s strategy. We sell quality

generation Mazda3?

cars at a fair price; we are not interested in competition

A: Mexico has reacted well to this model, both in its

based on price. Mazda does not offer discounts and does

hatchback and sedan versions. When Mazda3 reached

not target ride-hailing services, unlike other brands that

the market in December 2018, the company expected to

get a third of their sales from users of mobility and leasing

sell around 1,500 units per month. However, its different

platforms, such as Uber, Cabify or Hertz. Only 3 percent of

versions averaged sales of 2,000 units monthly in its first

our sales go to fleets because our products target buyers

three months. There is even a waiting list to take a Mazda3

who love a great driving experience.

home, which says a lot about how well the market has received this model.

Q: How is Mazda attracting clients to its dealerships instead of them going to the one around the corner?

Q: How will CX-30 complement Mazda’s lineup in Mexico?

A: The Mexican market is used to walk-ins, which can

A: The SUV segment is highly dynamic, which has

be troublesome. Around 80 percent of the customers

enticed several brands to launch their own SUVs. Mazda

who reach our shops today, do so with an appointment.

had already covered the mini-SUV niche with CX-3 and

When customers schedule their maintenance service, they

the medium and large SUV niches with CX-5 and CX-9,

are received directly by an associate and the technician

respectively. The next step was to launch CX-30 to fill the

who will take care of their cars. These appointments help

gap that existed between CX-3 and CX-5. CX-30 targets

Mazda dealerships know when a customer will arrive and

young couples and families that need more space than

what type of maintenance they will need according to

a mini-SUV can offer to comfortably travel with children

mileage and type of vehicle, which helps us service cars

or other couples.

efficiently. We are aware that leaving your vehicle and then taking a cab to work and later back to the dealership can put pressure on our customers. To address this, Mazda

Mazda de México is the local subsidiary of Japan-based

will launch an express service in May that will allow its

Mazda Motor Corporation. The company has manufacturing

cars to be serviced and washed in only 45 minutes or the

operations in Salamanca, Guanajuato, where the Mazda2 and

service will be free.

Mazda3 are assembled

| VIEW FROM THE TOP

A CENTURY OF CUSTOMER CENTRICITY TADASHI TAHARA Director General of SUZUKI Motor de México 48

Q: How is Suzuki celebrating its global 100th anniversary?

Q: How does Suzuki make aftersales service easier for the

A: Everything began on March 15, 1920, when Michio Suzuki

end customer?

founded Suzuki Loom Manufacturing Co in Japan. From

A: Today, more than ever, it is essential to nurture the loyalty

that moment on, the company has expanded its original

of those who have chosen Suzuki over so many other

loom business to motorcycles, automobiles, outboard

options in the Mexican market. Therefore, we remain close

motors and assistance vehicles, among other technological

to our customer-centered philosophy and remain close to

breakthroughs, under our philosophy of “smaller, more

clients before, during and after we deliver their vehicle. We

efficient, lighter.”

have designed different aftersales service lines for the new members of the Suzuki family. Our CRM system helps us

We are celebrating our 100th year now. Today, all members

detect these consumers and our goal is to deliver the right

of Suzuki Motor Corporation reaffirm our founder’s

message to the right person. We also have a call center

philosophy to be customer-centered and to deliver quality

available to our customers where we can solve their needs.

products around the world. Apart from quality and service, Suzuki has differentiated from its competitors in attracting

Q: How does Suzuki integrate digitalization in the

Mexican consumers by offering fuel-efficient engines that

company’s sales strategies?

are also highly durable and provide a high cost-benefit

A: Suzuki is constantly updating its digital strategies to

to the user.

adapt to the new information trends, as required by our cyber users during the digital sales process. There are

Q: How are you strengthening the capabilities of your

different stages in the sales process, depending on how the

dealership network across the country?

customer approaches us. Leads from our social networks

A: We have 73 dealerships in Mexico. The controlled

and websites have demonstrated consistent growth over

growth of our network is a strategic issue for us. Expanding

the last five years. From our corporate offices to our

our number of dealerships is not our only goal. They are

dealerships, we are updating our processes to ensure we

our first clients. They compare our product against our

are always informed about our clients’ demands.

competitors and at the end of the day, they put their trust in our brand. One permanent goal we do set is that

Q: What are Suzuki’s plans to jump into the trend of

dealership operations remain healthy and profitable.

sustainable mobility?

Dealerships have been a fundamental element in our

A: Our priority is not to be just part of a trend but to be

success in the country.

actively involved in reducing global pollution. Today, Suzuki vehicles are equipped with more fuel-efficient engines,

At Suzuki, we have also strengthened our customer-

which translates to a reduction in CO and other polluting

centered philosophy. In 2017, we started implementing

gas emissions. Boosterjet engines, in particular, comply with

certifications for aftersales staff and developing key

the highest environmental and gas emission norms.

consumer satisfaction KPIs. We also created our customer relations department, which follows the Kaizen model

Q: What are your plans for 2020?

across our dealerships to assure continuous improvement.

A: We are going to continue enriching our vehicle offering, while complying with the strictest environmental and durability norms and the best cost-benefit standards. 2020

Suzuki is a Japanese OEM founded in 1920. The company has

has been an atypical year, presenting a great challenge not

a portfolio of motorcycles, automobiles, outboard motors and

only for the automotive industry but for the entire economy

assistance vehicles. In 2005, it entered the Mexican market and

as well. We are targeting 36,000 units sold this year, 15.34

now has a network of 73 dealerships

percent more than the 31,211 units we sold in 2019.

VIEW FROM THE TOP |

INCREASING MARKET SHARE THROUGH A BROAD OFFERING MAGDA LÓPEZ CEO of Renault México 49

Q: How has your strategy for Renault México advanced

Q: How will Renault’s alliance with Nissan help the

since you were appointed CEO in September 2018?

company strengthen its operations in Mexico?

A: Over the past two years, Renault went through a

A: The Renault-Nissan-Mitsubishi Alliance is the longest-

stabilization phase, in which the brand dedicated its efforts

lasting and most productive cross-cultural partnership

to defining a clear strategy and achieve steady results

in the automotive industry. The goal of the Alliance is

while still growing. To this end, we have been strengthening

to turbocharge the member companies’ growth and

our portfolio in three large segments in terms of volume:

performance. The Alliance 2022 strategy is based on the

SUVs, Utility Vehicles and EVs. However, our operation is

use of common platforms for the production of 9 million

fully supported by our SUV offering.

units. The plan will also extend to the use of common powertrains for 75 percent of our offering.

With the arrival of Duster to Mexico in 2013, Renault has focused on having a wide range of SUVs for the Mexican

To face the challenges of the automotive industry, Groupe

market. For six years now, we have been strengthening

Renault has visualized the development of its products and

that offering with the launch of Captur, the second phase

strategy in four fundamental pillars: electric, connected,

of Koleos, Stepway and the recently launched KWID. Since

autonomous and shared (CASE) vehicles. A major

2019, we have been the brand with the broadest portfolio

expansion in shared EV technologies is planned, along

in all SUVs segments. Additional pillars of this strategy are

with the development and implementation of advanced

the development of sustainable mobility projects, such as

autonomous drive systems, vehicle connectivity and new

the supply of EVs and the repowering of light commercial

mobility services.

vehicles, including Oroch and Kangoo. Q: With SUVs and premium vehicles as the only growing We are also growing hand in hand with our dealerships. At

vehicle segments, how do you expect the market to react

Renault, we are interested in having committed business

to Renault's lineup?

partners. We need to increase the size of their operations

A: We are determined to lead the SUV market by having

to help them to be more profitable and stay motivated. We

the most complete offering in the segment. The SUV

are also looking to grow with the franchisees we operate

market withstood the sales slump as the segment evolves

by making strategic investments for about five upcoming

and attracts more customers. Our vehicles incorporate

store openings at strategically chosen locations.

more high-end technology, such as the Media Evolution infotainment system. Renault has always been at the

Q: How would you assess Renault’s position in the Mexican

forefront of connectivity. All our models across Latin

market and what is the role that the company wants to

America incorporate multimedia systems with services

play in Mexico’s mobility strategy?

that go beyond the essential integrated GPS or navigation

A: The vehicles that we are introducing this year allow us

with preloaded maps. Starting in 2019, Renault Koleos

to approach the customer who is, in many cases, looking

equipped Smartphone Replication, allowing drivers to

for a vehicle that suits their lifestyle. Today, nine out of

replicate the content of their smartphone on the screen

10 clients recommend us because they feel we take care

of their vehicle.

of them. Our goal is for clients to be with us throughout their entire life and one way to achieve this is to walk hand in hand with them from the beginning. That is the

Renault México is the Mexican subsidiary of Groupe Renault.

importance of KWID. Before this vehicle, most of our

The French automaker started operations in 1898 and is now

customers started with other brands, so we had to win

present in 134 countries. Globally, Groupe Renault sold 3.8

them over at a later stage.

million vehicles in 2019

| ANALYSIS

MEXICO’S OLDEST MANUFACTURING PARTNERS ADAPT TO INDUSTRY’S DOWNTURN GM, Ford and FCA Group share a long-standing and dominant history in Mexico’s automotive sector. But history and experience alone will not guarantee success and the US Big Three are now facing fierce competition from incoming Asian and European players targeting both the US and Mexican markets 50

The US big three are among the oldest automotive companies

PRODUCTION LEADER

in the world. After enduring economic crises, mergers and

GM started to assemble vehicles in Mexico in the 1930s.

corporate restructurings, General Motors Company, Ford

With over 80 years of history in the country and after all-

Motor Company and Fiat Chrysler Automobiles together

encompassing corporate restructuring after the 2008-09

have more than 100 years of car manufacturing experience.

financial crisis, GM regained in 2018 its position as Mexico’s top

Ford arrived to Mexico in the mid-1920s, while Chrysler and

producer and exporting company. With four manufacturing

GM started operations in the country in the mid-1930s. After

facilities, one regional engineering center and 19,000

more than 90 years, these three companies continue to fuel

employees, the company produces 12 different models in the

Mexico’s automotive production, with a combined share of

country. Annual production in 2019 was about 864,143 units,

44.6 percent of Mexico’s annual production in 2019.

with its three main export markets being the US, with 74.9 percent of exports headed that way, Canada with 7.7 percent

History, however, is not a guarantee of success. Now, all

and Germany with 5.5 percent. Contrary to other automotive

three companies are facing serious competition in the

manufacturers in the country, including Ford and FCA, GM’s

North American market. OEMs arriving to Mexico over the

production has actually increased over the last five years.

last decade have done so targeting the needs of the US and Mexican markets. In 2010, there were just seven OEM groups

In terms of sales, starting in 2018, the percentage of GM

manufacturing in the country. At the end of 2019, there were

units sold and produced in the country decreased from

12, each with a strategy to strengthen its market share.

47.95 percent in 2017 to just 14.72 percent in 2019. The company has 347 dealerships in Mexico representing GMC,

MEXICO’S OLDEST AUTOMOTIVE PARTNER

Cadillac, Buick and Chevrolet brands, which helped deliver

Ford is Mexico’s oldest automotive manufacturing partner.

the company second place in sales with 211,987 units sold in

In 1930, the Ford de la Villa plant was inaugurated with a

2019 and a 16.09 percent market share. Looking to the future,

daily production of 100 vehicles. Today, the company has

autonomous, connected and electric vehicles are right at the

8,700 employees in the country, 129 Ford dealerships and

center of its strategy. “We have the ambition, the talent and

19 Lincoln dealerships, plus an engineering center and five

the technology to create a world with zero crashes, zero

manufacturing complexes in Cuatitlan, Chihuahua, Hermosillo

emissions and zero congestion,” says Mary Barra, Chairman

and Irapuato.

and CEO of GM.

In terms of production, Ford was overtaken by Kia in 2018 as

AN OLD NEWCOMER

Mexico’s fifth-largest car manufacturer. In 2019, still in sixth

Even though FCA Group emerged less than a decade ago,

place, the company manufactured 249,605 vehicles, 40,000

just after FIAT acquired 100 percent of Chrysler in early

less than Kia. Of Ford’s exports in 2019, 94.5 percent were

2014, Chrysler had previously established operations in the

aimed at the US market, followed by 4.75 percent directed

country in 1938 with a production plant built in Toluca in

to China. As for sales, Ford fell back to eighth place with

the 1960s. FCA Group now represents 14 brands, including

a 4.37 percent market share and 57,563 units sold in 2019,

Alfa Romeo, Chrysler, Dodge, Fiat, Jeep, Maserati and RAM.

after Japan’s Mazda reached a 4.56 market share and

Two years after the merger, Ferrari completed its exit to

60,081 units sold. This marks the fifth year of consecutive

become an independent company. In Mexico, the company

decline since Ford ranked fourth with a 6.46 market share

has five manufacturing facilities, mainly in Coahuila and

in 2015. Whether the company regains its old sales shine

Toluca. FCA, combining Fiat and Chrysler’s production in

will rely on how the Mexican market embraces industry

the country, is Mexico’s third-largest manufacturer with

trends, including EVs and connected vehicles. In its Y19

560,141 units produced in 2019, including Jeep Compass

report, the company highlighted a US$11 billion investment

and Crew Cab, which were the third- and seventh-most

in electrification by 2022.

produced models in the country.

VIEW FROM THE TOP |

MEXICAN BRAND SEEKS MARKET SHARE IN GROWING EV NICHE NAZARETH BLACK Director General of Zacua 51

Q: How did Zacua perform in 2019?

of these vehicles. With information available, we want to

A: After creating the Zacua brand in July 2017, we began to

open new niches such as the business sector.

build the plant, which opened in late April 2018. From that date, we began to assemble the first vehicles, which were

Electromobility in Mexico has not advanced rapidly

delivered in October. It was then that the dream turned

because many areas need work at the same time. One is

to reality and the first round of vehicles we manufactured

infrastructure, where work must be done to strengthen

was distributed among family and friends to monitor the

charging networks for the use of vehicles. Legislation is also

operation of the vehicles.

needed to seek incentives for purchasing these vehicles We are working on a collaboration with banks and insurers to

We did not start producing immediately after this first

show them that EVs are safe and that they can be financed.

round. We decided to wait six months to collect all possible

Zacua is working to quicken the flow toward electromobility.

data from the cars that were already on the streets. One

For example, we are participating in workshops with the

of the improvements that we had to implement in terms of

federal and state governments.

digitalization was the design of a full-touch screen.

Since October 2018, Zacua has sold 50 EVs

Once we solved all issues, we started working on production to deliver on request. Zacua’s business model is completely digital and we are a company that seeks efficiency in everything. For that reason, we do not mass produce and our goal is to reduce our delivery times from three to two months. Zacua’s production is 100 percent handmade and we have been fortunate to already sell 50 of our vehicles.

Q: What was the biggest challenge that Zacua faced when it began to market its vehicles?

For Zacua that is a very good number. In Mexico, regardless

A: Participating in the electromobility industry is a huge

of the COVID-19 crisis, 1.5 million new vehicles are sold per

challenge. The greatest obstacle we faced was keeping the

year and out of those 1.5 million, less than 300 are electric

project alive. But we maintained our belief that this was a

vehicles. The electric vehicle niche is very small and for us

great contribution to the country and the environment. We

to sell 50 vehicles is a very big achievement. Within this

will keep making information on electric mobility available

niche, our target is people who already have a higher level

to everyone so we can continue to break paradigms.

of awareness about caring for the environment. Our client mix ranges from 15-year-olds to 77-year-olds.

Many people also think that because Zacua is new to the market, it should provide low prices. When most people

The design of our cars was purchased from a company

buy a car, they do not think about the costs related to

in France. It was the fastest option for cars to start

production and logistics operations. An electric vehicle cuts

rolling on the streets. The vehicle is manufactured with a

costs over the long run, but people are just beginning to

thermoforming process and is put together by Mexican

understand that.

women only. Q: What challenges has Zacua identified in the Mexican

Zacua is a 100 percent Mexican OEM focused on EV

market regarding electric mobility?

development. The company started production in the country in

A: We have realized that people do not buy EVs because

2018, the same year it released its first two models, the M2 and

of the lack of information regarding the benefits and costs

M3. Both models are manufactured at Zacua’s facilities in Puebla

| VIEW FROM THE TOP

BAIC READY FOR THE EV REVOLUTION PATRICK YANG CEO of BAIC Mexico 52

Q: What is BAIC’s contribution to the EV revolution?

Q: How are BAIC’s SUVs different from other brands?

A: As the No. 1 brand in sales of electric vehicles in China,

A: BAIC has five SUVs models: X25, X35, X65, BJ20, and BJ40.

we decided to enter other markets, including Europe, the

In January 2020, we launched the X35 model with the same

US, Latin America and Southeast Asia. We are proud of our

powertrain as the X25 but with a new design. Also, we will

electric vehicles and we are sure that EV is the future, no

offer the new X55 "X3" model in July 2020. The reason we

matter what happens with the price of crude oil. BAIC also

have a wide variety of SUVs in our portfolio is that we believe

believes in protecting the environment, which is another

this segment is more attractive in markets like Mexico. This

reason why electric vehicles are part of the future.

type of vehicle is gaining popularity in China very quickly and we will have more and more options for our clients.

Q: What have been the most valuable lessons BAIC has learned from the Mexican market?

Q: How ready is the Mexican market for EVs and what is your

A: In June 2016, we launched BAIC in the Mexican market.

strategy to overcome these models' cost-barrier?

We looked at the US and Mexico as a single market and

A: In 2016, the same year we launched the brand in Mexico,

the first step was to conquer the Mexican side. We do

we tried to introduce our electric vehicles in the country,

not yet have much experience in the US or Canada but

but customers here remain price-sensitive and EVs are still

we believe the Mexican market is open to us and the

high-priced products. In China, we receive government

people are receptive to a different brand. That is why we

subsidies but this is not the case in foreign markets. For this

chose the Mexican market as the first country to enter

reason, we do not yet offer our EVs in the Mexican market.

the USMCA area. Despite the renegotiation of the trade

We have had discussions with the government to launch a

agreement, BAIC still believes this is a single market with

leasing program for our electric vehicles based on monthly or

great potential for us.

quarterly payments. We are also seeking financial help from the Chinese government to offer a more attractive mobility

The Mexican market for us is the first step in getting

solution for the Mexican market.

closer to other markets. In the past four years, we have learned a lot from this market. In 2019, we sold around

Q: In 2018 BAIC was interested in developing a second

300 vehicles in Mexico and we believe more and more

production location in Mexico. How have your plans advanced

Mexican customers are getting to know the BAIC brand

in this regard?

and how our vehicles perform. This is very good for the

A: The COVID-19 crisis has affected not only operations in

brand and we are very optimistic about our potential

China but throughout the world. We believe the supply chain

results in the coming years.

has been greatly affected by the advance of the virus and many manufacturing companies will inevitably face a supply

With the experience we have gained over the years, we are

problem. The crisis also affected our plans to open a plant in

increasingly confident of entering the US and Canada in

Mexico and other countries. Still, Mexico remains one of our

the future. Still, Mexico is a very important country for us

most important overseas markets. In the coming months, we

and we want to develop and increase our presence here,

will evaluate where and when we will open new plants.

to learn more about the market and to improve our sales. In January, COVID-19 blew up in China and we had to put 99 percent of our efforts into the local market. Fortunately, with BAIC is a Chinese OEM that started operations in Mexico

more than the 1.4 billion people working together with the

in 2016. BAIC specializes in the commercial and off-road

Chinese government, the situation in China is much better

segments. It has five SUV models and in July 2020 will launch

compared to the beginning of 2020. Now, 90 percent of

one more

business is back to normal.

VIEW FROM THE TOP |

DEMYSTIFYING THE ELECTRIC VEHICLE ELÍAS MASSRI Director General and Chairman of Giant Motors Lationamérica 53

Q: In 2019, Giant Motors Lationamérica (Giant Motors) had

show that we could, but to build an entire family of electric

a production goal of 10,000 JAC vehicles. How has that

vehicles. We launched four electric models and brought

goal advanced?

that culture to Mexico, which implies a great commitment.

A: The goal was to reach an annual production of 10,000 vehicles by 2021 to meet market demand. We exceeded

With electric vehicles, there is the issue of spare part

our expectation. Today, we have 31 JAC stores nationwide

availability. Spare parts for these vehicles are unique and

managed by the 22 best and largest dealership groups in

in short supply. Given this situation, we launched our Twin

Mexico. Dealerships handle all maintenance and repairs

Car Concept. For each of our vehicles, we offer an electric

and exhibition of vehicles is completely digital. The level

and an internal combustion model. These are exactly the

of investment made by dealers has been extraordinary and

same, except for the powertrain. We guarantee that spare

the brand has grown in profitability and unit sales quite well.

parts will always available for both models.

In 2019, we grew 63.5 percent, which makes us the fastestgrowing brand in the market. The base is much smaller than

Q: How will Giant Motors deal with the skepticism regarding

that of others but somehow the takeoff was much faster

electric vehicle infrastructure in Mexico?

than we were expecting. The company’s greatest advantage

A: There are three myths that are rebuttable in this regard.

has been its capability to react to the market with

The first is undoubtedly the cost. An electric vehicle may

changes in production, training of people and automation,

be much more expensive than a combustion vehicle, but

among others. Another strategy that has worked well for

this is only in the short term. It is a different story when

distributors and the plant is the introduction of new models.

considering long-term savings. Monthly gas expenses for

Last year, we launched the ESEI 4, which participates in

an internal combustion car with an average use of 28km to

one of the most competitive and largest segments of the

30km per day in the city would imply that in three years,

market: SUVs. We also launched the T-6 and T-8.

the driver has paid for their car twice.

Q: What factors have contributed to Giant Motors’ success?

The second point to consider is the economic benefits

A: I always attribute it to our network of distributors.

related to electric vehicles. These vehicles have much

People who buy from these distributors have been

higher deductibility levels and when leased, they are 100

shopping with that group for a lifetime, which breaks the

percent deductible for companies. Electric vehicles allow

first barrier of trust. There are almost 10,000 JAC users

great savings in the administration of gasoline and service

and the feedback we get from them is quite positive. There

expenses, among others.

are cases of families that use our brand from father to son. Suddenly, there are three of our cars in a family. In

Third, clients should know that Mexico City has the largest

areas like Morelia, Cancun or Merida we already have a

number of electric vehicle chargers per vehicle in the world.

10 or 15 percent market penetration in the SUV segment.

Furthermore, cars with 350km or 400km of autonomy

Our five-year warranty has also been a key differentiator,

can be fully charged overnight. These vehicles also enjoy

although it has been a challenge for our components and

preferential parking and their use results in a lower energy

assembly process. Mexico is not an ideal country in terms

consumption-base tariff.

of driving conditions and yet, our vehicles have met the strictest requirements. Giant Motors Lationamérica is a Mexican automotive assembly

The emergence of electric vehicles will strengthen the

company focused on production of commercial and passenger

brand even further. One of our great strategic decisions

vehicles for the Mexican market. The company partnered with

was to not introduce an electric vehicle to Mexico just to

JAC Motors in 2017 to assemble and market passenger vehicles

| VIEW FROM THE TOP

HIGH QUALITY AND A SUSTAINABLE FUTURE ANDREAS LEHE President of Audi México 54

Q: What are your plans for Audi’s manufacturing operations

electric car might not be the solution for the future. I think

in Mexico and how do they relate to Alfons Dintner’s previous

you have to adapt different issues to different regions. Maybe

administration?

in large cities like Mexico City, where there are 20 million cars

A: We just celebrated our sixth anniversary in Mexico in 2019.

circulating every day, urban mobility based on shared cars

Alfons Dintner was responsible for the construction and ramp

might be the right solution.

up of this plant. 2018 was the first full-production year. My plan is to stabilize production and to have a look at the things that

Audi presented four different concepts of future mobility

did not work and the processes we have to review to make

based on sports cars, long-distance cars, small cars for

this one of the best Audi facilities in the world. We want to

urban mobility and off-road vehicles. These concepts will

show that after just five years, Mexico is delivering optimum

adapt to the user of the future. Combustion engines will still

production costs and quality and that we are prepared to

be needed for long distances, while in urban settings hybrid

produce more models in the future.

and full-electric vehicles might be the norm. The company is prepared to participate in all these markets. This year we

At this moment we only produce the Q5, which is one of the

ramped up production of the Q5 hybrid, which is the first

most important cars for the Audi brand. Our daily production

step to transitioning traditional cars into hybrid. Audi also

is already the highest for a single car in the whole Audi

offers the e-tron, a 100 percent electric vehicle. Our offering

group. We are very proud because we deliver this car to the

will depend on customer demand. The company might even

entire world: to Europe, to the US and to Asia. Moreover, for

decide to produce full-electric cars in Mexico and we are

the last two to three years, Mexico has reached the same

prepared for that. As a company, we should be prepared for

quality standards as Germany. This is even more impressive

what the market will need in the future.

considering this is the first plant outside of Germany that handles an entire assembly line. Hungary, for example, had

Q: How is Audi’s strategy changing to adapt to the future

an assembly plant for 25 years, which depended on Germany

of mobility?

for bodyshop and paintshop operations. We started in Mexico

A: Our strategy is to be a mobility company. This could also

from scratch and we found many people were involved with

imply the possibility of having Audi on-demand, where clients

the automotive industry, which made it easier for us to ramp

can choose to use an Audi vehicle for special occasions., which

up our operations.

would require a change in people’s mindset, however. At the moment, most people use their car as a status symbol. But

Mexicans are also highly motivated to accelerate or to move

younger generations are moving toward a new dynamic and

things forward while trying new approaches to their work

a new mobility scheme.

and processes. They are young, motivated and they want to show the world that Mexico can produce world-class quality.

Sustainability is one of our main targets. As a German company in Mexico, we have the possibility to generate a

Q: What are your expectations regarding the development

true impact and make this a relevant topic in the industry.

of the global automotive industry in terms of demand and

Water is one of our priorities, because it can be scarce during

how it will impact Audi’s production forecasts?

certain seasons. We are the first entity to be waste-water-free

A: There are worldwide discussions about climate change, CO2

in Puebla. Last year, we earned this recognition thanks to our

emissions and sustainability. This is a strategic pillar for us,

lagoon, where we use rain water for our processes instead of

as we understand that future mobility means not everybody

fresh water. We are also advancing toward clean energy. At the

will buy their own car and some may use a shared or an

end of August 2019, we started working with 50 percent green

electric vehicle. Nobody knows at this moment where we are

energy coming from Chihuahua, which turned to 100 percent

going and what is the right decision to make. A 100 percent

on Jan. 1, 2020. These initiatives have reduced our carbon

Audi Training Center, San Jose Chiapa, Puebla

footprint and our goal is to be a CO2-neutral facility by 2025.

participate in more advanced activities. We also started the

We still use gas for painting processes but we are working to

Mexican Students in Germany program (EMA) that allows

replace this with biogas. We are talking with Gov. Barbosa to

students enrolled in university to visit Germany for up to

explore solutions to build facilities to produce biogas, since

two years to study and practice at an Audi center there.

at the moment we cannot get it in Mexico. This might be a sustainable project for the region as farmers can collaborate

There is an opportunity to replicate these kinds of

in biogas production. Moreover, we have 260 buses that travel

apprenticeships in other companies and regions in Mexico.

daily to bring our people to the plant. If we can use biogas

People here are hard-working and they are very good at their

to fuel the buses, it would reduce our CO2 emissions greatly.

job but if their training were better, their impact would be greater at Audi and in other companies. Training is equally

It is our responsibility to be sustainable and to promote

important for smaller companies. They have to spend money

sustainability in the region. Through our communications

on young people so they can grow in the future.

team, we have created two strategies for this, one internal and another with our stakeholders. We also hold training

The government also should be prepared for new

sessions with young people on environmental issues. It

technologies, digitalization, innovation and green energies. We

is called Audi-Habitat. In this training, we show visiting

have almost 300 days with sun but we do not have heating

students what it means to save energy, to separate waste

or air conditioning. People freeze in winter, even though

and to manage water.

it is easy to use solar energy for small heating systems in houses to produce energy. New technologies are also about

Q: What do you think the federal government’s priorities

giving young companies the possibility to grow. Maybe the

should be to support the automotive industry?

government could have a program for startups to help them

A: Besides security, training should be the top priority.

start their business.

We started our dual-education system in Mexico to train our apprentices for three years. Some wonder why we

Q: How ready do you think Mexico is to become a technology

are spending so much money on them and the answer is

rather than a manufacturing hub for the automotive industry?

that training will lead to good qualifications and a higher

A: Technology development demands a higher degree of

level of education. If we produce premium quality, we need

knowledge. We have to focus on training our people, so the

premium workers. This also has a ripple effect across the

country can start developing other businesses. Regarding

entire industry. If somebody leaves Audi, they could get a

digitalization and innovation, I think Mexico is well-prepared.

good job in another company. By increasing the quality of

There are people all over the country focused on the

our people, they have more chances to work in a global

automotive industry, but we need to get them together.

industry designing new products and new engineering processes. Once our apprentices finish their stay here, they have the possibility to enroll at a university in Puebla

Audi’s operations in Mexico began in 2013 with an investment

or they can start working at our plant to save money so

of over €1 billion (US$1.1 billion). The plant produces around

they can enroll later. When they finish university, they come

150,000 units of the Q5 model. It is Audi’s first plant in North

back to Audi. Due to their experience in the plant, they can

America

VIEW FROM THE TOP |

LEGACY, QUALITY, TECHNOLOGY IN THE PREMIUM SEGMENT JAIME COHEN President and CEO of Mercedes-Benz México 57

Q: What are the most important milestones that Mercedes-

also understand that the introduction of new cars requires an

Benz has reached since its arrival in 1993?

adjustment period that could see sales drop for a while, but

A: We celebrated our 25th anniversary in 2018. We went from

they will recover afterward.

selling around 300 vehicles per year two decades ago to more than 20,000 units in 2018. Moreover, we were recognized by

Q: What is Mercedes-Benz’s strategy to adopt the most

JD Power as the luxury brand with the highest customer

innovative technologies in the market?

satisfaction levels. We maintain our position as the sales

A: Mercedes-Benz and Daimler constantly invest in engineering

leader in both the premium and high-performance vehicle

new technological solutions for their vehicles. We have

segments, which shows the confidence that customers have

innovation and engineering centers in Germany, Spain, the

in the Mercedes-Benz brand and its lineup.

US and Israel, all with the same focus on cars and mobility. For instance, Mercedes-Benz’s Connected, Autonomous, Shared

Our strategy has focused on diversifying our lineup. Two

and Services, Electric (CASE) initiative tracks industry trends

decades ago, Mercedes-Benz only marketed three or four

including vehicle electrification, self-driving technologies and

models in Mexico but we have evolved to offer more options

collective-ownership schemes in which drivers can rent a car

to attack more segments. This strategy includes releasing

for a few hours or co-own it with several people.

smaller cars and SUVs, new versions of traditional models and even a four-door high-performance car named Mercedes-

Q: What role will the car of the future play in Mercedes-Benz’s

AMG GT 4-Door Coupe that reached the market in 1Q19.

lineup in the short term? A: Electrified cars will play an increasingly important role in

Q: What is Mercedes-Benz’s strategy to remain the sales

Mercedes-Benz’s global product portfolio. While we believe

champion of Mexico’s premium segment?

there will always be a place for combustion engines in our

A: For the last 133 years, Mercedes-Benz has maintained and

lineup, EVs will have greater presence as electrification

upheld its values of innovation, quality and service. Rather

becomes more relevant. In Mexico, Mercedes-Benz has

than just manufacturing nice and expensive cars, Mercedes-

launched some mild-hybrid and hybrid vehicles and plans

Benz strives to deliver advanced technology packages and

to launch fully-electric cars by 2020. There have also been

a promise to support clients in any issue they may have. We

talks about Mercedes-Benz’s EQ family, which will finally reach

see the Mercedes-Benz brand as a promise and our dealership

Mexico in 2020.

network plays a key role in keeping that promise. Along with its dealership partners, Mercedes-Benz is constantly looking

Self-driving cars are a more complicated matter but Mercedes-

for areas of opportunity to improve and cover regions with

Benz has already taken some steps in that direction. We are

potential customers. We also plan to improve our aftersales

working to increase the level of autonomy of our vehicles

service, which we see as key to maintaining and growing our

by adding automatic emergency brakes, autonomous lane

relationships with clients.

correction and similar automated driving features. For these technologies to advance, regulations on self-driving cars are

Q: How will Mercedes-Benz’s segment diversification strategy

needed. This is particularly important for cases when there is

help in maintaining your market position?

an accident and a jury must determine fault.

A: Having a wide and varied lineup allows us to harness growth opportunities in smaller and less-expensive segments while maintaining the features that distinguish Mercedes-Benz

Mercedes-Benz produces and sells premium vehicles and is

as a brand. In 2019, we launched new versions of CLA and

the company behind the first automobile ever manufactured.

GLC, as well as EQC in the first months of 2020. We want to

Founded in 1886 in Germany, it is a division of the automotive

remain the sales leader in Mexico’s premium segment, but we

group Daimler AG

| INFOGRAPHIC

COVID-19'S EFFECTS ON THE INDUSTRY COVID-19 greatly impacted automotive production and sales

country, extensions on suspended activities followed. On

worldwide. In Mexico, production and exports figures dropped

May 15, the federal government published the guidelines for

to historic lows as lockdown measures in the US and Mexico

essential industries that could resume production before June

were enforced. In the last week of March, automakers started

1, only if their health protocols are approved. For almost two

to suspend production. As the pandemic advanced in the

months, automotive production remained at a standstill. Accumuleted exports (jan-apr) April exports TOP 5 EXPORT DESTINATIONS APRIL (2019 versus 2020) (%)INApril Variation

ACCUMULATED EXPORTS BETWEEN JAN-APR ACCUMULATED EXPORTS BETWEEN JANUARY AND (thousands) 2010

APRIL (thousands)

20 11

807

900

300 4

12.87%

1,090

2012

1 14 exports (jan-apr)

180

April exports

April variation (percentage)

240

1,01

761 27.74%

76 4

2.7

233

2 20

Canada 22,240 | 1,853 -91.7%

201

19 7

6 201

14 20

4 9.0

-1 5

.6 3%

17 20

Germany 10,184 | 29 -99.7%

2015

9% 21.8

5.9

Accumulated

271

2018

2013

15.41% 922

2012

USA 222,845 | 22,931 -89.7%

56 4

600

1,1

20 19

.73 %

.20% -90

20 20 4.

95 %

1,200

Brazil 5,498 | 1,066 -80.6%

Italy 3,695 | 1 -100.0%

April 2019 April 2020 April variation (percentage)

ACCUMULATED PRODUCTION BETWEEN JAN-APR ACCUMULATED PRODUCTION BETWEEN JANUARY AND(hundreds) APRIL (thousands)

2010

Accumuleted exports (jan-apr) April exports April Variation (%)

159 798

-7.25

2011

248

30.74

— April variation (percentage)

15.63

3.88 1,022

400

692

800

170

1,200

April exports 238

Accumulated exports

966

69.56

206

1,600

920

2,000

2012

2013

2014

ANNUAL SALES VARIATION BY SEGMENT

(thousands) ANNUAL SALES VARIATION BY SEGMENT (thousands) Subcompact

33 24

SUVs 18

Compact Pickup

-69.1

8 -66.0 7 -62.0

6 -56.9

1 0.97 -40.1

Minivan Luxury

3 0.95 -71.8

Sports

0.61 0.28 -53.3

April 2019

April 2020

Variation (percentage)

Event

Jan 23

Wuhan city in China goes into lockdown

Feb 01

Tesla, Ford, FCA, GM and Toyota announced an extension in Chinese New Years' holidays

Feb 28

First reported COVID-19 case in Mexico

Mar 14

Social-distancing measures are announced

Mar 18

First COVID-19-related death in Mexico

Mar 19

FCA (two plants) suspends operations

Mar 20

School activities suspended. US-Mexico border closed for non-essential travel Ford (four plants) suspends operations

Mar 22

Volkswagen (two plants) suspends operations

Mar 23

Audi suspends operations Honda suspends operations Toyota (two plants) suspends operations

1,907

KIA Río Sedan

972

Hyundai Accent Sedan

480

Kia Río Hatchback

344

Mazda suspends operations Nissan (three plants) suspends operations

Hyundai Accent Hatchback

1 0

Mustang Mach-E

Fusion

Total

3,722

GM (Ramos Arizpe plant) suspends operations

Forte

Forte Hatchback Ford Motor

Date

April 2019 April 2020 VEHICLES ASSEMBLED IN APRIL 2020 (%) Variation Brand Model Production (units)

KIA

COVID-19'S AUTOMOTIVE IMPACT

Mar 24

Social-distancing measures are implemented

Mar 25

Daimler suspends operations

Mar 28

BMW suspends operations

Mar 30

GM (two plants) suspends operations. Only essential activies are allowed Mexico declares a health emergency

Apr 06

Kia suspends operations

Apr 08

Wuhan city in China eases lockdown

Apr 21

Mexico enters Phase 3 of the pandemic

drop in year-on-year exports

May 12

98.80%

The National Health Council declares transportation equipment manufacturing an essential activity

May 15

The government publishes an official decree detailing the procedures for essential activities to restart operations

May 18

OEMs in the US resume operations

decrease in year-on-year sales

May 18 Jun 01

Automotive companies in Mexico submit their health protocols before IMSS and STPS for validation

Only 27, 889 units

Jun 01

Essential activities resume operations. A traffic light system is implemented across the country.

COVID-19 EFFECTS IN APRIL 2020

90.20%

fall in year-on-year production

64.5%

were exported

300

7.61

1.34

2.07 1,293

1,257

912 3

294

290 -4.87

1,075

1,132

14.26

1,257

269

248

100

-20 -60 -98.76

2015

2016

2017

2018

2019

-100

2020 Sources: INEGI and AMIA

| VIEW FROM THE TOP

MAKING CASE VEHICLES A REALITY PHILIPP HELDT Managing Director of INFINITI Mexico 60

Q: How has INFINITI changed the premium vehicle market?

by combining both combustion and electric power to deliver

A: INFINITI is really a unique case. We are different in our

360hp. We have also shared a glimpse into the future of the

segment given our age. We have been in the market for just

brand with the QX Inspiration and Q Inspiration concepts.

30 years, which is a very short time compared to the long history of some other brands in the same segment. In this

Q: What autonomous features can users enjoy in

short time, we have achieved important milestones. We have

INFINITI vehicles?

had iconic vehicles such as Q45, INFINITI’s first sedan, and

A: Technology development in INFINITI is about betting

some technological breakthroughs we call INFINITI-firsts. In

on bold designs guided by the human element. We were

Mexico, we are a Tier 1 brand in the luxury segment.

pioneers in premium hybrid vehicles but also in safety features such as ProAssist, assisted electronic drivetrain. That

The customer plays a central role in INFINITI’s vision. In the

is our legacy as a brand after 30 years. We have already

premium segment, we often see that product and technology

brought that technology to Mexico. The Q50 in Mexico

are above everything, which could neglect the role the

has a ProAssist system, including a set of sensors, radars

customer can play. From the beginning, however, we have

and cameras that enable semi-autonomous driving in the

put the client at the center of our strategy, on the same level

vehicle. We also have an electronic drivetrain that does not

as product and technology. For instance, INFINITI Mexico has

have a column between the steering wheel and the wheels.

one of the most competitive road assistance services, called

The latter move according to sensors in the steering wheel.

INFINITI Black. A signature feature of this program is its pick-

This is the must-have technology for autonomous driving. As

up and delivery service. If a vehicle needs servicing, we pick

part of Nissan, we have all the technology needed for semi-

up the car and bring it back to the customer afterward, no

autonomous driving.

matter if it is the first or 10th time the car is in the shop. Q: What role do INFINITI’s Engineering Academy and We are now at the dawn of a new breakthrough, which is

INFINITI Lab play in technology development?

electrification. We have already announced that in a two-year

A: These are key elements within INFINITI’s platform. We

period we will start to see an offensive strategy of plug-in EVs,

have a legacy in F1 as sponsors and when Renault chose to

as well as another electric technology called e-power. E-power

comeback with a team, it was the perfect time for us to go

is a 100 percent electric-powered vehicle with a battery that is

beyond sponsorship to become technical partners of Renault’s

charged through a little combustion engine. This means that

team. The hybrid technology in Renault’s F1 car comes from

you will have an EV without the need to connect it. In Mexico,

INFINITI. We are very proud about that.

this is particularly important given that charging infrastructure, although improved over the last years, remains insufficient.

INFINITI’s Engineering Academy is basically a quest to find the best engineering talent. Under this program, we do a road

We are expanding our offering in sustainable mobility after

tour of more than 30 or 40 universities across the country

being pioneers in our segment when we introduced our Q50

to introduce the brand and the program. Seven regions

hybrid and QX60 hybrid models. Both have been best-sellers

worldwide participate in the program and the best person

in the Mexico City area due to the high-performance they offer

in each region goes to London for a year to work directly at INFINITI’s engineering centers and with Renault Sport’s F1 team. This is a program no other brand offers. Mexico has

INFINITI is Nissan’s luxury brand. It is present in 50 countries,

participated for more than four years as the region with the

including Mexico. The brand produces an SUV model in

most applicants participating. In fact, a Mexican student was

Aguascalientes and will celebrate its 10th anniversary in the

selected for the program and designed the body of one of

country in 2021

our vehicles, which is still being used today.

VIEW FROM THE TOP |

SAFETY, FUN EXPERIENCE SUPPORT MARKET PARTICIPATION DAI HOSOYA Director General of Subaru México 61

Q: How confident is the brand about reaching 5,000

featuring this system in August 2018 to see how the Mexican

units sold by 2020 and eventually a 1 percent share of the

market would respond. Our XV car has two versions, one with

Mexican market?

Eyesight and one without. We expected 70 percent of our

A: Our targets have not changed. We had a slight delay in

sales to come from the latter version but the response was

2018 due to our efforts to reconstruct our dealership network,

overwhelming.

which was in part due to the change in government and in permits. Regarding the aftersales segment, there are still

Q: How do you transmit Eyesight’s advantages to

areas for improvement. We had some problems with our

potential clients?

previous importer but these have now been resolved. We are

A: When we talk about safety, Eyesight is just one part.

also providing training for our staff constantly to improve our

There are other elements like airbags, the body of the car,

service, part of it done by an official instructor from Subaru

stability controls and emergency exits in case of an accident.

Japan. In addition, our strategy considers growing the number

We have an integral concept of safety and we still need to

of service centers in the country, as well as their spare parts

explain this well to the market. Many brands are investing in

inventory. This ensures there are no lags in service, which can

semiautonomous systems but our concept is more complete.

be provided quickly and at a standard price.

Furthermore, most brands are incorporating these systems from a third-party provider, whereas our system is 100

Q: What do you look for in a new distribution partner?

percent ours.

A: Understanding of the brand’s values is very important. Subaru has unique characteristics and it has its own

We started developing Eyesight in 1989 and for 30 years we

technological developments, such as the Eyesight safety

have been upgrading the information we provide to the driver.

system. It is also important to understand our products. We

Compared to a radar system, our system can identify what

expect dealership managers to be involved in the operation

kind of object is in front of the car and, like the human eye, it

of their business, as well. In the end, there does not need to

also has a much wider angle of vision. For example, when a car

be a large number of people working at the dealership as long

is moving in cruise control and there is another car driving in

as they can adopt our values and style of work.

front of it, a radar system will lose sight of it when you reach a curve and the other car moves left or right. Eyesight is able

Q: As a niche brand, what are your strategies to generate

to follow the other car much better.

buzz around the brand and its specific characteristics? A: Our strength is grounded in having well-rounded cars

Q: What is Subaru’s strategy regarding hybrid and

that are fun to drive, but which also ensure a safe driving

electric vehicles?

experience. We conducted several surveys in 2018 with clients

A: For these units, we are going to use Toyota technology. Our

and we realized that the main reasons why they buy our cars

alliance with the brand has brought great benefits and unlike

is because of the safety features they offer. Therefore, we

other car groups, we remain independent within the alliance.

are now focusing on these technologies to showcase our

Toyota has a 16.8 percent share in Subaru but does not have

portfolio. We did not invest significantly in marketing in 2018

a director on our board or management. Toyota’s president

because our agency’s network was not yet prepared. Now, we

understands Subaru and its character.

intend to use videos and organize events where clients can directly experience the feeling of driving a Subaru and see what our technology can do.

Subaru is a Japanese carmaker, partly owned by the Toyota Group. The company has been in Mexico since 2006 and is

In the US and Japan, almost 90 percent of Subaru’s sold

targeting a 1 percent market share in the country as part of its

have Eyesight. We launched a limited number of vehicles

niche marketing strategy

| VIEW FROM THE TOP

CLIENT MINDSET SPURS BRAND RENOVATION RAYMUNDO CAVAZOS Managing Director of Volvo Car México 62

Q: What was Volvo Car México’s strategy to grow its sales?

of new battery technologies, the price of these critical

A: The new additions to our lineup had an important impact

components will fall, which will make EVs more affordable

in that process. For instance, we introduced the XC40 SUV

to consumers while also ensuring greater autonomy. The

to the Mexican market, which became a huge success and

industry has already reached important milestones toward

helped us to attract younger customer segments. We also

the development of new technologies for EVs but there is still

consolidated XC60 as a strong option within our lineup and

room to reduce prices and boost sales.

transformed XC90 into one of our flagship products. Volvo Car’s solid vehicle offering has helped the brand retain and

Q: What is Volvo Car’s strategy to increase sales despite the

recover buyers and will help us continue to grow in the

ongoing sales downturn?

premium SUVs subsegment while introducing new vehicles

A: Each premium brand specializes in its own competitive

to harness new opportunities.

advantage. In the case of Volvo Car, this means delivering the best possible customer experience. Volvo drivers are

Volvo relaunched its S60 sedan in 2H19 to target the Mexican

highly independent people that care for others and for the

luxury sedan subsegment. We expect this vehicle to help us

environment. They are involved in sustainability programs

capture a significant share of this target segment. S60 is

and are interested in consuming the products of companies

produced in the US and includes 15-20 percent of Mexico-

that help the environment. We work hard to explain to our

made content and there is still a big opportunity to increase

customers how Volvo Car’s philosophy is translated to its

that content share. Volvo Group has a dedicated team in

vehicles; they then become our own brand ambassadors and

Mexico that is constantly evaluating local suppliers with the

introduce potential leads.

goal of adding more locally-produced content. We have been in Mexico for a while but our brand is Q: How will Volvo Car adapt its lineup to include more

transforming to continue growing. Volvo Car increased its

innovative technologies?

sales significantly in 2018 and we expect to reach double-

A: Electrification and self-driving technologies are at the core

digit growth rates thanks to a more complete lineup and a

of our lineup strategy. By 2025, half of Volvo Car’s vehicles

stronger and well-trained dealership network. The creation of

will be 100 percent electric and there will be several hybrid

a Volvo Car University in Mexico is part of our strategy to train

versions of our internal combustion models. We are engaging

our collaborators to introduce Volvo’s corporate culture and

strongly in R&D to increase the autonomy of our batteries.

values to our customers in Mexico and to keep them attracted

Rather than an OEM that assembles and sells cars, Volvo Car

to our vehicles.

wants to become a company that eases mobility to increase sustainability and safety.

Q: What opportunities exist for European investors to strengthen their position in the Mexican market while taking

Q: How is Volvo Car changing its lineup to reduce the price-

advantage of new trade conditions?

per-kilometer of EVs in Mexico?

A: The world is increasingly connected, so doing business

A: Battery packs represent a significant part of the cost of an

in several countries at the same time has become the rule.

EV. However, as OEMs like Volvo Car invest in the development

FTAs like USMCA are key bridges for this communication. Mexico’s vehicle market grew at wide and constant rates until recently and despite the loss of dynamism in recent years,

Volvo Car is a Swedish manufacturer of premium light vehicles.

the market remains healthy. In the case of the premium and

By 2025, the company plans to reach aggregate sales of 1

luxury segment where Volvo participates, growth has been

million EVs and expects to generate half its revenue from fully

constant for a long time. However, this growth will have to

electric models

stabilize soon.

INSIGHT |

LOCAL STRATEGY SEEKS TO BOOST MARKET PARTICIPATION RAÚL PEÑAFIEL Managing Director of Jaguar Land Rover México 63

While some might see decreasing sales as a challenge

later with the growing importance of sustainability versus

in the domestic market, others see an opportunity to

performance. “Consumers moved from large engines with

showcase a different type of offering. “Sales volumes

great power to cars that could deliver the same emotive

may have decreased, but the level of quality in vehicles

experience but with greater sustainability, not only in

sold is increasing. This shows the Mexican consumer

terms of lower fuel consumption but also adaptability to

is maturing,” says Raúl Peñafiel, Managing Director of Jaguar Land Rover México. Dips in the market are concentrated in the entry segments where products do not always meet international criteria, according to Peñafiel. This means that while there might be fewer units sold, they are of a higher quality. “This transformation may be painful, but all change is positive,” he says. Until recently, Jaguar Land Rover was importing cars and selling them in dollars in a peso-dominated market. In early

“

different environments,” says Peñafiel.

Sales volumes may have decreased, but the level of quality in vehicles sold is increasing. This shows the Mexican consumer is maturing”

2018, the company decided to set up an official branch in the country, which allowed the brand to get closer

The company has even ridden the electrification wave.

to the customer and offer services such as a five-year

Jaguar Land Rover has several hybrid cars, but the 2018

warranty. Jaguar Land Rover started with nine contracts

Jaguar I-Pace was the first fully electric vehicle. Peñafiel

with dealership partners and now has 15. “The market’s

points out that this car can offer the same driving

response to this new model has been very positive and we

experience as any fuel-powered Jaguar but with the

are targeting 20 locations by the end of 2020.”

potential for a zero-carbon footprint. “Cars like the I-Pace can help break the public myth that electric vehicles are

Jaguar and Land Rover are brands with a long and rich

no fun to drive,” he says. Having sold 70 units nationwide

history. Land Rover pioneered off-road vehicles for the

in 2018, I-Pace’s price tag makes it unreachable for the

public, while the sportier Jaguar is known for its racing

majority of the Mexican population. However, those who

success. Peñafiel points out that even though they are

do buy it tend to be “people with broad social influence,”

part of the same group, the brands still try to maintain

says Peñafiel.

an independent spirit. Jaguar’s engine technology is its own, which can make them more expensive than

Price has been Jaguar Land Rover’s main challenge when

those of competitors. However, this gives the brand the

targeting the Mexican market. One of the reasons why the

independence to design its technology according to its

group wanted closer contact with clients was because its

clients’ demands.

cars are part of the luxury niche. “People do not necessarily need a Jaguar or a Land Rover vehicle. However, they

Among the reasons why Jaguar Land Rover saw significant

buy them because they evoke a certain experience,”

success in the past decade is because it offered cars that

says Peñafiel. The company tries to demonstrate this to

could be used for more extreme driving experiences, as

prospective clients by organizing events where people can

well as ordinary day-to-day activity. At the same time, both

try out the cars on a race track or off-road environment.

brands were successful in adapting to changing market

“The goal of these driving experiences is for people to

conditions, first with the rise in popularity of the SUV and

walk away with a smile,” he says.

| VIEW FROM THE TOP

MEXICAN OEM TAKES LEAD IN HIGH-PERFORMANCE SEGMENT GUILLERMO ECHEVERRÍA Co-founder of VUHL 64

Q: How important are Mexican suppliers for Mexico’s only

a Mexican car. However, VUHL vehicles stand out as some of

high-performance vehicle OEM?

the fastest and best built cars in the market, which has enticed

A: More than half of the components used to assemble a VUHL

potential customers weary of trying a new brand.

car are built in Mexico, followed by 40 percent sourced from the UK. The remaining components are imported from the US,

Each country has a different perception of Mexico. European

France, Germany and China. While we are strongly committed

countries tend to see Mexico as exotic, which worked to our

to Mexico, this does not mean that we are closed to using

advantage when marketing vehicles among early adopters.

components from abroad if they are the best. Above all,

The US market does not have the best opinion of Mexican

VUHL is committed to developing the best high-performance

products, so it is difficult for Mexican high-performance cars

vehicle, as demonstrated in the more than 600 improvements

to be seen as the best option at first. We decided to put

that we have made to our vehicles since the first generation

off targeting the US market until 2019, once early adopters

of the VUHL 05. We remain a 100 percent Mexican brand

had sent their message regarding our products’ performance.

VUHL is now regarded as one of the best players in the high-

workers. But, like any other OEM, we engage in international

performance niche, which means it is time to go to the US.

collaborations with companies abroad.

We have now started delivering cars in the US and will start an active marketing campaign in California and Florida.

Q: What challenges has ETXE Diseño, VUHL’s parent, faced in its 12 years of operations?

Q: How can Mexican OEMs grow their appeal in a market

A: ETXE Diseño has been present in the automotive industry

dominated by foreign brands?

for 12 years with engineering consultancy and design services.

A: Mexicans tend to prefer foreign products and it is hard

VUHL was developed and first launched as a vehicle brand in

to break that paradigm. It took VUHL two years to break

2013 and it started delivering vehicles in 2015. Since then, we

into the market but once we proved our quality, results

have focused on gaining the trust of our niche market. Several

came. The main challenge that VUHL faced in changing this

small OEMs pop up every year and usually disappear within a

mindset was in delivering the best product for its niche as

period of six months to two years, with less than 50 percent

an unknown automotive brand. Our other business lines,

of them remaining after five years. Given this challenge, it was

mainly the engineering consultancy services and the carbon

important for VUHL to demonstrate that we would endure

fiber production that we develop for the automotive and

with a solid financial basis and that we are committed to our

aerospace industries, enabled us to sustain the VUHL brand

brand, our customers, the dealers and the market.

in its infancy.

The next challenge we faced was building trust in our image

Q: What is the next step to improve VUHL’s vehicle

as a made-in-Mexico brand. Even though Mexico develops

performance?

its own automotive technology, the country is generally not

A: Lightweighting remains our priority; it is the main reason

globally perceived as a source of new technologies. This

behind our vehicles’ performance. Our plan is to further

makes it easier for potential customers to select a competing

optimize and implement additional technology to our

European high-performance vehicle before even considering

current VUHL 05 model before launching a new car. At some point, the brand will take advantage of new technologies developed in the automotive industry and take a step

VUHL is a Mexican OEM based in Queretaro that produces

toward electrification. All OEMs should be working on ways

ultra-lightweight, high-performance vehicles. The OEM is part

to electrify their lineup but evolution will depend on the

of ETXE Diseño, a Mexican company that offers engineering

maturity of battery technology, which is still too heavy for

consultancy and design services

high-performance vehicles.

VIEW FROM THE TOP |

ELECTRIFICATION WAITS FOR NO ONE RODRIGO GONZÁLEZ Director General of Ferrari Mexico 65

Q: How attractive is Mexico to Ferrari a year after the new

Q: How is Ferrari participating in the electrification trend?

government took office?

A: The incorporation of batteries and electronic motors in

A: Mexico has always been a limited-edition market. Ferrari’s

models like the new SF90 is on the horizon. This is the first car

production includes grand touring cars that clients normally

with three electric motors apart from the internal combustion

use on a daily basis in European countries and in the US, but

engine that together deliver 1,000hp. This car will be available

in Mexico that is difficult due to insecurity. For that reason,

in Mexico like all other models.

customers in the country are looking for special editions, such as the Icona Ferrari. Due to the economic situation

Although our company is known for more traditional luxury

of the country, we only bring cars after they are ordered,

sportscars, we have to adapt by implementing electric motors

so there is no stock. Our sales volume may be low but the

or reducing cylinders according to California’s environmental

quality of our product is above that of cars from countries

restrictions.

such as the US or any country in Europe participating in the luxury segment.

Q: Has Ferrari’s relationship with Fiat affected operations in Mexico or North America?

Q: In early 2019, Ferrari announced it will no longer

A: The Agnelli family from Fiat supported Enzo Ferrari when

manufacture engines for Maserati. How has the relationship

he started, which allowed his business to thrive. After Ferrari

between the two companies evolved?

became a public company, it became completely independent

A: Maserati is already more attached to the FCA group. Ferrari

and ceased to have a corporate governance relationship

had the opportunity to manufacture engines for Maserati but

with Fiat.

now, a new generation of engines is coming to Ferrari, which will no longer allow it to continue with this collaboration. The

The watershed with Ferrari was when Sergio Marchionne, a

idea is to make Maserati 100 percent independent from Ferrari.

lawyer for the Agnelli family, replaced Luca di Montezemolo. When Marchionne entered, he led the transformation process

With these new engines, Ferrari had to adapt to CO2 emissions

that led to Ferrari’s debut on the stock market. From there, all

worldwide. The most restrictive is the norm that governs

processes, sales systems and corporate governance changed

California. Due to new regulations, it is possible that 12-cylinder

100 percent.

engines will disappear or that we have 12-cylinder systems with electric support. Regarding eight-cylinder engines, there is a car called F8 Tribute that is, as the name suggests, a

Ferrari is an Italian luxury sports car manufacturer based in

tribute to the last eight-cylinder turbo engine used in several

Maranello. Founded by Enzo Ferrari in 1939 out of Alfa Romeo’s

models. Because of more stringent regulations, this engine

race division as Auto Avio Costruzioni, the company built its

will also disappear in 2020.

first car in 1940

Ferrari SF90 Stradale

| VIEW FROM THE TOP

SUPER LUXURY SEGMENT GROWS SAFE AND STEADY MARTIN JOSEPHI Mexico Authorized Dealer of Lamborghini, Aston Martin, Caterham, Morgan & Rimac Mexico 66

Q: What is the landscape for exotic vehicles in Mexico?

Q: What kind of market reception are you expecting for

A: We have a strong offering from Lamborghini with the

Aston Martin’s and Lamborghini’s hybrid models?

Urus SUV and the Lamborghini Huracán EVO, in addition

A: We are just entering that market. Lamborghini

to the special edition of the Aventador SVJ that is highly

presented the Sián, which is going to cost more than

coveted. 2019 was one of our best years with the brand

US$3 million in Mexico, with production of only 63 units.

since we opened in Mexico. Much of that improvement

One was sold in Mexico and will be delivered in 2020. In

comes from the new products we offer. Lamborghini

the case of Aston Martin, we sold two Valkyrie models.

is a brand that is rising worldwide and in Mexico it is

This car was developed by the brand in collaboration

very well-positioned. In the case of Aston Martin, our

with Red Bull’s F1 team and will probably become one

performance was flat as we prepare for the arrival of DBX

of the most fascinating cars of the decade. We are just

in 2020, which will boost our numbers considerably. The

getting started and for now, as distributors, we do not

DBS has had good sales and it is very desirable but it is

know where the efforts in this segment will lead us.

not a large volume model due to its high price. Aston Martin Vantage made up most of our volume in 2019.

Q: What kind of technology do the new models of Aston

Caterham and Morgan are low volume brands in our

Martin and Lamborghini offer?

portfolio and we are excited to receive the first Rimac

A: Over the last decade, technology has advanced

and Koenigsegg models in the next couple of years.

considerably. Lamborghini’s Huracán EVO already features artificial intelligence. This model has a central

1 of only 63 Lamborghini Siáns was sold in Mexico

master computer that is in charge of all other controllers in the car, which means it can intuit what the driver wants to do depending on how he is driving. The system can select the driving mode and the car can help you maneuver. Regarding Aston Martin, DBX will be its first vehicle with all-wheel traction and a differential to avoid

The segment is so small that some short-term variations

skidding.

do not affect us. Having said that, we have noticed an impact due to uncertainty. The two months before

Q: How is the Ad Personam program at Lamborghini

President López Obrador entered office in 2018 were very

performing?

bad for sales and the first half of 2019 showed that people

A: The Ad Personam customization program is available

were not sure about where the government was headed.

for the Huracán and Aventador, giving customers the chance to create their own personal Lamborghini.

In our used car segment, we depend on people’s trust

There are infinite possible combinations, from colors to

and their desire to spend on these goods. Fortunately, we

materials. The logo on the seats may be hand-stitched

have had good results, especially with Lamborghini. Our

instead of branded, the drivers’ initials can be stitched in

Iconic Broker dealership in Santa Fe has established itself

the vehicle’s interiors and buyers can select customized

as the strongest used exotic car distributor in the market.

colors, all according to the company’s quality standards. Each brand already has a customization program. Aston

Lamborghini, Aston Martin, Caterham, Morgan and Rimac

Martin has the Q program, which offers the same concept

are distributed in Mexico through DB Imports. The company

as Lamborghini. These systems have a very high approval

specializes in exotic cars and brands and has three dealerships

level because customers who spend large amounts of

in Mexico City

money on a car want something unique.

VIEW FROM THE TOP |

F1 TECHNOLOGY PROVIDES UNIQUE DRIVING EXPERIENCE ADAM GRON Marketing and PR Manager for Middle East, Africa and Latin America at McLaren Automotive 67

Q: After four years since opening its first dealership in

that provides structural rigidity. This has a massive impact

Mexico, how has the Mexican exotic vehicle segment

on driver engagement and also provides safety thanks to

reacted to McLaren’s high-performance lineup?

the material’s physical properties.

A: McLaren began operations in Mexico in September 2015. The Mexican market has been really good to us as people in

Q: What milestones has McLaren achieved in developing

the country have really taken to the cars, especially those

a 100 percent electric super-sports car?

who love racing or exotic models. The McLaren brand has

A: In 2013, we became the first supercar company to

been successful in Mexico and the country is now one of

introduce a performance-focused hybrid to the market. This

our largest markets in terms of volume for the Middle East,

vehicle incorporated a conventional powertrain coupled

Africa and Latin America regions. McLaren sold over 4,800

with an electric motor that filled the gaps in torque delivery,

cars globally and we expect a similar figure for 2019. These

translating to phenomenal performance. We are not ruling

figures will allow us to be quite profitable and invest in new

out a fully electric vehicle but we will only launch it if a

products, while maintaining the exclusivity that customers

steep change in technology occurs that would allow us

expect from us.

to develop an electric vehicle that provides the McLaren driving experience.

Q: One of McLaren’s differentiators is its driving experience. What else makes the brand stand out in the luxury market?

There are many issues to address before launching a fully

A: McLaren focuses on technology to enhance the driving

electric vehicle, including battery weight and composition.

experience. We are a racing company at heart. We started

At this point, most technological developments for batteries

in 1963 as a racing team but since 2010, we have set our

focus either on power density or range; McLaren vehicles

sights on becoming an iconic supercar company. From that

need both. We want to create a car that customers can

point on, we have been using many F1-derived technologies

drive to the track, take a few laps and then drive back from

to enhance the performance of our vehicles.

the track. So far, this technology does not exist. We recently announced our Track 25 business plan, which will hopefully

Design is very important for us and another big differentiator.

lead us to such a development by the end of 2025.

We follow the “form-follows-function” design philosophy, in which the shape of the car is usually dictated by its

Q: What are McLaren’s sales expectations for the Mexican

aerodynamic performance. There is nothing in the car that

market in 2019?

does not serve a function. For instance, our McLaren 720s

A: We have been increasing our expectations and in 2019,

introduced a new headlight design that also makes them

we expect to sell 35 cars. We will also bring new vehicles

active air intakes to support the cooling system. It looks

into the country, including the 600LT Spider and the 700LT

cool but it also has a real use. The 720s also incorporate

Spider. Our products have a life cycle of four or five years

another F1-derived technology that allows the spoiler to

but they are also emotional purchases. McLaren is not a

extend to reduce drag and improve performance.

transportation business; we are a luxury company. We expect to launch an additional 50 new models, including

Carbon fiber is the most important technology we have

sports cars, supercars and hypercars.

translated from F1 to commercial cars. McLaren is a carbon fiber pioneer; in 1981, we became the first driving team to use this material. In the early 1990s, we produced the first

McLaren is a car-racing team and exotic and supercar OEM

road car with carbon fiber and every single racing car has

based in England. It is the second-oldest F1 competitor and the

used it since then. Our cars have carbon fiber tabs, including

second-most successful team in F1 history. McLaren sold about

the carbon fiber Monocell Two, which is a light monocoque

4,800 exclusive cars in 2018 worldwide

| VEHICLE SPOTLIGHT

TESLA: REDESIGNING THE MEANING OF GROUNDBRAKING Tesla was founded in 2003 by a team of engineers who wanted to prove that electric-powered driving was possible without compromising the integrity of the vehicle while making it better, faster and more fun to drive. The company started operations in Mexico at the end of 2015 and today, it has a showroom in the Polanco neighborhood of Mexico City, as well as service centers in Naucalpan, Monterrey and Guadalajara. In the country, the company holds the broadest public charging network, including 16 Tesla Superchargers and more than 500 Charging-on-Destination points, which enable drivers to visit any of the 32 states, making EVs a real mobility alternative. Tesla has not just built an entire fleet of EVs, but it has also engineered a broad line of electricity storage and generation products. Recently, the company presented the newest addition to its lineup, the Cybertruck. This new model is designed to combine the performance of a sports car and a trucks’ versatility. Cybertruck’s power, structure and design have set the standard for the development of electric vehicles. It comes in three different variants: single motor rearwheel drive, dual motor all-wheel drive and tri-motor allwheel drive. It may not look like it but Tesla’s new model enables acceleration from 0 to 60 in 2.9 seconds. With more than 804km of range, its towing capacity is more than 7,000kg while having a payload of up to 1,750 kg. In addition, Cybertruck has set what could become a new normal for the industry. “The car has an adaptive air suspension. This will become standard in all cars as it has the ability to adjust the ride height so you can go as low or as high as needed. You can efficiently drive on the highway and you can also go off-roading,” said Elon Musk, CEO of Tesla, during the presentation of the vehicle. The six-seater Cybertruck also challenged the conventional design of what it is expected from a truck. The exoskeleton of the Cybertruck is made of ultrahard 30X cold-rolled stainless steel, according to Musk, the same material that is being used in the company’s Starship rocket. The structure provides maximum protection while preventing dents, damage and longterm corrosion. Cybertruck’s design also allows maximum versatility. The lockable cargo space has a length of almost 2m, with storage capacity of 2.8m3, including the vault, frunk and sail pillars.

| VIEW FROM THE TOP

FORWAD-LOOKING STRATEGY WILL PAY OFF UNDER NEW REGULATION GASPAR AGUILAR Mexico Operations Leader of Cummins 70

Q: What benefits can Cummins’ technology provide to

investment. Our focus will be on additive manufacturing and

clients in terms of savings?

other technologies that can support engine remanufacturing.

A: Our Euro IV technology demands a higher initial

We also invested US$19 million buying the facility we were

investment of approximately 7 percent of the total cost

leasing in Ciudad Juarez for our fuel-systems operations and

of the truck. As a result, our strategy was to focus on the

Cummins’ emissions business. We have been in this strategic

total cost of ownership of the vehicle and the benefits our

location for 10 years.

technology could provide to the client over the long run. Our tests show Cummins’ technology can increase fuel

Our investments have also been oriented to talent

efficiency by 4-5 percent, depending on the cargo and the

development and human capital development strategies.

routes taken by the vehicle. Our engines also prolong the

This topic is highly relevant, particularly in the Bajio region

time the truck can go without maintenance, thanks to our

where there is immense demand for capable talent. We

calibration algorithms that adjust the system depending on

are focusing on creating stronger attraction and retention

the truck’s load conditions. Our technology has been a key

strategies that can appeal to younger generations. We are

element in our relationship with OEMs.

investing US$7 million in a new master site in San Luis Potosi with new amenities and services that boost loyalty and a

Q: How will Cummins handle the transition toward Euro V

healthy working environment for our employees.

following the implementation of NOM-044? A: Our technology does not need to change in terms of

Q: How is Cummins preparing for the transition toward

hardware. We only need to do a small calibration to our

electrification and how will that impact your operations as

engines to comply with Euro V standards. We had already

a leader in diesel-engine technology?

worked to convince clients to move to Euro IV since Euro V

A: At a corporate level, we are investing heavily in

would use the same hardware with a small calibration in the

electrification and we even created a new business unit

Engine Control Module (ECM). Therefore, those clients that

called Electric Power Business. We are acquiring companies

already made an additional investment in our technology

focused on high and low-voltage energy storage and entering

have already started to homologate their technology toward

joint ventures with manufacturers of in-wheel motors and

the new standards outlined in NOM-044.

other types of generators. We are even analyzing potential integration with chassis component manufacturers to raise

Q: How is the company’s strategy evolving in terms of

the competitiveness of our operations.

investment to grow its operations? A: Mexico is a key market for Cummins. Even though the

Electrification may be on our radar already but that does

country might sometimes be seen as the US’ backyard, it is

not mean we have stopped investing in diesel or natural

already a strategic logistics partner for North America and a

gas technologies. Some of our competitors have already

strong investment destination. Cummins has invested close to

ditched diesel in favor of electrified powertrains and that

US$8 million in a research and development center in Mexico

gives us the opportunity to remain leaders in this segment

and the results have been so beneficial that we are now

for as long as the technology is available in the market.

expanding our operations even further, with a US$3 million

Realistically speaking, although there are countries like Brazil and Chile where electrification is growing, in Mexico we still do not see the right legal and infrastructure conditions for

Cummins is a US company focused on the production and

this technology. We see electrification really disrupting the

commercialization of diesel and alternative-fuel engines, from

market in the next 10-15 years. It is a long time but we are

2.8-95L, as well as generators ranging from 2.5 to 3,500kW. The

already starting to invest in our future and learn about what

company has 7,500 dealerships in over 190 global locations

other countries are doing.

VIEW FROM THE TOP |

GROWING FOCUS ON NATURAL GAS TRANSPORTATION ENRIQUE ENRICH Managing Director of Scania México 71

Q: What milestones has Scania reached toward making

only on the truck’s trailer. Mexican norms are a mix of

Mexico’s transportation sector safer and less-polluting?

both regulations. In terms of volume, European norms are

A: Our priority is active safety. Over the past two years, we have

advantageous for cab-over models because less space is

implemented new safety standards in the buses we introduce

taken by the cabin and the engine, allowing trucks to have

to the Mexican market based on various technologies. One

longer trailers and carry more cargo. Scania appealed to the

is an emergency brake system that uses a camera sensor to

government to allow bigger trailers, but this has not been

detect when an impact is imminent. The system sends out

approved yet.

audible signals and vibrates the driver’s seat. If the driver does not react, the bus brakes automatically. Another system, called

Generally speaking, the American rules system is

a lane departure warning system (LDW), warns the driver

disappearing. Thirty years ago, it was the predominant

when the vehicle changes lanes. We also use adaptive cruise

standard but now only three countries use it. Mexican

control (ACC) systems, which can automatically accelerate

clients are becoming familiar with European standards and

or slow down the vehicle depending on the distance to the

are realizing that cab-over trucks offer increased visibility,

vehicle driving in front of it, and traction-detecting electronic

maneuverability and a safer cabin environment. Swedish

stability programs (ESP) that independently applies the

norms, which apply to Scania trucks, are even stricter. For

brakes to individual wheels to counter oversteer or understeer.

example, in the area of crash testing, Sweden demands that vehicles be able to resist impacts of greater force.

Q: Now that NOM-012 is in place, how have Mexican transportation companies reacted to Scania’s cab-over

Q: How has the Mexican market reacted to natural

trucks, including the New Generation models?

gas vehicles?

A: We are an important player in the global cab-over market

A: Scania’s first natural gas vehicle was introduced over 80

but in Mexico we are still relatively new. Our latest family of

years ago. What is new is that these units are now becoming

trucks has been in the country for almost two years, while

more commonplace in Mexico. In Colombia, Scania was

our competitors, mostly American truck companies, have

recently awarded a contract to provide 800 natural gas buses

been in Mexico for decades. However, I expect European

to the city of Bogota. The technology is considerably cleaner

trucks to gain market share very quickly. Between 2003 and

and more economical. We also have electric and hybrid

2006, I was Scania’s Sales Manager for Chile, Argentina and

options but considering that the technology for electric

Uruguay. In Chile, 20 years ago, 80 percent of the trucks were

vehicles is still relatively expensive, gas is the best option.

American. Today, most of them are European. Something similar happened in South Africa and Australia.

We have already completed several successful projects for natural gas-fueled public transport, intercity buses and

European trucks in Mexico represent only 4 percent of the

trucks. Celaya is the first municipality in Mexico with an

market. In five years, this will increase to 20-30 percent. Scania

intercity bus system running totally on natural gas. In Puebla,

wants to be the leader as this happens. European trucks are

we will deliver 37 gas buses for the first green BRT system

a better option for the country because of their higher fuel

in México. That being said, 99 percent of the units we sell in

efficiency, which is particularly important given fuel prices in

Mexico are still diesel.

Mexico. Moreover, European trucks are safer. American trucks generally use too much space, which causes poor visibility and makes them hard to maneuver.

Scania is a Swedish company that manufactures heavy trucks and buses. It also builds diesel motors for industrial and marine

European standards establish a maximum bumper-to-

applications. The company is active in more than 100 countries

bumper length for trucks, while American norms focus

with a global workforce of 52,000 employees

| VIEW FROM THE TOP

FLEXIBILITY, INNOVATION SPELL GROWTH IN HEAVYWEIGHT SEGMENTS FLAVIO RIVERA CEO of Daimler Trucks México 72

Q: What is Daimler Trucks México’s strategy to compete

ambulance and firetruck to mobile crane, concrete mixer

in the country’s heavy-vehicle market?

and even racing truck.

A: Our Freightliner brand is the sales leader in Mexico thanks to a strategy based on four elements. First, Daimler

Q: How important are diesel prices for transportation

Trucks México sells trucks that meet client expectations

companies looking to renew their fleets?

and requirements thanks to a comprehensive lineup that

A: Following the price increases between 2013 and 2019,

includes everything from medium-sized to large trucks in

diesel now accounts for around 57 percent of the total

both cab-over and long-nosed body styles.

cost of operations of a cargo truck. With this in mind, Daimler Trucks prioritizes reduced fuel consumption and

The second element is the work we do with our dealership

increased uptime to reduce total cost of operations.

network. We have a professional and strongly customeroriented dealership network of 87 sales points that have

New technologies are allowing us to extend the interval

helped us build our presence in the truck market since

between shop visits and reduce the number of times our

our arrival to Mexico in 1994. Third, we have the support

trucks require line maintenance per year. For instance, the

of a strong financial branch. Daimler Financial Services

Freightliner Cascadia is designed to deliver an average

de México has helped Daimler Trucks cater to the heavy-

30 percent longer interval between shop visits, which

vehicle segment by offering clients the financing products

effectively reduces truck downtime and translates to

they need to acquire our vehicles. The last element is a

financial benefits for operators.

strong workforce that stands out for its in-depth industry knowledge, which helps the company adapt to clients’

Q: How important are Mexican suppliers for Daimler

needs and requirements.

Trucks México’s local assembly operations? A: To measure the quality of our Freightliner trucks we

Q: What advantages can cab-over trucks offer over

must consider not only our assembly plant but also our

conventional long-nosed units?

suppliers’ manufacturing facilities. We are convinced of

A: Directly comparing both configurations is not a great

the quality that North American suppliers can deliver and

idea. While there is a slight overlap in some applications,

Mexico has a significant share in our regional content.

these body styles have unique characteristics that make

Daimler Trucks México is constantly looking for new

each type more suitable for certain applications. Rather

opportunities to grow its local supplier base. We organize

than betting on one or the other, Daimler Trucks focuses on

annual fairs to meet potential Mexican suppliers and

reducing the total cost of operations of Freightliner trucks

remain close to our current partners. Daimler Trucks’

on both its cab-over and conventional configurations. This

Saltillo plant has a specific space for suppliers to set up

entails reducing emissions and increasing fuel-efficiency

shop and produce the components that we need.

and uptimes. Q: What new opportunities can USMCA create for Daimler Q: What is Daimler Trucks’ key differentiator in

Trucks in Mexico?

the market?

A: Daimler Trucks is ready to adapt to the new rules of

A: Rather than just selling heavy vehicles, Daimler

origin established in USMCA. While the agreement will

Trucks accompanies its customers as a business partner

have a positive impact on the industry, we need to remain

that develops flexible products adapted to the client’s

flexible and adapt to the industry’s new needs and carry

transportation needs. For instance, the Freightliner M2

on our operations. Daimler is a German company but it

truck can be assembled in 600 different configurations

has a strong worldwide presence. There is no country

for specific applications, including everything from

where Daimler does not have a commercial relationship

Daimler eM2 Trucks, Portland, Oregon

with a local company. In that sense, Mexico offers many

Freightliner also offers Enlace Freightliner, which is one of

opportunities for Daimler to market its products based

the most advanced telemetrics systems in the Mexican

on local needs.

market. This system allows transportation companies to keep track of the performance and location of their trucks,

Q: What is Daimler Trucks’ strategy to introduce more

while also detecting component failures so the truck is

efficient vehicle motorizations to the market?

serviced in time. However, a lack of telecom coverage in

A: Our goal is keep Freightliner at the technological

some areas prevents a continuous signal on some roads.

forefront of the Mexican heavy-vehicle market, which means we need to innovate in mobility applications. We

Q: How will the introduction of Cascadia impact Mexico’s

are introducing advanced truck technologies to the Mexican

aging heavy-vehicle park?

market. In 2018, Daimler Trucks started assembling the new

A: As more clients adopt this vehicle, transportation

Freightliner Cascadia trucks at its Santiago Tianguistenco

companies will increase the efficiency of their fleets. We

and Saltillo assembly plants. This vehicle family offers

also expect Cascadia trucks to reduce the average age of

increased fuel efficiencies and meets Euro VI and EPA 16

Mexico’s freight vehicle park and its average emissions. The

emissions standards, while also featuring cutting-edge

country's heavy-vehicle park is made of around 500,000

safety equipment. We expect that the combination of these

units, but up to 64 percent of these trucks only comply

features will make Cascadia the new standard for cargo

with EPA 1998 standards. Most of Mexico’s heavy vehicles

transportation in Mexico.

are outdated by three generations in terms of emissions standards and show mechanical and safety conditions that

Q: What are the main challenges that Daimler Trucks’ new

are less than ideal for transportation companies. All players

technologies face in Mexico?

in this sector are interested in renewing fleets and having a

need

i n f ra s t r u c t u re ,

including

ro a d s ,

safe and efficient vehicle park.

telecommunications and gas stations, so that advanced technological products can deliver the results they are designed to deliver. Without this, all the investment and

Daimler Trucks is one of the two heavy-vehicle divisions of

effort by Daimler Trucks to promote new technologies will

Daimler Group in Mexico. The company builds Freightliner

be for naught. For instance, fuel-efficient diesel engines

trucks at its Saltillo and Santiago Tianguistenco assembly

require sufficient supply of ultra-low sulfur diesel nationwide.

plants and has a dealership network of 87 sales points

| VIEW FROM THE TOP

CHANGES IN REGULATION WILL BOOST COMPETITIVENESS LEANDRO RADOMILE Managing Director of MAN Truck & Bus México 74

Q: How is Volkswagen’s collaboration with Navistar impacting

segment. We have the technology but we must be also aware

MAN Truck & Bus’ operations?

of the potential demand in the market at the moment. Costs

A: We have established a great collaboration in terms of

related to this technology are considerably higher when

sourcing strategies and technology development. Already,

compared to traditional internal-combustion units. Still, we

Navistar is using our engine technology in the US. Volkswagen

do expect to see an electrification plan for the country in the

formed a new entity called Traton Group to manage this

long run, probably in the next five or six years.

and other joint projects. Thanks to this collaboration, our development process will accelerate and time-to-market for

Q: How has MAN Truck & Bus’ CNG efforts evolved

any new technology will reduce. Synergies between brands will

in Mexico?

also make production costs much more attractive, although

A: We already have two CNG models available here,

it is important to mention that all brands will continue to be

both of which are being tested by our clients. The only

managed separately and autonomously.

challenge we see for these units is complete gas availability throughout the country. There has been significant growth

Besides our 16.6 percent investment in Navistar through

in the number of gas charging stations in the last few years

Traton Group, we also have a 25 percent share in the Chinese

but it is still not enough to cover the needs of the national

manufacturer Sinotruk and we signed a technology agreement

fleet, especially if it is to boost further CNG adoption.

with Hino Motors. Our agreement with Sinotruk will give us access to the Chinese market, while our collaboration with

Q: Considering cab-over units are a key element in MAN

Hino Motors is much more oriented to developing alternative

Truck & Bus’ strategy, what is your expectation for these

motorizations, mainly focusing on hybrid and electric units,

units in the Mexican market?

as well as digital services.

A: We still see cultural resistance to cab-over units in the heavy-truck segment. The Class 8 segment represents 80

Q: How important will alternative motorizations and clean-

percent of the truck market, which means there is a great

energy implementation be for MAN Truck & Bus in Mexico?

opportunity to increase our participation with cabovers. We

A: Mexico will soon go through a significant transition. Starting

expect demand to grow for these units although we do not

in July 2019, Euro V technology became mandatory for new-

expect them to become the new normal in Mexico. At most,

vehicle sales and we are very comfortable with this change.

we think cabovers will account for 10 percent of the entire

Of all brands in the country, we have the most experience

truck market. In the light-truck market, however, we have

in Euro V engines, having introduced the first units with

already seen a shift in consumer preference.

this technology in 2013. At first, we expect an increase in competitiveness since all other companies that deal with Euro

Q: How have you showcased the advantages of these

IV technology will have to improve their offering, which will

units among new and existing clients?

entail an adjustment in terms of price.

A: We have been very active in arranging tests with our clients through our dealerships. At the same time, we

Regarding hybrid and electric technology, we do see an

maintain an aggressive strategy of investment in our

opportunity for these units in Mexico, particularly in the urban

product portfolio. With the Delivery family, for example, we are now able to participate in all segments of the market, ranging from 4 tons to 80 tons. Another pillar

MAN Truck & Bus is a subsidiary of the Volkswagen Group.

in our development strategy has been our capability to

Headquartered in Germany, the company focuses on the

build tailor-made products for our clients. We opened a

production of buses and both light and heavy trucks. In Mexico,

modifications center in Queretaro in 2017, which helps us

it manages the Volkswagen and MAN brands

address any special requests clients might have.

VIEW FROM THE TOP |

PAVING THE WAY TO BECOMING A PREMIUM CHINESE BRAND JOSÉ ARMENTA Director General of FOTON México 75

Q: How does FOTON ensure it remains in a flexible position

airbags, proximity sensors, collapsible steering columns and

to tackle new opportunities in the Mexican market?

deformable steering wheels. We are sure that with our product

A: In 2019, FOTON made two very important volume sales

portfolio, featuring the most advanced technology, natural

to Mexican companies. Six hundred units were acquired by

gas engines or 100 percent electric drivetrains, our clients

CEMEX and 500 units by Seguridad Alimentaria Mexicana

will have greater efficiency in the delivery of their products

(SEGALMEX). These two operations laid the foundations for

and services.

our headquarters in China and our Mexican investors to take on the task of creating this new company, FOTON México.

Q: What are FOTON México’s measures regarding NOM-012 and NOM-044?

Q: As a foreign brand, what has been the biggest challenge

A: We comply with these standards, otherwise we would

FOTON has faced in the Mexican market?

not be able to market our products in Mexico. We even go

A: The biggest challenge has been creating a successful

beyond compliance, as we offer vehicles with natural gas

distribution network dedicated to the total support of our

and electric technology with zero polluting emissions. In

clients through our FOTON Total Care Program, which focuses

recent months, President of ANPACT Miguel Elizalde has

on providing an expedited aftersales service and guaranteeing

said that the government requires a new strategy for the

the immediate availability of spare parts.

application of NOM-044 regarding the manufacturing and distribution of new commercial vehicles. Another element

However, we also have had great achievements, such as

that could facilitate the increase in sales would be to extend

successfully completing the assembly and manufacturing

the period of time for the application of NOM-044, both

of the 500 units requested by SEGALMEX. Now, we will

in Euro V and Euro VI units, which would provide our

dedicate our plant located in Lagos de Moreno, Jalisco, to

customers certainty and stability when purchasing vehicles

the production of units for the domestic market. There is also

in the coming years.

the possibility of investing in a larger plant to assemble a greater volume of units to cover other export markets, such

Q: What are the main opportunities that FOTON has

as all of Latin America.

identified in the Mexican market? A: We see several opportunities in the market. For example, at

Q: How will USMCA influence your operations in the country?

some point, public investment in Mexico has to be reactivated

What are your strategies to cope with these challenges?

and we believe that the process will be very fast since the

A: Environmental regulations will be the main challenge

movements of both passengers and merchandise will surely

because we are a little behind compared to the US and

increase. Likewise, increasingly stringent regulations place

Canada. Mexico is in the transition to Euro V and Euro VI,

us in a favorable situation because we offer natural gas and

while those countries are already in EPA10.

electric units. Together with our aggressive financing plans, we are the best option for our clients. Finally, our distribution

Q: What security and efficiency systems does FOTON offer

network is consolidating with groups that have a great deal

to Mexican users?

of experience in the field of motor transport, which makes

A: We have a wide range of products for different applications,

it possible to provide total aftersales support to our clients.

ranging from 1.5-ton pickups to tractor-trailers, van-type units, cargo for secondary and midrange distribution, diesel and natural gas buses, as well as 100 percent electric vehicles.

FOTON is a Chinese truck manufacturer with more than 10 years in

All our vehicles are completely certified in all standards,

the market. The company produces pickup trucks, tractor-trailers,

whether European, American or Asian. Our units have the

van-type units, cargo for secondary and midrange distribution,

latest generation active and passive safety systems, including

diesel and natural gas buses, as well as 100 percent EVs

Honda Fit 2020, Guanajuato

GUANAJUATO

Guanajuato, the crown jewel of the Mexican automotive industry, is home to six light OEM plants and one heavy OEM. The state has matured its offering for automotive companies to land projects in the country. Between 2010 and 2019, FDI in vehicle and auto parts manufacturing grew an average of 44.8 percent annually. The state's success is the result of triple helix policies where academia, government and the private sector have collaborated to foster development.

After a change in Mexico's federal administration and uncertainty regarding USMCA ratification, FDI decreased 38.5 percent from 2018 to 2019, from US$976 million to US$600.5 million. In the short term, the state has set priorities for investors to expand or move operations to the state. At the same time, the government and Ganajuatoâ&#x20AC;&#x2122;s automotive cluster are working closely with local and global suppliers to help them comply with automotive rules of origin established in USMCA.

CHAPTER 3: GUANAJUATO 80

ANALYSIS: Coping With the End of an Economic Cycle

VIEW FROM THE TOP: Mauricio Usabiaga, Minister of Economic Sustainable Development of

the State of Guanajuato

VIEW FROM THE TOP: Luis Rojas, COFOCE

VIEW FROM THE TOP: Alfredo Arzola, CLAUGTO

STATE PROFILE: Guanajuato: Crown Jewel of the Bajio

ANALYSIS: Toyota Consolidates Production Footprint

EXPERT INSIGHT: Andre Dronigke, Dekosys

Fernando Villuelas, Kromberg & Schubert

VIEW FROM THE TOP: Luis Moreno, GKN Driveline

VIEW FROM THE TOP: Francisco Carreón, Stant

VIEW FROM THE TOP: Javier García, NSK

COMPANY SPOTLIGHT: Stant: 120 Years of Leadership, Adaptability

INSIGHT: Rolando Alaniz, Grupo León

VIEW FROM THE TOP: Nahieli García, Temaplax

INSIGHT: Hugo Martínez, Aquantium Technologies

VIEW FROM THE TOP: Francisco Rosete, Amistad Industrial Developers

VIEW FROM THE TOP: Vanessa Cordero, Marabis Group

VIEW FROM THE TOP: Gabriela Bucio, Parque Industrial Cuadritos

INSIGHT: Sergio Sánchez, Lintel

VIEW FROM THE TOP: José Carlos Corcuera, UBSA

| ANALYSIS

COPING WITH THE END OF AN ECONOMIC CYCLE The Guanajuato government and the private sector are adapting to the constraints of an ending economic cycle. Long-standing partnerships with big automotive players are allowing different players to conduct long-term strategies to secure sustained growth in this paramount automotive region

Guanajuato is the crown jewel of the Mexican automotive

the industry is experiencing. CLAUGTO has played a key

industry. The Bajio state has been an example of industrial

role in building the long-standing relationships between

development and life quality for more than a decade.

state government and automotive companies. “CLAUGTO

The government’s leadership in attracting and increasing

works with both OEMs and suppliers at all levels to

investment has created a consolidated state economy.

support their development, promote good manufacturing

But it now faces the challenges of an ending economic

processes, incentivize relationships between suppliers

cycle. Both the government and the private sector remain

and buyers and foster their technological development.

optimistic that the downturn will eventually pass and their

Tier 1 companies play an important role in the state’s and

long-term efforts to sustain growth will prove fruitful.

the sector’s development due to the weight they have, the number of jobs they generate, representation and the

The industry has enjoyed steady growth in Guanajuato.

high added value of their processes,” says Alfredo Arzola,

Between 2010 and 2018, FDI in vehicle and auto parts

Director General of CLAUGTO.

manufacturing grew an average of 44.8 percent annually. Between 2016 and 2018, the growth rate was 37 percent

Companies’ trust in the state also remains strong. Honda

on average. However, in 2019 the trend came to an end. In

will transfer its HR-V production from El Salto, Jalisco,

2018, the sector received US$976 million, whereas in 2019,

to its plant in Celaya, while Toyota started in December

the figure dropped to just US$600.5 million, representing

2019 production of the Tacoma in Apaseo el Grande. Tier

a 38.5 percent decrease. Regardless, the local government

1 companies such as GKN have expanded their operations

continues to press the industry’s accelerator. In 2019,

in the state. “Our plant will add value to our automotive

Guanajuato hosted the first edition of Hannover Messe in

operations in Guanajuato and outside Mexico too,” says

Latin America and just a month later, Foro de Proveeduria

Luis Fermín Moreno, Manufacturing Operations Director

Automotriz (Automotive Supply Forum) attracted more

of GKN Driveline. Javiar Garcia, General Manager of NSK,

than 2,000 companies to Leon. “Guanajuato should be

agrees: “There will be a boom of Tier 1 and Tier 2 companies

an ever-growing state, generating wealth, betting on

in the region. At NSK, two lines that produced bearings for

education and employment. We need people to see that

the Tacoma will be moved from Japan to Mexico to support

Guanajuato remains a productive state and that we are

the new Toyota plant,” he says.

hard-working people who want to do things right,” says Gov. Diego Sinhue.

INDUSTRIAL DEVELOPERS OPTIMISTIC Investors in Guanajuato are well-experienced in

The governor’s plans to sustain growth are being

understanding the economic cycles of both the country

implemented by Guanajuato’s Foreign Trade Promotion

and the automotive industry. Developers continue to

Coordination (COFOCE). “Attracting more OEMs is no

expect the arrival of new companies and this is reflected in

longer the objective. The goal is to reinforce the ecosystem

the capacity expansions at industrial parks. “We will begin

in all other aspects. We should give all the companies

the expansion of two industrial parks in 2020. One in Castro

that trusted in Guanajuato the tools to make them more

del Rio and the other in Abasolo,” says Vanessa Cordero,

competitive, including access to a strong supplier base to

Director General of Marabis Group.

comply with new rules of origin and logistics infrastructure to improve their operations,” says Luis Rojas, Director

Francisco Rosete, Executive Director Central Mexico

General of COFOCE.

of Amistad Industrial Developers, one of the largest family-owned industrial developers in the country, also

OEM, SUPPLIER PARTNER

remains optimistic about Guanajuato’s performance as an

Private players are also hopeful of a brighter future for

automotive investment destination. “About 90 percent of

Guanajuato. The state outranks every other state in the

our client portfolio is made up of transnational companies

country, hosting seven OEMs as well as many Tier 1, Tier 2

that are committed to the environment and those that

and Tier 3 suppliers that are adjusting to the megatrends

build a strong production chain. At our Bajio complex, we

have the first Turkish automotive company in the country,”

tourism, textile, professional services and retail, must follow

he says. In addition, as USMCA is enforced, certainty will

the state’s red-orange-yellow-green traffic-light system,

provide a unique environment for investment to take place.

indicating the state of the contagion and the hospital

“Foreign investment seeks certainty and it is waiting for the

bed occupancy rate in the state. To start, companies will

North American region to create it,” says Cordero.

operate at around 30 percent of their capacity, although these figures may vary from sector to sector.

EVOLUTION OF THE PANDEMIC Guanajuato, as Mexico in its entirety, was affected by the

According to Banxico, the expected impact of the

COVID-19 pandemic and the lockdown measures that

pandemic on the Mexican economy will be am 8.8

followed. On March 16, the first two cases of the virus were

percent contraction in GDP. In this scenario, Guanajuato’s

confirmed in the state. On April 8, there were 78 confirmed

government will bet on healthy public finances and

cases and a month later, on May 8, the figure rose to 538

collaboration with the private sector to overcome the

confirmed cases. As of June 8, there were 3,225 confirmed

severe economic conditions. “Projects should answer to

cases of COVID-19.

smart and temporary (government) interventions,” said the government in a statement. The administration’s main focus

As in other states, the local government heeded the

will be on the agribusiness sector and tourism, while betting

recommendations of the federal Ministry of Health to

on infrastructure to reactivate these sectors.

implement lockdown measures that reduced mobility and suspended non-essential activities. Hino, Volkswagen,

THE ROLE OF THE PRIVATE SECTOR

GM, Ford, Mazda, Honda and Toyota started suspending

The government has implemented three priorities

operations in the last week of March. Soon after, on

to increase local investment from the private sector:

March 30, the federal government issued a decree that

innovation, entrepreneurship and human capital. The

allowed only essential activities to operate. The effects

government will accelerate the use of solar energy and

were immediate: only 3,722 vehicles were produced in the

its related infrastructure. It will also give a boost to the

country, which represented a 98.8 percent annual drop.

Institute of Innovation, Science and Entrepreneurship for Competitiveness, while promoting foreign and local

In mid-May, amid the dire economic impact of the pandemic,

investment in “future industries.”

the National Health Council declared mining, construction and transport equipment manufacturing as essential. Soon

COFOCE’s Director Luis Rojas, during a video conference,

after, on May 25, Guanajuato’s governor, Diego Sinhue

explained the role local companies will play to reactivate

Rodriguez Vallejo, presented the state’s “Guanajuato

the local economy while meeting needs at the national

Action Plan” to reactivate the state’s economy. “We will

and international levels. “We saw the need to transform

soon overcome this situation. Nevertheless, I need to be

ourselves to support the private sector. That is why we

clear: success depends on common effort and engagement.

have worked with companies so they can get national and

It is my responsibility to warn you that COVID-19 is not the

international certifications to meet current demands,” said

only threat we have. Unfortunately, economic scenarios for

Rojas in a separate interview with El Economista. Among

Mexico point to a severe economic contraction,” Sinhue

COFOCE’s strategies are the development of a regional B2B

said in a statement.

online platform where local companies from Guanajuato, the State of Mexico, Puebla and Tlaxcala can participate.

GOVERNMENT’S RESPONSE As an immediate response to lockdown measures, the state

Gov. Sinhue, together with his Queretaro and San Luis

government granted a two-month extension in income

Potosi counterparts, participated in a joint meeting

taxes to companies across different sectors. Other tax

with Michigan Vice Gov. Garlin Gilchrist to set common

extensions, such as that of vehicle ownership, and financial

guidelines as the automotive sector in both the US and

aid were also granted. As lockdown conditions extended

Mexico resumed operations. “The world economic crisis

for over a month, at the end of April the state government

caused by the COVID-19 pandemic generated a greater

provided three-year loans at a 5 percent annual interest

interaction between Mexico and the US,” said Joe Chapa,

rate for up to MX$2 million (US$91,000) to companies

Vice President of the US-Mexico Chamber of Commerce,

across different segments to prevent them from reducing

in a statement. “For Guanajuato, we have seen there is

their staff.

coordination for the reactivation of the automotive sector and talks between the two countries that demonstrate

As for the automotive sector, companies were allowed to

the existing cooperation. The scenario for the state is

resume operations on June 1, after all the necessary health

encouraging for all initiatives that have been implemented

protocols were approved by IMSS. Other sectors, such as

for its development during these times,” said Chapa.

| VIEW FROM THE TOP

PRO-BUSINESS, PROACTIVE GOVERNMENT MAKES FOR A COMPETITIVE STATE MAURICIO USABIAGA Ministry of Economic Sustainable Development of the State of Guanajuato

Q: What elements have contributed to Guanajuato’s

Q: What are the state’s strategies to continue promoting

position as an economic development driver for

exports from different sectors?

the country?

A: Guanajuato has transformed when it comes to exports.

A: Part of the state’s success is rooted in continuity. We are

Twenty-five years ago, the state’s exports were below

one of the few states that has maintained policy continuity

US$300 million but in 2019 alone we finished with over

thanks to our planning institution, IPLANEG. There has

US$24 billion. Much of this depends on the development

been a clear delimitation of objectives and these have

of a state policy. Guanajuato has an institution called

been followed up across different administrations, since

COFOCE, which was created before ProMéxico. In fact,

many of these are medium and long-term projects. For

when former President Vicente Fox created ProMéxico,

members of Guanajuato’s public administration, it has

it was modeled on COFOCE. We support this trade

been a matter of prioritizing objectives rather than having

promotion agency, which is a key differentiator against

a political agenda.

other states. In addition to COFOCE, we have an institution to boost internal trade. We want MSMEs to participate in

Q: What type of relationship does Guanajuato have with

global production chains and become suppliers, boosting

investors?

the state’s exports.

A: We know that we need to create jobs and wealth and the only way to do that is through the private sector.

Q: What are the government’s medium and long-term

Guanajuato is a pro-business state and we have defined

objectives?

clearly that our purpose is to be facilitators. While we have

A: We have two priorities, both targeted toward

chosen to develop specific niches, such as the automotive

digitalization. The first is education, which requires a focus

industry, we believe that one of the state’s strengths is its

on science and math skills. We encourage local schools and

economic diversification. While the automotive industry

universities to focus on these areas because we need more

contributes almost 18 percent of the state’s GDP, the agro-

engineers, technicians and mathematicians.

industrial sector is just 2 percentage points behind the in terms of GDP contribution. Other sectors such as leather

Our second priority is electricity. Competitive manufacturing

and footwear contribute 10 percent to GDP. Tourism and

is linked to market access and competitive energy

logistics contribute 9 percent and the agro-chemical

conditions. So, we are putting a lot of emphasis on trying to

sector delivers 8 percent.

increase the electricity generation within the state through natural gas or clean energy, either solar or wind.

Q: How is the government working to make Guanajuato a hub for Industry 4.0 and other advanced technologies?

Q: What synergies has the government established with

A: We are conscious of the transformation that Industry

industrial parks developers?

4.0 brings. However, we also understand the difference

A: The state has over 50 industrial parks but we have more

between being innovative and inventive. Innovation

than 2,000ha ready and fractioned to receive companies

involves mixing things that already exist and creating

from anywhere in the world. Guanajuato state has an

something new that impacts returns. If changes are

economically active population of 2.6 million people. We

not reflected in a company’s results, then they are not

have enough population to support future growth, either

innovative but inventive. While invention is needed, it tends

in the manufacturing or mindfacturing (engineering and

to be a long-term strategy that can be fairly expensive.

innovation) sectors.

Both the country and Guanajuato need to focus more on innovation rather than on invention to make the most of

Q: What is the relevance of the mindfacturing niche the

the investment needed to implement either.

state is trying to boost?

A: In the same way we moved from the primary to the

autonomous vehicles are coming and that they will need

secondary sector, we now are immersed in a transition

5G communication networks, robotics and high levels of

toward the services sector and the mindfacturing era. We

electricity at a competitive cost. The state is trying to

are trying to improve the income and quality of life for

anticipate all this and to attract investment in electricity

people in the state. We know that the global economy is

generation and talent development. We have highly

moving toward the mindfacturing model and that is what

renowned academic institutions, including UNAM, which will

we are trying to do.

soon open its second campus in the state, IPN, Tecnológico de Monterrey, Universidad Iberoamericana, Universidad

Q: What advantages does Guanajuato offer in terms of

La Salle University, Universidad de Celaya and regional

connectivity and infrastructure for companies settling in

technologic universities.

the country? A: Logistics is important for companies and is among the

Q: What is the relevance of the Center-Bajio-West Alliance

factors that can either make or break a business. Guanajuato

and how do you expect it will contribute to the region’s

is located in the heart of Mexico and we are among the

economic growth?

few points in the country where you can find a railway

A: The alliance is between states of Queretaro, San Luis

intersection. This means that we can cluster merchandise

Potosi, Aguascalientes, Guanajuato and Jalisco. The

that comes from the North Atlantic region and the North

economy of these five states is similar to Peru’s economy

Pacific region. Merchandise coming from the North Atlantic

and slightly smaller than the Chilean economy. These five

region enters the country through the ports of Altamira,

states contribute 25 percent of the country’s agro-industrial

Veracruz and Tampico. Meanwhile, from the North Pacific,

production and have over 20 million inhabitants, with an

products enter the country through Manzanillo and Lazaro

average age of 25 years.

Cardenas. On average, every port is located less than 600km from Celaya, which is where we find this railway

Within the alliance, Guanajuato has the second-largest

intersection.

population and we have a privileged climate for the development of the agro-industrial sector. We have a

It is important to mention that the country’s two most

leather and footwear industry that generates almost 80

important highways, the 57 and the 45, cross the state.

percent of the footwear in the country. Moreover, we have

We have an international airport and can easily access

important logistics companies like Transportes Castores

international airports in other states, such as those in

and Tresguerras, which are local companies.

Morelia, Queretaro, San Luis Potosi and Aguascalientes. Q: What are the alliance’s short-term initiatives? Q: How would you characterize the development of

automotive suppliers in the state?

competitiveness. Today, competitiveness does not only

A: The automotive industry is experiencing an important

come from productivity but from a ripe ecosystem. With

change. We know that vehicles are quickly adapting

this alliance, we are trying to create this ecosystem and

to electrification. We are trying to support this change

we are focusing on improving the existing infrastructure.

alongside OEMs. Guanajuato hosts seven OEMs: Toyota,

This entails personnel mobility, logistics of products and

We know that infrastructure is primordial for

GM, Mazda, Honda, Hino Motors, Ford with a transmissions

raw materials, security, training and generation of electric

plant and Volkswagen with an engine facility. These OEMs

energy at competitive prices. We also want to standardize

bring their suppliers, so we have over 500 transnational

permits for opening new businesses in all five states.

companies and many of them work in the automotive sector. Furthermore, Guanajuato’s offering is well-complemented

Q: What is the message from the state of Guanajuato to

by neighboring states like Queretaro, San Luis Potosi and

all businesses and investors that are looking for certainty?

Aguascalientes. This helps us to create a regional cluster.

A: The current administration of the state of Guanajuato

We know that we can improve in several areas of the

is not composed of party members. It is a team of

automotive supply chain. If we could attract automotive

businesspeople that aims to create structures that are

steel mills, we feel this would help us to complement the

friendly to companies and to generating more wealth. We

automotive cluster.

have a government that is pro-business and proactive.

Q: How do you expect the state’s automotive industry to evolve in the coming years?

Mauricio Usabiaga was Co-founder and Director General of

A: The automotive industry is becoming more digitalized,

several companies, including SuSazón, Suve del Bajío, and

which is why it is important to start developing talent

Altamesa. He was also President of the food and agribusiness

that focuses on mathematics and science. We know that

sector in the state of Guanajuato

| VIEW FROM THE TOP

EXPERIENCE TO STRENGTHEN THE REGION LUIS ROJAS Director General of COFOCE

Q: What are COFOCE’s expectations regarding USMCA and

A: Attracting more OEMs is no longer the objective.

its impact on the state of Guanajuato?

On the contrary, the goal is to reinforce the ecosystem

A: We hope for a proactive response. We are working closely

in all other aspects. We should give all the companies

with CLAUGTO and other relevant figures to anticipate all

that trusted in Guanajuato the tools to make them

scenarios. We are aware that rules of origin are one of the

more competitive, including access to a strong supplier

main challenges for the country but they are also a great

base to comply with new rules of origin and logistics

opportunity if we are prepared. We have analyzed global

infrastructure to improve their operations. With local

chains, and have determined that these opportunities demand

companies, we must boost their competitiveness so they

internal development of companies’ competitiveness and

can have greater involvement in the global supply chain.

having the ability to quickly transform. Besides USMCA, the industry also faces the challenge of changing platforms, hybrid

One of the greatest priorities for the state is to replace

engines and full electrification. USMCA is still going to provide

imports. Investment attraction is focused on the aerospace

support and will keep boosting the regional content value and

industry, aeronautics, information technologies and creative

companies’ involvement in global supply chains. The response

industries. Even though some of these are not related to

to this new deal will depend on each company, which is why

the automotive industry, we know they use transversal

we are working to give them the tools they will need.

technologies and that they come to enrich the state.

Q: What is COFOCE doing to maintain competitiveness and

Q: How ready is Guanajuato to participate in R&D

prepare companies for the new trends?

operations?

A: We are trying to make companies conscious about the

A: The state’s 2040 Development Plan is accelerating this

need to increase their competitiveness and bring them

process. We are about to inaugurate the International

closer to global experts. We also participate in trade

Competitiveness Center, which will focus on Big Data

missions, with Spain being our latest destination. These are

and analytics. From there we could move to R&D

focused on demonstrating how the industry is transforming,

because today Guanajuato has an enviable technological

its challenges and how to react to them. When facing new

ecosystem. However, we must be capable of managing

trends, training in specific topics also becomes necessary.

this transformation and all other challenges the

We provide support to CLAUGTO and help to put all the

automotive sector is involved in.

tools in the hands of entrepreneurs so they can certify and approach new markets. One example is Foro de Proveeduría

Currently, a company that wants to jump into

Automotriz (Automotive Supply Forum), where we bring

electrification requires significant R&D, which demands

together supply and demand to speed up change. We

costly resources that are not within everyone’s reach.

recognize we are part of an ecosystem, and our actions

This is the case of many local companies that require

impact not only suppliers but OEMs.

access to funding, which might not be from traditional sources. We are working on all of these matters: Big

Q: What is COFOCE’s vision for Guanajuato’s automotive

Data, analytics and access to funding sources as tools

industry in the near future?

for increasing competitiveness. Today, the opportunity is as big as the challenge. Through an analysis of what is happening around the world, we make a diagnosis of

The Foreign Trade Promotion Coordination of the State

what companies need to be proactive in all scenarios.

of Guanajuato (COFOCE) has specialized in raising the

If we had had an International Competitiveness Center

international competitiveness of SMEs in Guanajuato for more

a few years ago, we could have seen the changes in

than 25 years

customer preferences and anticipate what was coming.

VIEW FROM THE TOP |

LONG-TERM PLANNING BASED ON UNITY ALFREDO ARZOLA Director General of CLAUGTO

Q: How has CLAUGTO advanced in its goal to attract more

have a greater contribution to human capital development,

Tier 2 providers to the state?

job specialization, as well as fostering diversification of

A: In 2018, Guanajuato received 40 automotive companies

knowledge in the automotive sector.

that began activities in 2019. Leon welcomed 20 of these companies, many of them of German or Japanese origin,

Q: How will Mexico’s Network of Automotive Clusters help

and created new areas where they could settle, such as the

consolidate the automotive industry?

Colinas del Rincón and Colinas de León industrial parks.

A: Mexico’s automotive clusters already comply with

Two other new parks were developed near Queretaro, filled

a certification granted by the EU to contribute to the

with Toyota and BMW suppliers. These two parks host the

development of the industry. There are several clusters

other 20 businesses that arrived to Guanajuato.

globally that already have the same dynamic and have achieved significant development through greater

Q: How can Mexican companies take advantage of the

collaboration and the adoption of triple-helix and quadruple-

opportunities created by these newcomers?

helix models. The latter is based on the triple helix, but it

A: Automotive companies are an important source of

is much more focused on technology and innovation and

jobs for Guanajuato. Assembly and auto parts businesses

considers cities and communities as the fourth pillar of the

collectively generate 110,000 direct jobs, 20,000 at

model. For example, the automotive clusters of Germany

assembly plants and 90,000 at auto parts companies.

and France involve a wide range of participants, such as

In addition, approximately 100,000 jobs are generated

academia, the government, civil society and others to foster

indirectly through the use of products and services.

the development of the sector as one. As a result, changes in government do not affect the sector because there is

Overall, the automotive sector contributes 20 percent

already a commitment from society, companies and others

of the state’s formal employment and 80 percent of its

to provide projects with continuity. The cluster network

exports. Unlike Queretaro and San Luis Potosi, Guanajuato

will serve to enhance the sector’s productivity through

is an economically varied state that does not only focus its

industrial policies and will incorporate a long-term vision

activities on the automotive sector. For example, 800,000

to detonate development of all the players in the industry.

direct jobs are generated by the leather, footwear and general services sectors in the state.

Q: What strategies should be implemented to increase the state’s attractiveness?

Q: What is the cluster doing to foster the sector’s

A: The Bajio region is an area with elevated economic

development?

development. Nonetheless, it is also a region with

A: CLAUGTO works with both OEMs and suppliers of

significant security concerns. We think this is because of

all levels to support their development, promote good

the political transition we are undergoing. Violence impacts

manufacturing processes, incentivize relationships

the entire country and is also reflected in the planning of

between suppliers and buyers and foster their

production and logistics activities. We have seen strong

technological development.

involvement and support from state authorities to reinforce security in the state.

Tier 1 companies play an important role in the state’s and the sector’s development due to the weight they have in terms of the number of jobs they generate, representativeness

The

and the high added value of their processes. In addition, Tier

officially launched in 2012 as a civil association made up of

1 companies offer the best opportunities for research, work

six committees focused on preserving and promoting the

and development in the automotive sector. Tier 1 companies

development of the automotive industry in the state

Guanajuato

Automotive

Cluster

(CLAUGTO) was

| STATE PROFILE

GUANAJUATO: CROWN JEWEL OF THE BAJIO Guanajuato is by far one of the largest automotive hubs

An unbeatable location, labor availability and strong

in the Americas in OEM operations and the largest one

automotive tradition make the state a top destination

in Latin America. The state is home to six light-vehicle

for an increasing number of investors. In recent years, the

OEM assembly plants and one heavy OEM facility, as well

state has faced challenges from higher land costs, as well

as many leading Tier 1 and Tier 2 suppliers supporting

as insecurity. These factors, however, have not undermined

these operations.

employment growth in the manufacturing sector.

PEOPLE EMPLOYED IN TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

41,947 Sep-19

Sep-17

27,916

29,453

Sep-16

8.50%

Sep-15

Share of national automotive FDI received 1999 - 3Q19

30,194

US$3.81 billion

Sep-14

US$2.37 billion

40,074

Auto parts production FDI

22,817

Vehicle production FDI

Sep-18

US$6.18 billion

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

33,453

Automotive FDI received (1999 - 3Q19)

Sep-13

* NAICS sector 336 includes automotive among People Employed (Gto) other manufacturing segments

Cars

1,116,211

Trucks

569,710

Motorcycles

325,036

Number of ‘green’ vehicles sold 2016 - Aug 2019

30,051

Buses

1,406

1,200

2.45

1,000

2.87

800

9.99

Spain

600

Japan

400

VEHICLE PARK SIZE IN 2018

200

Countries with the highest contribution to total FDI 1999 - 3Q19 (US$ billion)

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs

Light-vehicle OEMs

Hino Silao (truck assembly)

2 Volkswagen Silao (engines)

Top global Tier 1 suppliers

GM Silao (engines, vehicle 3 assembly, stamped components and transmissions) 4 Ford Irapuato (transmissions)

2 3

Mazda Salamanca (vehicle assembly)

Honda Celaya (vehicle assembly and transmissions)

Toyota Apaseo el Grande (truck assembly)

7 6

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

ANALYSIS |

TOYOTA CONSOLIDATES PRODUCTION FOOTPRINT Toyota started operations at its second manufacturing facility in Mexico in December 2019. The company’s goal is to produce 100,000 additional units per year, which could place it as the fifth-largest producer in the country by the end of 2020 Toyota México is the fourth-largest OEM in terms of

of the State of Guanajuato, “the state hosts seven OEMs,

sales and the eighth-largest in terms of production. The

along with more than 500 suppliers. Our offering is well-

company has 17 years of history in Mexico and has two

complemented by neighboring states like Queretaro, San

production facilities. Toyota Motor Manufacturing de Baja

Luis Potosi and Aguascalientes. This helps us to create a

California (TMMBC) started operations in September 2004

regional cluster. We know that we can improve in several

and has focused mostly on the Tacoma model, but also on

areas of the automotive supply chain. Attracting more

Yaris-R. In December 2019, Toyota inaugurated its second

automotive steel mills could complement the automotive

production facility, also focused on Tacoma, in Apaseo el

cluster we already have.”

“

Grande, Guanajuato (TMMGT).

Toyota is contributing to creating jobs and to the country's development. The plant has state-of-theart innovation technology to manufacture Tacoma, a high-quality vehicle” Juan Francisco García, President of TMMGT

Toyota’s manufacturing operations in Mexico are mostly focused on the North American market. Out of the 191,669 exported units in 2019, 99.7 percent were exported to the US, including Puerto Rico, and the rest to Canada. Just 1 percent of the models Toyota sells in the Mexican market are actually produced in the country.

PRODUCTION SYSTEM Worldwide, Toyota is well-known because of its production system and according to several interviewees for MAR19/20, suppliers that embrace this model are more likely to be included in Toyota’s supply chain. There are three elements to this system: Kaizen, Jikoda and just-intime operations. The Kaizen model is a concept based on the idea that everything can be improved, always.

Over the last five years, Toyota has increased its production by 83 percent, going from 104,810 units produced in 2015

The second element is Jikoda, which means implementing

to 191,131 units in 2019. The TMMGT project started in 2016

automation with a human touch. This implies setting up a

with a US$7 million investment and the goal to produce

plant floor where machines are located in the order they

100,000 units a year. If the company manages to ramp

are going to be used while training employees to manage

up operations, by the end of 2020 Toyota could become

them correctly so productions flows uninterruptedly.

the fifth-largest producer in Mexico, overtaking Kia’s

Finally, the just-in-time scheme implies reduced stock by

286,600 produced units in 2019 and behind Volkswagen’s

asking suppliers to manufacture the components that are

443,414 units.

necessary at the given moment.

“Toyota is contributing to creating jobs and to the country's

SALES PERFORMANCE

development. The plant has state-of-the-art innovation

Despite the landscape for the automotive industry in 2019,

technology to manufacture Tacoma, a high-quality vehicle

Toyota consolidated its place as the fourth-largest sales

which we are certain can satisfy the market demand

force in the country, with a total of 105,663 vehicles sold.

in North America, with the pride of being produced in

“2019 meant a continuous improvement. The challenge was

Mexico,” said Juan Francisco García, President of TMMGT.

big, especially in 1H19. However, Toyota was able to satisfy its customers’ needs and deliver a good performance

The arrival of a large production facility to Guanajuato

toward the end of the year,” says Tom Sullivan, President

consolidates the state’s position as an already thriving

of Toyota Motor Sales de México. In fact, December 2019

automotive manufacturing hub. According to Mauricio

was the best month of the year for the brand with 11,321

Usabiaga, Minister of Sustainable Economic Development

units sold.

| EXPERT INSIGHT

HOW DID COMPANIES IN GUANAJUATO ADAPT TO COVID-19?

In the face of operational suspension, Andre

Q: Given your close ties with US manufacturing

Dronigke, CEO Mexico of Dekosys, says companies

plants, how has COVID-19 affected your operations?

had to adapt to an uncertain future. “Fortunately,

A: We work closely with Mercedes-Benz in Alabama.

our supply chain was kind of prepared. We have one

When the state decided to suspend activities, we

supplier that is located in Malaysia and in Singapore

followed instructions and reduced our activities.

that we were concerned about, but we were always

At the time, Mexico had not yet implemented

in close communication regarding the status of our

lockdown measures, which allowed us to continue

supplies. Audi in Mexico did stop for a considerable

production for a few days to build our inventory.

amount of time, but Audi in China is already ramping

When the Mercedes-Benz plant resumed activities

up production,” he says. The fact that Dekosys’

on April 27, we were able to start right back. We

Mexico plant supplies other Audi plants in the world

have also worked closely with both federal and state

was an advantage. “We have to supply the version

governments to avoid affecting global supply chains.

required for the Chinese market right now.” The safety measures we implemented at our facilities Supply chain disruptions will definitely have an

were based on experiences and lessons learned in

overall impact across the entire supply chain.

other parts of the world. We set up a special group to

How big the impact is will vary from company

design standardized norms that surpassed the safety

to company. “This year, we will see a drop of

standards set at the global level. The most important

between 15 and 20 percent in sales. Even if the

element for us are our employees. We resumed

FERNANDO VILLUELAS

ANDRE DRONIGKE

Country Manager of Kromberg & Schubert

CEO México of Dekosys

industry ramps up again, people will not have the

operations and after some weeks we reached full

money to buy a new car immediately after the

production without disruption the supply chain.

crisis passes. I do not think production volume will get back to the pre-crisis level in the short term,”

Q: What should the federal government’s priorities

says Dronigke.

be to promote a better investment environment? A: The government should focus on two main

Now that the Mexican government has labeled

elements. We are still considered a low-cost

the industry as essential, companies should get

country and consequently investments will keep

ready to resume operations. “When we reviewed

arriving. However, without security we cannot move

the protocols indicated by IMSS, we realized we

forward with technology development. Meanwhile,

had almost everything already in place. We had

although education levels are good, brain drain

already taken several steps in February to ensure

remains an issue. In Guanajuato, the industry needs

social distancing, which is now mandatory,” says

to work alongside the different clusters to develop

Dronigke.Dekosys also supported local efforts to

programs for vulnerable communities with little

fight the virus outbreak. “By early March, we had

access to education. Some of our collaborators

also decided to contribute to fighting the pandemic

did not finish high school or even junior high. If

by producing protective masks for our workers and

the community begins to integrate itself into the

their families. This was a big investment because we

automotive sector, clusters and companies should

bought all the necessary materials for a product that

enable programs that allow us to train our teams

we did not know very well. As of mid-May, we had

and get them to an appropriate level so they can

produced 100,000 masks.”

more easily find a job in the sector.

VIEW FROM THE TOP |

SUBSTITUTION OF IMPORTS COULD IMPROVE MEXICO’S MANUFACTURING POSITION LUIS MORENO Manufacturing Operations Director of GKN Driveline

Q: What is GKN Driveline’s strategy to participate in OEM

though the market may be suffering at the moment, we

supply chains and stand out from competing driveline

remain a competitive manufacturing hub.

systems suppliers? A: Our main differentiator is technology. Right now, we

Q: What are the biggest gaps in GKN Driveline’s Mexican

are the preferred supplier of traction systems. This allows

supply chain?

us to be in high-quality cars with innovative technology

A: The biggest challenge in Mexico is logistics efficiency.

systems that improve fuel performance, driving experience

Our routes are very clear with well-established time frames.

and safety. In Mexico, we supply Mazda, Honda, GM, Ford,

Shipments generally go as planned but there are areas of

Volkswagen, Audi, BMW, Nissan and Daimler. Another key

opportunity to make operations faster and more efficient. We

point is the ability to develop human talent and retain it.

have to work with the government and with logistics partners

Advanced technology in this sector can only be created

to further reduce transport times. We are not using trains,

by talented humans. Generally speaking, the high level of

only highways. Meanwhile, transit times through ports remain

competition in Mexico in our segment leads to high quality

high. Materials arrive in 25 days from Europe or Asia and then

standards. Price, quality and on-time delivery are very

takesanother 10 days to arrive to us.

important differentiators. Q: What is the best strategy for Mexican suppliers to Q: What is GKN Driveline’s participation in EV

participate in global supply chains?

manufacturing?

A: Tier 1, 2 and 3 suppliers have to adjust their strategy to

A: We have had a subdivision focused on electrification

integrate their operations vertically in a different way. Right

systems for a few years now. Our idea is to become

now, the government and several institutions are working

suppliers in the EV sector by 2025. Mexico will have a strong

to make smaller suppliers more efficient but there is still

manufacturing role in this sector, but this will become a

an opportunity to connect these players with large Tier 1

reality in about three years when solutions for electric

manufacturers. The strategy should be to broaden the role

vehicles have evolved. Our relationship with the US and

of the automotive cluster, using this body to provide a forum

the number of investments coming into the country support

where suppliers can connect with potential clients.

a positive forecast. Q: How will GKN Sinter Metals’ new plant in Guanajuato add Q: What is the best strategy for GKN Driveline to help its

value to GKN Driveline’s operations in Mexico?

Mexico-based OEM clients to adapt to new rules of origin?

A: With this plant, GKN Sinter Metals will be closer to its

A: The only way to comply with the new rules is to work

Mexican clients. This will add value to our automotive

together with clients. I see major opportunities in the

operations in Guanajuato and outside of Mexico, too.

integration of local supply chains. Many materials in Mexico

GKN Sinter Metals’ technological processes can also start

are imported from Asia and Europe. Working with Tier 1

integrating more quickly into GKN Driveline’s traction systems.

suppliers and OEMs, we can increase the percentage of

This would be a significant technological development and

resources manufactured locally., which would strengthen our

lead to changes in other products in our portfolio, which could

region and we would have a better footing on USMCA. This

grow our penetration in the market.

cannot work if proposals only come from Tier 1 suppliers, however. There needs to be cooperation with clients. GKN Driveline is a leading worldwide producer of automotive

Despite tensions between the US and Mexico, the country

transmission components. It supplies over 90 percent of all car

remains a solid investment destination. Mexico has received

manufacturers with 50 percent of all cars produced annually

a vote of confidence from European investors and even

carrying GKN Driveline technology

| VIEW FROM THE TOP

AS OPERATIONS IN THE BAJIO REV UP, US SUPPLIERS TAKE NOTE FRANCISCO CARREÓN Plant Manager at Stant

Q: What prompted Stant to move from Tijuana to San

Q: How are Stant’s operations divided between production

Miguel de Allende?

of original equipment and spare parts for the aftermarket?

A: We wanted to centralize the company’s operations

A: About 75 percent of our production is original equipment

in Mexico. Being in Tijuana kept us from capitalizing on

that goes to OEM assembly lines. The remaining 25 percent

potential opportunities due to logistics complexities.

is divided between the automotive aftermarket, representing

The industrial corridor stretching from Guanajuato to

15 percent of our production, and industrial equipment that

Guadalajara includes many of Stant’s Tier 1 clients, including

accounts for the rest. Thermostats alone account for 50

Martinrea, GM, Ford, and other new potential customers

percent of Stant’s production. The company has consolidated

like Nissan, VW and BMW. The company understood that

a significant share of the automotive thermostat market

the Bajio region is the new Detroit and we wanted to be

thanks to its patents and technology development efforts.

close to it. Our capacity to design and manufacture any component in a Since arriving to San Miguel de Allende, we have worked to

vehicle’s fuel delivery system is a key competitive advantage.

substitute imports with locally procured components. We

Stant can supply anything from a radiator cap to the car’s

think there is great potential in Mexico’s supplier base. For

fuel filtering system and the Onboard Refueling Vapor

instance, we used to import aluminum castings from China

Recovery (ORVR) system. Competitors in our segment tend

but our costs increased 22 percent when the US government

to outsource component production and often lose control

started levying tariffs on Chinese steel and aluminum, not to

of the overall design process. By relying on our own patents

mention the added costs related to logistics. Now that we

and keeping tight control of the front-to-end design, we can

are sourcing some castings in Mexico, we have effectively

develop original solutions while remaining flexible enough

reduced both of these extra expenses.

to make adjustments.

Q: As a transnational company with significant presence

Aside from GM, FCA and Ford, Asian automakers, such as

around the world, what role does Stant’s San Miguel de

Tata Motors, Mazda, Hyundai, Isuzu, Honda and Subaru, as

Allende plant play in the company’s global operations?

well as European OEMs like Jaguar Land Rover, Aston Martin

A: Stant was the first automotive company to land in San

and SAAB, are part of Stant’s client portfolio for original

Miguel de Allende. We chose this location looking to serve

equipment globally. On the aftermarket side, we supply

the local automotive hub and now we work with companies

clients like Amazon, Gates, ACDelco, NAPA and Walmart

like Ford and FCA. The company is about to launch a product

with spare parts, such as one-size-fits-all radiator and fuel

offering that covers the needs of OEMs in San Luis Potosi

tank caps and thermostats.

and Puebla and we also expect to export components to GM in Brazil. Although we will operate as a direct supplier for

Q: How is Stant preparing for an electrified future?

the latter, we usually are a Tier 2 that produces components

A: Stant works in collaboration with its client OEMs to

for fuel delivery and other systems. At this plant we focus

improve its fuel-filtering and ORVR systems with the goal

on component manufacturing but we hope to have product

of optimizing fuel consumption. Although we recognize the

development centers in Mexico in the future.

importance of EVs as a trend of the future, we are also aware that combustion engine vehicles will remain in the market for a long while. This is due in part to battery-performance

Stant is a US-based automotive supplier of parts for cooling

issues, the environmental impact of batteries and their costs.

systems, fuel vapor management and delivery systems, molded

Compared to an EV, a fuel-powered car remains highly

and tubular assemblies and caps. The company supplies original

cost-competitive, which translates to increased production

equipment for automakers, spare parts and industrial equipment

volumes of combustion-engine vehicles.

VIEW FROM THE TOP |

AFTERMARKET PROVIDES GROWTH OPPORTUNITY JAVIER GARCÍA General Manager of NSK

Q: How important are the original equipment and aftermarket

instance. However, clients approach us when they need more

segments for NSK’s operations in Mexico?

specialized bearings, such as for drivetrains and wheels, which

A: Our operations in Mexico are focused 90 percent on original

are our main niches. NSK also has the competitive advantage

equipment for the automotive industry and 10 percent on

of offering lifelong warranties on its products rather than the

the aftermarket and industrial machinery segments. We

five years that a regular vehicle’s warranty covers. Clients trust

will, however, increase our operations in the latter segments

the quality and durability of NSK’s products.

following NSK’s global restructuring due to the tariffs imposed by the administration of US President Donald Trump. One of

We supply bearings for Audi and Volkswagen in Europe and

NSK’s production lines in Mexico will be moved to Poland. In

have started exporting to China from Silao. In terms of wheel

exchange we will receive two production lines from the US.

bearings, NSK was recently awarded a contract to supply

We recently received two others and we expect to produce

Tesla, which offers new opportunities for the company’s

around 6,000 bearings for the industrial and aftermarket

operations in the US and Mexico. Our joint-venture with

segments every day. In three to four years, these segments will

BorgWarner manufactures clutches for Honda and Toyota

account for 40 percent of our operations, with the remaining

drivetrains.

focused on original equipment. Q: How is NSK innovating to improve vehicle fuel-efficiency? Our presence in Mexico’s bearings market totals 25-30

A: NSK has seven technical centers located in Asia, the US,

percent. In Mexico, NSK has a bearings manufacturing facility,

Europe and Brazil that are constantly innovating in areas such

a distribution center and our joint manufacturing facility in

as raw materials and manufacturing processes. We are betting

Silao with BorgWarner called NSK-Warner. We will expand

on lightweighting, for instance. We have reduced the weight

NSK’s wholly-owned operations to add two more plants, plus

of a drivetrain bearing from 2kg to 100g through the use of

a new facility to manufacture the balls in our bearings.

alloys and special machining processes. NSK is also testing plastic alloys with the objective of eventually introducing

Q: How have US tariffs on steel imports impacted NSK’s

these products to the market and further reducing weight

global operations?

without compromising quality.

A: We require a special type of steel that was not affected by the tariffs imposed by the US government. Since this steel

Q: How is NSK promoting the adoption of best practices

is not produced in the US, it enters that country duty-free.

among its suppliers to ensure productivity?

However, some production lines located in China and focused

A: We help our suppliers understand our world-class

on the US market will be relocated to Mexico because those

manufacturing system rather than only asking for outstanding

use taxed steel. We are changing the way we work to adapt

production. Moreover, we help them develop their own quality

to this new situation. Our bearings do not employ plastic

manuals. For instance, the employees from our Japanese

parts yet, so we are working to develop the capabilities of

suppliers Atsumi and Samtech were present at NSK’s Silao

steelmakers in Mexico and the US so we can source more

facilities for six months to learn how we file reports, conduct

raw materials locally.

client visits and take care of audits so they understand the needs of the automotive industry.

Q: Why should NSK be the preferred choice for bearings among OEMs? A: A regular car usually has around 169 bearings, so there are

NSK is a Japanese supplier of bearings for vehicles and

opportunities for all manufacturers in this sector. We are not

industrial machinery. The company has a history of over a

the most inexpensive option in the market, so we may not be

century. In Mexico, it has a plant and a distribution center in

the most price-competitive supplier of bearings for doors, for

Silao, as well as a joint facility with BorgWarner

| COMPANY SPOTLIGHT

STANT: 120 YEARS OF LEADERSHIP, ADAPTABILITY Stant is an automotive company with over 120 years of expertise in component manufacturing. The company specializes in cooling systems, fuel vapor management and delivery systems, molded and tubular assemblies and caps. The company has a global manufacturing footprint with facilities in the US, China, Mexico, Korea and the Czech Republic. In Mexico, Stant’s operations are based in San Miguel de Allende, Guanajuato, an unbeatable location right in the center of the Bajio area where most automotive suppliers and OEMs are based, including some of Stant’s customers. The company is an original equipment supplier for Martinrea, GM, Ford and FCA and it also participates in the aftermarket segment. Some of the key processes the company handles include injection molding, pad printing, vibration welding, ultrasonic welding, gas pipe bending, pipe connector press fitting, robotic MIG brazing arc welding, automated assembly and testing, as well as light assembly.

SEGMENT LEADER Due to its large manufacturing capacity, Stant participates in the production of several components. “Stant can supply anything from a radiator cap to the car’s fuel filtering system and the Onboard Refueling Vapor Recovery (ORVR) system,” says Francisco Carreon, Plant Manager at Stant San Miguel de Allende. The company expects to maintain its position as a leader in the field of fuel and cooling system development. Its plant in San Miguel de Allende, with over 100,000ft2 is focused on building fuel caps, thermostats, gas delivery systems, fuel filler pipes, radiator caps, fuel vapor canister systems and specialty gas valves.

ADAPTABILITY Adaptability is becoming a must for Tier 1 companies, so having a broad product offering backed up by a diverse capacity to perform different processes becomes a major asset. “By relying on our own patents and keeping tight control of the front-to-end design, we can develop original solutions while remaining flexible enough to make adjustments,” says Carreon. Due to its large global footprint, the company also has a number of research and development locations focused on cooling and fuel management systems, which enables Stant’s global design team to offer a 24-hour solution for design efforts. Stant’s expertise in R&D operations is focused on steel, molded plastic and rubber components.

| INSIGHT

RISING ABOVE INDUSTRY CHALLENGES ROLANDO ALANIZ Director of Grupo León

The automotive sector has a distinct advantage over other

says. “The investment has been so great that it has extended

industries in Mexico when it comes to attracting investment:

beyond and has contributed to other businesses, such as

fair competition, says Rolando Alaniz, Director of Grupo

restaurants and construction firms, and it has increased the

León. “Mexico’s automotive industry gives investors and

demand for various accessories that are vital to the sector,

participating businesses peace of mind that money invested

such as those manufactured by Grupo León.”

is well spent. This attracts more companies to the automotive industry in Mexico and abroad,” he says.

At the regional level, according to a statement from the Nuevo Leon Automotive Cluster, USMCA ratification is expected to

Grupo León is a supplier that specializes in elaborate

reinforce the investment appeal of the automotive sector.

moldings, narrow fabrics, nets and meshes, fiberglass tapes,

Alaniz believes the new deal offers both a challenge and an

and printed and woven elastic labels for the automotive

opportunity. “If companies can successfully increase their

industry, having benefited from the sector’s dynamic rise over

inclusion of local materials from 62.5 percent to 75 percent,

the past 25 years. Alaniz says Guanajuato is a case in point.

it would result in growth for the national industry. Therefore,

“Investing in the automotive industry over the past 25 years

it is important to be prepared for when the USMCA is

has provided Guanajuato with a major financial windfall,” he

enforced,” Alaniz says.

| VIEW FROM THE TOP

CERTIFICATION CRUCIAL FOR CLIENTS AND SUPPLIERS NAHIELI GARCÍA Director General of Temaplax

Q: How does Temaplax provide an added-value to its

to our 10 years of experience, allows us to provide the

clients in the automotive sector?

best services as a Tier 2 supplier to the industry. Our

A: Temaplax focuses 85 percent of its operations on the

injection machines range from 55 to 480 tons and we will

automotive sector. The remaining 15 percent is oriented

continue to purchase more equipment to satisfy market

to the medical sector. The company is more flexible

requirements.

when it comes to customer requirements compared to its competitors and has the ability to rapidly respond

Part of our appeal is our geographical location in Leon,

and anticipate possible issues. We are certified in ISO

Guanajuato, that has given us a great advantage over our

9001, which shows our commitment. That, in addition

competitors. In addition, Temaplax has a comprehensive offering based on low prices, high quality and high valueadded services, including laboratory tests and metrology.

Temaplax is a Tier 2 automotive manufacturer with more

Another factor that has attracted the attention of

than 10 years of experience. The company certified its plastic

potential clients is that we are open to work with new

injection processes in ISO 9001: 2015 and is working to be

ideas, developments and projects. We are not just a

certified in IATF 16949

supplier, we are a partner to our clients.

INSIGHT |

LOCAL KNOW-HOW KEY FOR FOREIGN CUSTOMERS HUGO MARTÍNEZ Administrative and Commercial Manager of Aquantium Technologies

For technology integrators, local know-how is a major

work with you,” he says. Moreover, Martínez emphasizes that

asset when approaching potential foreign partners. “Some

even though collaboration with OEMs and their suppliers can

companies prefer to have local technology integrators

be complicated, it is worth the effort. “It is not impossible to

when installing a new assembly line because it makes

work with them. We have learned that once you earn their

maintenance services more accessible. Local know-how is

trust, it becomes a long-standing relationship,” he says.

our main advantage,” says Hugo Martínez, Administrative and Commercial Manager of Aquantium Technologies.

To foster the participation of local suppliers into the automotive supply chain, business platforms can be a vital

The Mexican company is based in Guanajuato and develops

strategic tool. “We are working with an online platform that

automation solutions for the automotive and pharmaceutical

lists companies with specific qualifications and certifications

sectors. It has taken advantage of its presence in the

for the automotive sector. Potential customers can search for

Bajio to participate in the automotive supply chain, which

and verify companies. These platforms are an opportunity for

accounts for more than 80 percent of its client portfolio. “The automotive sector is looking to develop local suppliers to avoid downtime in production processes. Unlike a foreign integrator, response times are shorter for local companies,” Martínez says. Being in the Bajio region is a major advantage for local technology integrators given the large presence of automotive companies in the area, Martínez says. “This makes it easier for us to provide technical support. In addition, local research centers like CIMAT Guanajuato are really supportive of SMEs, helping them to improve their processes.” Working for Tier 1 or Tier 2 companies requires a certain

“

the local industry,” Martínez says.

Mexican companies wanting to compete against foreign players must invest in technology. Some local production systems still rely on manual labor"

level of sophistication and technical capacity. Martínez says the most difficult part is earning the customer’s

Local companies should also focus on implementing

trust. “Aquantium has worked with Continental, Valeo and

technology solutions to boost their production processes

Volkswagen. This demonstrates that our company has the

to be more competitive. Martinez explains that technology

capacity both technically and operationally to comply with

goes hand in hand with continuous improvement. "Mexican

their expectations,” he says, adding that customer experience

companies wanting to compete against foreign players must

is a major area in which Mexican companies need to improve.

invest in technology. Some local production systems still rely

“To improve after-sales service, proper follow-up is essential.”

on manual labor, while our competitors have already fully automated production lines,” he says.

Martínez points out that it can be difficult to penetrate certain companies in the automotive industry, but if local businesses

Even though technology is a must, when talking about

focus on both procedures and quality, they can succeed. He

Industry 4.0 some distinctions need to be made, Martínez

gives the example of Mexican companies participating in the

says. “The industry is aware of the changes Industry 4.0

supply chain of Korean or Japanese companies. “Japanese

will introduce, but the concept itself has a wide variety of

companies feel really strong about their rules and they are

implications. It depends on your plant, your processes and

more likely to trust a company that follows the procedures

how far you want to take a fully supervised system. It is

they are familiar with. If you show Japanese companies that

necessary to understand the concept and then adapt it to

you can take care of the processes, they are more willing to

company’s needs,” he adds.

| VIEW FROM THE TOP

SUSTAINABLITY: A GOLD MINE FRANCISCO ROSETE Executive Director Central Mexico of Amistad Industrial Developers

Q: In 2016, 60 percent of Amistad Industrial Developers’

A: We have been exploring energy sustainability issues for a

(Amistad) portfolio was focused on the automotive industry.

few years. Our latest project in the Bajio will be the first one in

How has this number evolved?

the region to use cogeneration. This offers more profitability

A: The automotive sector remains a key industry in Mexico

to companies, better energy rates and cleaner energy.

but today, other industries like appliances and pharma have caught our eye. We have been trying to diversify, but in the

Q: How important is sustainability for Mexican companies?

northern states where we operate and in the Bajio region, the

A: Today, the mindset of most developers has changed and

automotive industry is still booming. The automotive industry

it is more common to bet on sustainability, not only through

represents more than 70 percent of our portfolio and we have

marketing but in real terms. Our project in the Bajio region

only achieved diversification in 25-26 percent of our portfolio.

was the first water-sustainable industrial real-estate project in the region. When building the project, CONAGUA asked us for

Q: What lessons has Amistad learned since its listing on the

our water discharge permission and we told the commission

Mexican Stock Exchange (BMV)?

we were not going to discharge it but reuse it. Afterward, we

A: Our founder, Jesús María Ramón, wanted to introduce

received recognition for our sustainability actions at the state

innovation and open the company to new markets. This

and federal levels. Since 2012, not a single cubic meter of water

was when Infrastructure and Real Estate Trusts (Fibras)

has been discharged to federal canals from our warehouse.

were launched in the country. Amistad has participated in this financial tool since 2013 and we started wondering if

We also developed drip lines for watering green areas and

that expertise could help us get into Development Capital

installed led luminaires. Though the investment is high, it

Certificates (CKDs). This was a long process that took more

is worth the effort and Amistad is betting on that. We also

than two years. It was truly a challenge for the company

rescued more than 18,000 maguey plants in the area. One

because we came under public scrutiny. At the end of the

day a worldwide CEO came to visit our warehouse and told

day, Amistad fulfilled the requirements and now we have an

us he was surprised at what he was seeing in Mexico. After

opportunity to reach a wider range of clients. We started

visiting 12 facilities in the country, he decided to stay with us.

working with CKDs in April 2018 and we are now close to our fifth project.

Q: How can the Bajio cope with the number of companies coming to the region?

Our growth started to slow down in 2018, especially because

A: When Amistad arrived 18 years ago, we established in

of all the uncertainty generated by the USMCA negotiations.

an industrial zone where there were only 14 developments,

However, a number of German companies kept growing,

most of them owned by the government. In 2003, Guanajuato

leading to many expansions, new projects and a lot of

Puerto Interior was born. It was practically empty for more

movement at the border and in states such as Coahuila and

than nine years and today, it is a success. Previously, all

Nuevo Leon, Sonora and the Bajio region.

kinds of companies were coming to the state, but we now have the luxury of choosing our customers. If a company

Q: How are you working toward the goal of becoming both

that consumes large amounts of water comes to us, we

energy producers and consumers?

can say no. Our ideal customer profile is an AAA-rated company. About 90 percent of our client portfolio is made up of transnational companies that are committed to the

Amistad Industrial Developers is a family-owned company

environment and those that build a strong production chain.

with 41 years of experience that has built over 2 million m2 of

For example, at our Bajio complex, we have the first Turkish

industrial space. The company has four divisions: real estate,

automotive company in the country, along with Volkswagen,

construction, startup management and logistics

Audi, Chrysler and Mercedes-Benz suppliers.

VIEW FROM THE TOP |

OPPORTUNITIES STILL AVAILABLE DESPITE UNCERTAINTY VANESSA CORDERO Director General of Marabis Group

Q: How are you dealing with economic uncertainty when

Diversification is also important as different industries

planning your next investments?

have their own dynamics and requirements. We have more

A: The economy is cyclical. In the Bajio region, and specifically

clients in the automotive sector but we have the capacity

in Guanajuato, there was a moment when we had a quick

to welcome any industry at our industrial parks. If you

industrial boom. It was natural to reach the pinnacle of the

can meet the automotive industry’s requirements, which

boom and then experience a decrease in investment activity.

are extremely demanding, you can meet the needs of any

Now, we need to generate stability. We plan for the long

other industry.

term. Companies established in our parks also experienced those cycles in their own markets. Soon, we will see growth

Q: Which elements differentiate Marabis Group from other

again. Foreign investment seeks certainty and it is waiting for

industrial park developers in such a competitive market?

the North American region to create the certainty it needs.

A: Our industrial parks are consolidated. We have also made

Mexico has always had competitive conditions; there are

a significant effort in recent years to comply with all the

external factors the country cannot control and despite these

standards that automotive companies require in terms of

generating some instability, Mexico has strengths that have

infrastructure and services. We offer treatment plants, water

been improving over time. In the Bajio region, Guanajuato has

wells, security, quality streets and avenues and we establish

worked for more than 20 years to create the dynamic and

strategies with local governments to our clients’ benefit.

infrastructure necessary to host the industry. This is something

Irapuato’s local government is going to put a police station

that is not going to disappear.

inside Castro del Rio, which will add to our security system. We also have a radio communication system that connects

Opportunities still exist in Mexico. We have 100 clients and

the patrols and security booths inside our park with all

85 of them are from the automotive industry. All of them feel

clients that want to be part of the communication network.

safe because they know their investment is going to be fruitful over time. We will begin the expansion of two industrial parks

We have been careful to find locations with the right

in 2020. One in Castro del Rio and the other in Abasolo. Our

amount of available labor force. Guanajuato is a unique

goal is to have 200,000m2 in Castro del Rio.

state, with more than 14 medium-sized towns with around 100,000 locals each. This gives companies the flexibility

Q: How can the country brave uncertainty?

to develop infrastructure and warehouses. The industry

A: While USMCA is ratified, we will keep working under

thinks there are no more people available to hire but that

NAFTA. If we were unable to work under any of these trade

is not the reality. We are working with the Bajio Community

agreements, we could still work according to World Trade

Foundation, which picked seven communities adjacent

Organization standards. Meanwhile, the country can work

to our industrial parks and conducted a house-by-house

at the national and local levels to create the certainty the

study to understand each family’s situation and the specific

industry needs, counting on its internal advantages, such

problems of each community. The goal is to improve the

as a quality labor force. We need to continue working on

quality of life of locals by creating a link between the people

competitiveness at all levels until international actors find

who say there is no work with companies saying there is a

their balance. The point is not that sales in the automotive

lack of employees.

industry have decreased but that market trends are shifting. The US market is looking for more SUVs than light vehicles. If the country has a platform for light-vehicle production and the

Marabis Group is a Spanish developer established in the Bajio

market requires something else, it is time to make adjustments

region. It offers the construction of industrial buildings in

and embrace new requirements. There may be a slowdown

turnkey projects and leases, both in inventory warehouses and

but that does not mean that business is over.

in custom buildings

| VIEW FROM THE TOP

AFFORDABLE PRICES CREATE UNIQUE OPPORTUNITY GABRIELA BUCIO Director General of Parque Industrial Cuadritos

Q: What makes your industrial park an attractive location

as a source of energy is also cleaner, which lifts our

to settle?

sustainability profile. Supported by a 20MW substation

A: One of the unique assets of our industrial park is the

under construction as a backup, our electricity supply

extensive natural gas grid we have at our disposal. Tenants

is also reliable. These factors are important for our

can adjust the pressure to fit their own specifications.

clients. The reliability of our energy supply eliminates

In addition, we use natural gas to generate our own

this concern.

electricity. This makes our electricity significantly cheaper than that from the CFE grid, more or less 5% cheaper

Another unique asset we have is access to our own fresh-

than the regular gas-generated electricity. Natural gas

water well, delivering 45L/s of fresh water. This water is clean and suitable for many industrial applications. Many companies, particularly Japanese companies, have very

Parque Industrial Cuadritos is an industrial park located

high standards when it comes to water. Our industrial

in Guanajuato. The park opened three years ago and has

park also has its own water treatment facility, which

its own natural gas grid, electricity generation and natural

allows water to be reused for watering our gardens. We

water supply

also supply heated hot water and steam.

| INSIGHT

DEMANDING SECTOR REQUIRES FLEXIBILITY FROM DEVELOPERS

“

The highly demanding operational requisites of automotive companies forced us to update and improve ours”

Thanks to this commitment, Lintel became the first Mexican

Sergio Sánchez, Operations Director of Lintel

engineering and construction separately often leads to

construction company with an ISO 9000 certification. “The automotive sector has become increasingly important for Lintel over the past eight years, thanks to our presence in the Bajio region,” Sánchez points out. Unlike other companies, Lintel provides its clients with engineering and construction under a single contract, which makes them the only responsible party. “Having different companies performing construction problems and no accountability for any issue that might arise. Providing these services together allows us

As a highly demanding sector, automotive forces all

to operate faster and provide better-quality services,” says

companies involved in its operations to step up and

Managing Partner of Lintel Miguel Barreda.

comply with the same level of quality and efficiency, not just suppliers. “This is a sector that requires constant

The strategy works. Nearly 95 percent of clients in the past 36

updating and is always modernizing. For those reasons,

years have returned, with some hiring up to 11 projects. This is

we invest in training our people in all aspects of the

attributed, among other things, to the preferential prices that

automotive industry. The highly demanding operational

Lintel can obtain from its main suppliers and subcontractors.

requisites of automotive companies forced us to update

At the same time, having a small work team, all the partners

and improve ours,” says Operations Director of Lintel

and directors know the status of each of the projects, which

Sergio Sánchez.

allows for more personalized services.

VIEW FROM THE TOP |

BUILD-TO-SUIT STRATEGIES FOR AUTOMOTIVE CLIENTS JOSÉ CARLOS CORCUERA Commercial Director of UBSA

Q: How relevant is the automotive sector for UBSA’s

Q: What opportunities does UBSA see with the arrival of new

operations?

assemblers to the region?

A: Most of the company’s revenue comes from the automotive

A: We believe there are opportunities. So far this year, we have

and food industries. Within the automotive sector, we have

attended several tenders to participate in new projects related

offered engineering and construction solutions to significant

to automotive suppliers coming to Mexico. However, for UBSA,

industry players such as General Motors. Since 1992, our

today’s opportunities are related to OEM expansion projects

experience has made us key partners for the OEM and we have

and the expansions of related suppliers already operating in

worked with them mainly in Guanajuato, San Luis Potosi, and

the country. We have distinguished ourselves as a company

recently, in Coahuila. We also participate with other industry

that understands the different business cultures among US,

leaders such as Ford-Getrag in Irapuato, and with Plastic

German, Japanese, Chinese and Swiss companies. We know

Omnium, Meiwa, Willi Elbe and Mazda. In San Luis Potosi,

each customer has their way of working and our differentiator

we also have a project under construction for a Chinese

is that we have evolved to serve our customers in the best way.

company that is an industry leader in mold production for the automotive and aerospace sectors.

We have learned that some companies are committed to working with businesses of the same nationality, so, when the

Q: How does UBSA expect to evolve its participation in

main assemblers arrive, their design and construction suppliers

the market with the arrival of new players?

also arrive with them. This has restricted opportunities,

A: UBSA has a list of prospective firms that will be

although we have managed to enter this segment. Other

interested in our design and construction services. In

companies have a similar business culture to Mexico’s and

addition, we have a list of projects in the bidding phase,

they are very selective when inviting design and construction

from which a significant percentage are related to Tier 1

companies to participate in their tenders. Fortunately, we have

and Tier 2 suppliers. This year, we have noticed that new

been successful when participating in these processes.

players arriving to the market favor a build-to-suit underlease scheme. Nevertheless, we have prepared strategic

Q: What is UBSA doing to remain competitive in an

alliances to address recent market demands.

increasingly complex environment? A: We can provide significant added value to customers

Q: What are the main lessons UBSA has learned in

thanks to our clear understanding of local design and

providing services to the automotive industry?

construction practices, laws, regulations and unions. We

A: We have always been committed to adding engineering

also offer engineering and construction services following

value to our projects, which allows our customers to save

international construction standards since we are certified in

time and budget. For example, when GM arrived to Silao

OHSAS 18001, ISO 9001 and ISO 14001. Foreign companies,

to install its production plant, it did so with American

in contrast, do not have the same response capacity and have

engineering and design firms. However, American firms

limited operations. UBSA commonly completes more than 67

lacked the local know-how to implement and to improve

percent of the work for a turn-key project. The company has

the design and construction of the project. UBSA then

its own machinery to perform earthwork, while civil work is

proved to be a strategic ally for GM during the design and

also performed by UBSA.

construction of the earthwork platform, the three stamping plants and the civil works that the project required. UBSA supported GM with valuable suggestions during key

UBSA has been part of the Mexican construction industry since

design and construction stages of the production plant,

1971. The company has participated in projects in more than

in one case saving 800 tons of steel structure for the

13 states across the country. It employs over 270 construction

stamping plants.

professionals, plus 500-1,500 temporary workers

Mazda2, Queretaro

QUERETARO

Queretaro has been steadfast in its development of industrial and engineering capacity. Unbeatable location, high quality of life and a secure environment are the state's major differentiators. The state is home to three heavy OEMs and a Mexican super-sportscar, VUHL. It is not a coincidence that Mexican engineering flourishes in the state, as it has developed a strong innovative tradition. Top Tier 1 companies have chosen Queretaro to establish their R&D and engineering centers.

The aerospace industry has also flourished in the state. Some automotive suppliers are looking at aerospace as an opportunity to expand their portfolio. Industrial developers are now betting on attracting energy and technological companies to complement the stateâ&#x20AC;&#x2122;s offering and build an integrated manufacturing hub.

101

CHAPTER 4: QUERETARO 103

104

ANALYSIS: Security, Investments and Quality of Life Front and Center

105

STATE PROFILE: Queretaro: Mexico's Manufacturing Diamond Ring

106

INSIGHT: Marco Antonio del Prete, SEDESU

107

VIEW FROM THE TOP: Renato Villaseñor, Queretaro Automotive Cluster

108

INSIGHT: Daniel Hernández, Queretaro Automotive Cluster

109

ANALYSIS: How Queretaro Dealt With COVID-19

110

VIEW FROM THE TOP: Jorge Vázquez, Continental Automotive

111

VIEW FROM THE TOP: Manuel Guevara, Brose México

112

VIEW FROM THE TOP: Ivan Baez, HARMAN International

113

VIEW FROM THE TOP: Luis Palomé, Bosal

114

EXPERT INSIGHT: Luis Villalba, Zanini Auto Group Mexico

Beatriz Aguilar, Axon’ Interconex

115

VIEW FROM THE TOP: Salvador Orozco, Bechem Lubrication Technology

116

SECTOR AT A GLANCE: Family-Owned Companies Growing Alongside the Industry

117

SECTOR AT A GLANCE: Industrial Developers Priortize Sustainability, Tech

118

INSIGHT: Michael von Keitz, Thyssenkrupp System Engineering

119

VIEW FROM THE TOP: Satoru Moriya, Misumi in Mexico

| ANALYSIS

SECURITY, INVESTMENTS AND QUALITY OF LIFE FRONT AND CENTER Queretaro sparkles with innovation, quality of life and leadership. The Bajio state allied alongside Aguascalientes, Guanajuato, Jalisco and San Luis Potosi to create a unique partnership in the region. At the same time, a skilled workforce is flourishing amid the state’s unique security and labor conditions

104

If Guanajuato is the crown jewel of the automotive industry,

Foreign companies are not the only ones investing in R&D

Queretaro is its small, yet polished diamond. Due to its

operations in the state. Aware of the industry’s megatrends,

location, a workforce replete with high-skilled engineers

big local players are also developing engineering capacities.

and security conditions, the state has become a predilect

“Currently, Aston Group is betting on data centers and

destination for investment across different industries. Unlike

R&D centers. In Queretaro, we are trying to be proactive

other states, Queretaro has little presence of light-vehicle

and in constant coordination with the Ministry of Economic

OEMs. However, there are more than 100 Tier 1 suppliers in

Development,” says Manuel Barreiro, CEO of Aston Group.

the state, many of them with an R&D vocation.

WORKFORCE DESTINATION Since 2015, the state has accumulated US$1.17 billion in FDI

Queretaro neighbors three states with major OEM presence:

solely for auto parts manufacturing. Between 2015 and 2018,

Guanajuato, San Luis Potosi and State of Mexico. “From our

Queretaro FDI in the automotive and aerospace sectors grew

Queretaro site, we support 13 clients, exporting products and

at an average of 40.7 percent. Notably, as in many other

components to five continents. We are already working with

states in the region, accumulated FDI in the vehicle and

BMW in San Luis Potosi and we have a presence in Nissan

auto part manufacturing sector decreased by 53.2 percent

and Daimler’s COMPAS venture in Aguascalientes,” says Ivan

compared to 2018.

Baez, Site Leader of Harman International.

ENGINEERING OPERATIONS

The state’s security conditions have made it an attractive

Across local administrations, Queretaro has made education

destination not only for investments but also for high-skilled

and infrastructure a priority. “The state government needs

workers looking for a better quality of life. “Automotive

to act as a facilitator to meet companies’ needs. Foreign

companies based in Queretaro generally pay higher wages

investors need to know the local government is making the

than other states in the Bajio region, which has helped to

right decisions,” says Queretaro’s Minister of Sustainable

keep turnover rates low compared to neighboring states,”

Development, Marco Antonio Del Prete. “Education is

says Daniel Hernández, Director General of the Queretaro

necessary to generate continuous availability of talent

Automotive Cluster, which currently has 90 associates and

with specialized skills.” According to state government

is focused on boosting competitiveness in the sector.

figures, out of the 10,000 students who enter local academic institutions every year, half are pursuing technical

JOINING FORCES

degrees. Moreover, local universities graduate almost 3,000

Over the last year, a promising initiative was launched in

engineers a year.

Queretaro when Gov. Francisco Domínguez participated in the Western-Bajio-Center Alliance alongside the governors

Tier 1 companies such as Continental and Brose have

of Guanajuato, Jalisco, San Luis Potosi and Aguascalientes.

already found promising talent availability to establish

The project aims to coordinate the efforts made by top

their engineering operations in the state. “In its first year

employers in the country to maintain economic growth

of operations, the Queretaro R&D center has developed

above 4.4 percent. The five states group more than 20

a solid staff base of 400 engineers,” says Jorge Vázquez,

million people and represent 17 percent of Mexico’s GDP.

R&D Director of Continental Automotive. Collaboration

“The objective is to align social, economic and political goals

with local universities and public research centers in the

to drive economic development. The sessions between

state has been key for companies investing in R&D. “We

state representatives so far have resulted in objectives that

have established agreements with 13 of the 70 universities

include: infrastructure, education, security and quality of

present in Queretaro. Brose has created an R&D center

life. Strategies will imply simplification of administrative

within the Polytechnical University of Queretaro to develop

protocols and new infrastructure projects in the region,”

joint innovation and automation projects, some of which

says Del Prete. “The state government’s efforts, as well as

will be exported to other Brose plants abroad,” says Manuel

those of the surrounding states, will boost growth in the

Guevara, General Manager Queretaro of Brose Mexico.

country as a whole.”

STATE PROFILE |

QUERETARO: MEXICO'S MANUFACTURING DIAMOND RING Queretaro is home to heavy-vehicle manufacturing and a

Queretaro due to its location next to Guanajuato and San

consolidated automotive supply chain. The state, which is

Luis Potosi, its security conditions and specialized labor.

also heavily focused on the aerospace industry, is home to

Even without light-vehicle OEMs, the state has become

large suppliers such as Brose and Continental. Employment

a leading automotive and technology development hub

in the manufacturing sector has grown considerably

thanks to the presence of leading Tier 1 and 2 suppliers

over the last three years. Many companies have chosen

supporting OEM operations in Guanajuato.

Sep-17

44,410

105

Sep-19

39,470

36,824

36,920

Sep-16

3.44%

Sep-15

Share of national automotive FDI received 1999 - 3Q19

36,657

US$2.33 billion

Sep-14

US$0.17 billion

35,223

Auto parts production FDI

Sep-13

Vehicle production FDI

50 42,758

US$2.50 billion

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

Sep-18

Automotive FDI received (1999 - 3Q19)

* NAICS sector 336 includes automotive among Peoplesegments Employed (Gto) other manufacturing

2.02

Trucks 185,054 Motorcycles

1,398

Buses 3,889 0

Number of ‘green’ vehicles sold 2016 - Aug 2019

42,481

500

3.06

Cars 493,700

400

6.02

Canada

300

Spain

200

VEHICLE PARK SIZE IN 2018

100

Countries with the highest contribution to total FDI 1999 - 3Q19 (US$ billion)

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs Light-vehicle OEMs

Top global Tier 1 suppliers

Volkswagen - MAN Truck & Bus Queretaro (truck and bus assembly)

Volkswagen - Scania 2 Queretaro (truck and bus assembly) 3

VUHL Queretaro (vehicle assembly)

Hyundai Truck & Bus 4 Queretaro (truck and bus assembly) 3 1

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

| INSIGHT

STATE SHOULD FACILITATE INDUSTRY’S NEEDS MARCO ANTONIO DEL PRETE Minister of Sustainable Development (SEDESU) of Queretaro

106

Queretaro has seen significant growth in its manufacturing

program for software engineering, a field which is increasingly

industry over the years. Much of this is the result of foreign

in demand. “Much of this is about how Queretaro can generate

companies that have chosen the region as their Mexican

capacities that differentiate it,” Del Prete says. Another

base. Marco Antonio Del Prete, the state’s Minister of

example is a consortium for additive manufacturing formed

Sustainable Development, credits the strong efforts of the

by General Electric, the Center for Engineering and Industrial

state government and its partners in creating the right

Development (CIDESI) and the state. This consortium has

environment for investors. “The state government needs to

a US$12.6 million fund for the development of machines,

act as a facilitator to meet companies’ needs,” he says.

equipment and industrial installations. The government also helped Continental to set up trials for assisted driving

Del Prete lays out a range of factors that have played a

systems in cooperation with the Mexican Institute of Transport

role in building a suitable business environment. “Foreign

(IMT). Apart from technological development, the state has

investors need to know the local government is making the

worked with CIDESI to improve certification protocols, so local

right decisions,” he says. In terms of fiscal policy, Del Prete

producers can receive approvals more rapidly.

praises Queretaro as the best state in the country, basing his assessment on Moody’s’ credit rating. The state was also

Even though the state has no light-vehicle OEMs, it has

one of the first to adopt a new system of accusatory penal

focused on attracting the suppliers and strategic partners that

justice, which modernized the entire process from criminal

work with these companies. “This has only provided benefits

investigation to sentencing. Since 2015, a revised security

as it has allowed the local industry to be diverse in terms of

program has seen investment in technological tools and a

technological innovation,” says Del Prete.

professionalization of operational units. Del Prete says all these changes have made serving justice a more accelerated

Several states in Mexico’s central region, specifically

and transparent process, which makes combatting crime

Guanajuato, San Luis Potosi, Aguascalientes, the State of

easier. In addition, the state government took decisive action

Mexico, Puebla and Queretaro, have worked collaboratively to

to fight corruption by building citizen committees elected

power the automotive industry and manufacturing as a whole.

by the general population to oversee public activities and

According to Del Prete, there have been frequent sessions

spending. “In the review of public spending, the state has zero

between representatives of the different states and the

missing funds,” he says.

national institutes focused on public policy. “The objective of these sessions is to align social, economic and political goals

Apart from these reforms, the state has invested heavily in

to drive economic development. The sessions so far have

infrastructure and education. Building highways has been

resulted in eight objectives focused on areas like infrastructure,

essential in creating connectivity with surrounding states,

education, security and quality of life,” he says. The strategies

making a regional economic alliance possible. Regarding

devised have focused on promotional campaigns regarding

education, Del Prete says investment is necessary to generate

the region’s industrial potential, as well as on exchanges of

a continuous availability of talent with specialized skills. Local

knowledge between the states, simplification of administrative

universities now produce almost 3,000 engineers annually.

protocols and new infrastructure projects that have resulted

Of the 10,000 students who enter local academic institutions

in 150 project proposals. In the area of infrastructure, Del

every year, half are pursuing technical degrees.

Prete mentions the development of the train network and the expansion of energy grids, both key to enhancing interstate

To generate specific skills sought out by the industry, the

logistics and providing a suitable environment for industrial

state government is also developing a laboratory together

production. “The state government’s efforts, as well as those

with the Technological Institute of Queretaro. The state

of the surrounding states, will benefit the growth of the

worked together with that same university to design a special

country as a whole.”

VIEW FROM THE TOP |

INNOVATION IS A GAME‑CHANGER NOW MORE THAN EVER RENATO VILLASEÑOR President of Queretaro Automotive Cluster

Q: What role has the Queretaro Automotive Cluster played

communication channels will remain open. All companies

during the COVID-19 pandemic?

aiming to resume operations should submit their sanitary

A: This situation has put things into perspective. To our

protocols to IMSS so they can get a response within 72

fellow associates, we have found a way to be a light amid the

hours. If approved, companies can resume operations. If not

uncertainty, a liaison between companies to communicate

approved, more information will be required to move on with

the guidelines set by authorities, which are changing by the

the reopening. Companies have already received part number

minute. The industry was assuming it would resume operations

requests and there are contracts that must be honored. It is

on May 18 after being considered essential. Then, a day later,

certain we will not operate at the levels before the pandemic,

the federal government did not finalize a formal procedure

however. The process should be gradual.

and the day after new procedures were set. Q: How has the cluster helped its members to cope with We have a clear mindset about the cluster’s role during and

the pandemic?

after the pandemic. Just recently, the cluster presented its

A: Concerns among cluster members are the same as in other

Strategic Alignment 2020-2024, in which we redefined the

clusters: we have been in operational shutdown for more

goals, the pillars and the dreams of the cluster while analyzing

than 50 days. The cluster implemented different strategies

the best practices to boost our committees’ work to foster

four different times. In the previous phase, we monitored

company collaboration, innovation and competitiveness,

all the relevant information while providing close follow-up

among other elements.

on all the suspensions experienced by our members and offering conferences with legal experts. Secondly, during the

All that we have been doing locally has been due to a close

operational suspensions, we offered valuable and verified

triple-helix, which includes the government, academia and

information that we shared constantly with our members. We

companies. As part of the Mexican Automotive Cluster

have gained the trust of our members as a reliable source

Network, we have daily communication to share the

of information and of local authorities who have realized

experiences of the nine automotive clusters. We are in

that we are a direct communication channel with the sector.

contact directly with AMIA and INA, as well. Through these

Committees continue to work and support activities, as well.

partnerships, strategic information flows faster. Thirdly, we have prepared our own protocol to resume Q: How has the Queretaro government helped the industry

operations with the support of all of our members. In

to cope with the pandemic?

addition, we drafted our guidelines and best practices that

A: We are in close communication with Queretaro’s governor

some companies shared along with protection equipment

and Queretaro’s economic minister, with whom we have

suppliers. We understood early that we will eventually reach

shared the industry’s status to help him make smart decisions

a new normal. We need to minimize any risks of contagion at

and assure the health and well-being of all collaborators

plants. Finally, after operations resume, the cluster will support

involved. We have presented to the governor and all ministers

companies with long-term actions to avoid new contagions,

the protocols that companies have been implementing to

open new business opportunities, support technology and

resume operations.

innovation, while helping plants to diversify their markets.

Thanks to our meetings with the governor, we set our priorities right and agreed to comply with the federal government’s

Queretaro Automotive Cluster is a civil association that

standards. He also announced that he will visit some plants

groups relevant members of the sector in the state, including

unannounced to check all the protocols that should be

government agencies, universities and the private sector. As of

implemented between May 18 and May 31. In addition, all

May 2020, the cluster had 97 members

107

| INSIGHT

COOPERATION A STEPPING STONE FOR DEVELOPMENT DANIEL HERNÁNDEZ Director General of Queretaro Automotive Cluster

108

The arrival of new OEMs to the Bajio region means

developed programs to train technicians in tooling design

opportunities for local players, says Daniel Hernández,

and Queretaro’s Institute for Tooling continues to train the

Director General of the Queretaro Automotive Cluster. In

talent to manufacture this equipment.

Queretaro, auto parts manufacturers are stepping up their operations to support the assembly operations of BMW and

In terms of staff retention among automotive companies,

Toyota, which in 2019 started to assemble light vehicles in

Hernández says the cluster has worked to curb turnover

neighboring San Luis Potosi and Guanajuato. “Queretaro

rates by creating knowledge about this challenge, monitoring

has consolidated a strong supplier base with over 100

the local labor market, homologating staff criteria and

Tier 1 suppliers catering to virtually all vehicle systems,”

empowering member companies to create better staff

Hernández says.

retention policies.

Many Queretaro companies have been awarded projects to

Automotive companies based in Queretaro generally pay

supply for the newly-arrived carmakers, which leads to an

higher wages than in other states of the Bajio region, which

economic trickle-down for the state even if none of these

has helped keep turnover rates low compared to neighboring

OEMs set up shop in Queretaro. New opportunities also bring

states. However, the problem remains. Hernández says local

new challenges with increasing demand enticing local players

companies need to change how they relate to workers and

to solve the sector’s challenges and strengthening the state’s

develop a greater sense of belonging and development.

automotive industry. The Queretaro Automotive Cluster plays

“Rather than focusing on completing work crews, companies

a key role in this cooperation as the local association that

need to develop conditions that guarantee the quality of life

brings together the interests of local automotive suppliers,

of collaborators,” he says.

universities, research centers and state authorities. With over 90 associates, the cluster is in charge of boosting the

According to Hernández, adjustments to rules of origin in the

competitiveness of the state’s automotive sector.

USMCA deal will introduce new opportunities, particularly in the amount of value that Tier 1 companies can purchase

Hernández says Queretaro took significant steps in 2018

from local Tier 2 suppliers. “USMCA will force companies to

toward solving two transversal problems: the lack of a local

increase their local content,” he says. “Mexican players can

tooling market and high staff turnover rates. He highlights

capitalize on these changes and grow as long as they are

that the state received several investment projects to

technologically prepared and meet quality certifications.”

produce tooling equipment locally, which has piqued the interest of automotive companies. “Queretaro is now seen

To help member companies develop these capacities, the

as a strategic zone to develop and produce this equipment,”

Automotive Cluster of Queretaro collaborates with JICA to

says Hernández.

link Mexican players with Japanese automotive companies. “Our goal is to improve manufacturing processes, quality

The state is now home to centers for maintenance,

indicators and waste reduction among local Tier 2 suppliers

production and re-engineering of molds and dies and

through technical assistance with Japanese experts,” says

Tier 2 suppliers have invested in strengthening their in-

Hernández. In terms of cooperation with local players,

house tool shops. “In some cases, these shops become

projects with the National Network of Automotive Clusters,

a spin-off of the original business and companies start

which was created in 2019, will help deepen the cluster’s

selling tooling equipment to their clients,” Hernández

work on supplier development and tracing. “Among other

points out. Additionally, the Technological University of

strategies, this network will help regional clusters raise

the State of Queretaro (UTEQ) and the Queretaro College

awareness of highly competitive Tier 2 suppliers that can

for Scientific and Technological Studies (CECYTEQ) have

strengthen the region,” he says.

ANALYSIS |

HOW QUERETARO DEALT WITH COVID-19 Queretaro is strongly linked to US supply chains. As the COVID-19 pandemic spread in Mexico, the state government took an active role while maintaining close communication with both the US and the local automotive cluster to prevent major supply chain disruption Queretaro’s automotive sector was put on hold as COVID-19

“Thanks to our meetings with the governor, we set our

rampaged across the country. According to COPARMEX

priorities right and agreed to comply with the federal

Queretaro, the state association grouping employers in the

government’s standards,” says Villaseñor. “In addition, all

state, 5 percent of its associates suffered definite shutdowns,

communication channels remained open. All companies

while 35 percent closed temporarily.

aiming to resume operations needed to submit their sanitary protocols to IMSS so they could get a response

The Queretaro Automotive Cluster played a crucial role in

within 72 hours. If approved, companies could resume

sharing strategic and trustworthy information about the

operations. If not approved, more information would be

evolution of the pandemic and the actions implemented

required to move on with the reopening.”

by the state and federal governments. “This situation has put things into perspective. To our fellow associates, we

GOVERNMENT’S ROLE

have found a way to be a light amid the uncertainty, a

The government of Queretaro has been active in ensuring

liaison between companies to communicate the guidelines

financial and medical resources for the state to cope with

set by authorities, which are changing by the minute,” says

the COVID-19 crisis. At the end of April, the government

Renato Villaseñor, President of the cluster. The organization,

announced a MX$240 million (US$10.96 million) fund to

which groups 97 members including government agencies,

provide a single MX$4,000 (US$185) payment to people

universities and private companies, represents the

who lost their job due to the pandemic.

industry before the state government. “We are in close communication with Queretaro’s governor and Queretaro’s

In mid-May, as operations were heading toward a restart,

economic minister, with whom we have shared the industry’s

the governors of Guanajuato, Queretaro and San Luis

status to help them make smart decisions and assure the

Potosi met with Michigan’s Vice Gov. Garlin Gilchirst to

health and well-being of all collaborators involved. We have

decide on the next steps for the sector to reopen in Mexico.

presented to the governor and all ministers the protocols

“The process to reactivate operations would follow five

that companies have been implementing to resume

steps: guidelines, which would be used to elaborate a

operations,” says Villaseñor.

guide for each sector; meetings with each sector; social engagement to enrich proposals; adaptability and

Operations started to be suspended on March 18 across

protocol authorization and a gradual return to activities

different sectors. As OEMs began ceasing production,

with random inspections,” said Queretaro’s Gov. Francisco

suppliers followed. On March 31, the federal government

Domínguez during the meeting.

issued a decree stating that only essential activities would be allowed to continue operating. Companies in the US went

At the beginning of June, bilateral communication with

through a similar process, with state governments shutting

the US followed as the Queretaro governor spoke with

down production for weeks. Michigan, for instance, restricted

US Ambassador to Mexico Christopher Landau. During

production operations throughout April and early May.

the phone call, the governor highlighted the role of the Center-Bajio-Western Alliance in the reopening of the

As the US restarted manufacturing operations, however,

automotive sector, according to a statement released by

companies were in dire need of Mexican supplies. The

the Governor’s Office.

situation resulted in the US government pressuring its Mexican counterpart to reassess the industry’s non-

Prior to June 1, Queretaro’s Ministry of Sustainable

essential designation. As pressure augmented, the Mexican

Development announced that 1,229 companies based in

federal government through the National Health Council,

Queretaro had already applied to resume activities. Of

announced that transport equipment manufacturing, mining

the presented protocols, 98.3 percent were approved.

and construction activities would be considered essential.

“In Queretaro, the comeback will not follow dates. It will

Companies were allowed to restart operations before June

depend on how health conditions are met to guarantee

1, provided they complied with all requirements and strict

a safe and contagion-free return,” said the governor in

sanitary protocols.

a statement.

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| VIEW FROM THE TOP

BETTER TALENT, NEW SKILLS FOR FUTURE AUTOMOTIVE TECH JORGE VÁZQUEZ R&D Center Director of Continental Automotive

110

Q: What advances has the Continental R&D center in

dependencies, such as the Mexican Transportation Institute

Queretaro made in its first year of operations?

(IMT), to test our new developments. We also work with

A: We have focused our efforts mostly on stabilizing our

several academic institutions that want to develop new

operations since our inauguration in May 2018. We have

technological capacities and we are exploring cooperation

achieved significant growth momentum. In 2018, Continental’s

options with CIDESI and CIATEQ. Continental’s interaction

R&D centers in Queretaro and Guadalajara hired 600 people

with public research centers faces some challenges due to

and Queretaro took most of those engineers. In its first year of

some policies of the new federal administration that restrict

operations, the Queretaro R&D center has developed a solid

the ability of these centers to carry out projects for the

staff base of 400 engineers and advanced the construction of

automotive industry.

its infrastructure. Around 150 of the engineers at Queretaro’s center were transferred from Guadalajara, which ensures

Continental needs to develop the right engineering talent,

a healthy mix of newcomers and people with experience

facilities and culture before interacting more strongly with

in Continental’s technology to explore new business

the local research environment. We are interested in pursuing

opportunities in Central Mexico.

collaboration projects with public research centers to make Queretaro an attractive destination for the mobility industry

Q: How important are Continental’s R&D centers for the

of the future.

company’s global engineering and design operations? A: Mexico is among the company’s Top 5 hubs in innovation

Q: What will be Mexico’s role in developing components for

thanks to the high number of inventions that we develop,

the car of the future?

which gives us the possibility to attract the right kind of

A: Mexican suppliers should focus on developing added-

talent to our organization. Our staff is not only focused on

value capabilities related to computer science, IT systems and

regular engineering activities but also on developing their

artificial intelligence. Tier 1 suppliers like Continental look for

own ideas, which makes Continental’s R&D centers in Mexico

partners with such capabilities and that can apply them to

some of the biggest generators of ideas per engineer. Our

the needs of the automotive industry. We look for ways to

training programs at the Guadalajara center yielded positive

either acquire these companies or to collaborate with them

results, which enticed the company to consider replicating

to generate value for our operations. If Mexican suppliers

that success in the Bajio region. We have developed a series

want to be part of the industry’s transformation, they should

of specialized training programs for engineers in Queretaro

be looking for ways to contribute something that does not

to counter the challenges of a limited talent pool. We plan to

exist in the global market and that OEMs and suppliers are

employ more than 1,200 engineers at the Queretaro center

looking for.

at some point between 2024 and 2027. Q: What opportunities will EVs and self-driving vehicles Q: How is Continental working with other research and

create for Continental’s R&D operations in Mexico?

innovation centers?

A: Continental’s innovations are for the world, not just for

A: We have started some technology exploration projects

the Mexican market. Regardless of where OEMs decide to

with CENAM and have developed synergies with public

assemble their vehicles, Continental Mexico’s R&D operations will follow the automakers’ global strategies. The fact that OEMs are working to assemble advanced technologies

Continental is a technology company with operations in 60

for electrified and self-driving vehicles in Mexico offers an

countries. The company has two R&D centers in Mexico, one in

opportunity for knowledge to trickle down the chain and for

Guadalajara and one in Queretaro, where several technologies

the Mexican automotive industry to get ready to supply what

for the car of the future are developed

will be needed in the future.

VIEW FROM THE TOP |

SUPPLIER’S BET ON LOCAL TALENT PAYS OFF MANUEL GUEVARA General Manager Querétaro – El Marques Plant at Brose México

Q: How does Brose’s new plant in Queretaro complement

opportunity for us. Brose’s El Marques plant is already

the company’s local operations?

producing components for BMW’s local operations. We

A: Each of Brose’s plants specializes in a different business

are also planning to enter Toyota’s supply chain just as

unit. The El Marques plant focuses on electric motors for

we did with Mazda before. This may prove a challenge

steering, transmission, HVAC and ABS braking systems,

as Asian OEMs tend to stick with Asian suppliers. To

while other plants produce locks, window and door

overcome this obstacle, Brose bets on delivering cutting-

modules. The new plant will produce seat components,

edge technology. Innovation and new developments,

which will mean all of Brose’s divisions will be present in

coupled with an Industry 4.0 focus, have helped Brose

Mexico. There are Brose components in 85 percent of all

to remain at the technological forefront.

vehicles assembled globally, so a new Brose plant means more Mexico-made parts are integrated into more vehicles.

Q: How has the vehicle electrification trend impacted Brose’s product development strategy?

Q: What is Brose’s strategy to stand out in the car seat

A: Brose is already developing new products for next-

components segment?

generation vehicles. We are aware that we need to

A: This is a highly competitive segment. Our goal is

be present in these new supply chains, which means

to differentiate from competitors by developing new

making significant investments globally. Brose is already

advantages for seats and developing new services that

supplying components to Tesla, as well as to another

did not previously exist in the automotive market. Brose

EV OEM based in China. Mexico is bound to play a key

has taken all the adjustable features that are usually

role in the production of components for the car of the

reserved for front seats and adapted them to rear seats,

future inasmuch as the country continues to advance

which gives passengers the option to adapt their seats

its capabilities in this sector. To that end, Brose helps

for more leg room. The company is constantly monitoring

its partner universities to design their academic plans

the market to understand its needs and what is the best

to focus on the key needs of the future automotive

strategy to address these. Brose may not be an overly

industry.

renowned brand among car buyers but all OEMs around the world purchase Brose components and 85 percent

Q: What are the key results that Brose has obtained

of all cars built every year come with one or more of our

from collaborating with local universities?

products.

A: We have established agreements with 13 of the 70 universities present in Queretaro, which helps us train

Q: What are the most important milestones that Brose

people and develop new technologies. Brose has created

has reached toward increasing its local supplier base?

an R&D center within the Polytechnical University of

A: Brose’s El Marques plant has its own local purchasing

Queretaro to develop joint innovation and automation

director, which means it can easily bring in Mexican

projects, some of which will be exported to other Brose

suppliers and help them develop their capacities. Many of

plants abroad. We are also training Mexican, US and

Brose’s suppliers abroad, particularly Chinese companies,

German students at the El Marqués plant to help them

are interested in landing their operations in Mexico and we

become future professionals.

help them through assessment. Q: What opportunities does the arrival of new OEMs to

Brose Fahrzeugteile is a Germany-based Tier 1 and Tier 2

the Bajio region bring for Brose?

supplier with 65 plants around the world. The company has

A: BMW is one of Brose’s most important customers,

four active facilities in Mexico where parts for seats, electric

so being able to supply the company locally is a great

engines and other systems are produced

111

| VIEW FROM THE TOP

ADAPTING VISION TO A NEW MARKET REALITY IVAN BAEZ Sr. Director of Operations / Site Leader at HARMAN International

112

Q: What role does HARMAN want to play in the evolution

A: We are actively participating in the development of state-

of the car of the future?

of-the-art technology and the client determines the focus that

A: HARMAN sells much more than an audio experience.

we give to our products, whether related to style, features,

Today, our value proposition to OEMs and the entire market is

functionality or energy consumption, to name a few. We are

a full experience involving audio, connectivity and the human-

working with electric vehicle brands on the production of their

to-machine interface. Our products do not only reproduce

head units, for example, where a key concern is the amount of

multimedia; users can connect their devices and our systems

energy that each component in the vehicle consumes.

can display valuable data so drivers can interact with their environment through their vehicle. We even have a role in

Before, only premium vehicles would include brands like

ensuring driver and passenger safety through the integration

JBL, Bowers & Wilkins, Harman Kardon or Bang & Olufsen.

of cameras and multiple sensors.

Now, even higher volume brands in the mid and economy segments offer clients the option to incorporate these high-

Connectivity must not be focused solely on the user but

quality systems in their vehicles.

on the environment. Automobile technology must still be updated manually in most cases when there are changes in

Q: How will the USMCA treaty between Mexico and the US

software or digital platforms. At HARMAN, we have already

impact Mexico’s automotive manufacturing operations?

developed solutions that allow clients to update their

A: This is a new opportunity for Mexico. There were two

software remotely through the car’s Wi-Fi network or through

years of negotiations toward a new deal but during that time,

their phone. We closely collaborate with our customers to

investment kept arriving from US companies that follow a

ensure our systems leave the OEM’s plant with the latest

regionalization strategy. Regionalization has forced companies

updates available.

to analyze the profitability of manufacturing a product in different regions. Since many of them focus on the North

Q: What strategies will the company implement to lead the

American market, it is natural to choose a location like Mexico.

industry in this transformation?

Despite the US desire to implement measures that boost local

A: HARMAN’s history is one of innovation. We evolved from

manufacturing, the reality is that Mexico is the most attractive

audio to systems integration using connectivity technologies

investment destination due to the costs related to establishing

that now might be common but were breakthroughs

a new facility, the available space to land a new company and

for the industry at the time. Our goal as a company is to

the pool of operational and engineering talent.

continue betting on innovation, investing heavily in R&D and engineering, which has allowed us to stay ahead of our

Q: How will HARMAN help its clients build the necessary

competition. Moreover, we do not want to innovate just for

capabilities to comply with new rule-of-origin standards?

the sake of it. We want to create user-friendly products that

A: Helping our clients build their regional capabilities and

result in a top-notch experience for our customers.

comply with new trade standards is part of the reason why it is important to build HARMAN’s capabilities in the country.

Q: How does HARMAN work with its clients to supply

As a corporate standard, we comply with the same quality

solutions that boost their own value proposition?

requirements as any other HARMAN facility in the world and our clients can be certain about this.

HARMAN designs and manufactures audio and visual products,

From our Queretaro site, we support 13 clients, exporting

automation solutions and connected services for various

products and components to five continents. We are already

industries. The company has four divisions: Connected Car,

working with BMW in San Luis Potosi and we have a presence

Lifestyle Audio, Professional Solutions and Connected Services

in Nissan and Daimler’s COMPAS venture in Aguascalientes.

VIEW FROM THE TOP |

STRATEGIC PARTNERSHIPS TO ACCESS GLOBAL SUPPLY CHAINS LUIS PALOMĂ&#x2030; Managing Director of Bosal

Q: How has Bosal advanced in the development of

Q: What are the greatest challenges in the automotive market

components for hybrid and electric cars?

for emission control systems?

A: Our global presence includes four state-of-the-art R&D

A: The primary challenge is to compete with companies from

centers located in strategic places, with Belgium being the

China or other Asian countries, as the government has not

most advanced. Our R&D department provides a virtual

worked to include local vendors. Clients use imported products

environment for simulation, prototyping, integration and

at very low prices. This makes it difficult for the Mexican

testing services. In these facilities, our experienced technicians

industry to be competitive. If the government mandates the

and engineers help companies get the best out of their power

use of local material, Mexican businesses can compete based

systems by developing customized, high-performance heat

on differentiation and not just price. Regionalism is another

exchangers for energy conversion systems that deliver

challenge. It is hard to establish relationships with assemblers

maximum efficiency and durability. We have fourth-generation

of Japanese origin, for example, because they tend to have

heat generation exchangers, which are more advanced and

all their suppliers in the same location. It is difficult for Bosal

lighter, and provide a better response for hybrid vehicles.

to enter the Asian market and work with Asian assemblers

Additionally, the group is using existing manufacturing

because we do not have a regional subsidiary. Our partner

knowledge to find new methods of converting energy.

SEJONG makes it easy for us to operate in countries, such as South Korea and China.

Q: How close is Bosal to bringing an R&D center to Mexico? A: The project is ongoing. This center will add to our

Q: How has the relationship with SEJONG benefited

R&D facilities in Belgium, the US, Brazil and Turkey. We

collaboration with other Korean companies?

expect the migration of our R&D innovation center will be

A: In Mexico, we are not yet focused on working with Korean

completed between 2020 and 2021. The talent and the price

companies. Our strategy focuses on the diversification of

of developing new products in Mexico are very attractive

other businesses for the automotive sector. In the second

for Bosal. We will continue to work on solutions related to

stage of our global strategy, we will extend into Mexicoâ&#x20AC;&#x2122;s

acoustics, thermal management, flow dynamics, mechanical

market and see what possibilities are there. SEJONG is the

engineering, emissions management, material engineering,

supplier for Kia Motors in Mexico and this can provide us with

sensors and actuators, testing and more.

a significant business advantage.

Q: What actions is Bosal taking to become a direct supplier

Q: How is climate change transforming the demand for

for assemblers?

advanced emission systems?

A: Bosal has over 100 years of experience developing emission

A: Bosal works with European certifications such as Euro 5 and

control systems with state-of the-art technology, which is

Euro 6 emissions standards. Bosal is focusing on generating

a high differentiator from our competitors. The company

lower CO2 emissions from each of our exhaust systems, as well

is completing strategic alliances with Asian companies to

as integrating the full range of emission control solutions into

encourage our participation with assemblers. This allows us

its systems, ensuring near zero emissions. We also are close to

to access other markets and for Asian companies to access

receiving approval for catalytic converters that will broaden

the Mexican market. We are in the process of working with our

our environmental offer for Mexico.

new partners to diversify our offering and open new markets. These are reciprocity partnerships that allow both parties to exchange market expertise and business opportunities.

Bosal is a global manufacturer of automotive and industrial

Our first partner is SEJONG, a South Korean company that

equipment. It was established in 1923 in the Netherlands. The

specializes in the national exhaust system industry, which

BOSAL Group employs over 2.500 people in 12 manufacturing

creates products for passenger and commercial vehicles.

plants and 10 distribution centers globally

113

| EXPERT INSIGHT

SUPPLIERS ADAPT TO CHANGING OEM DEMANDS

114

The automotive sector is known for its rapid pace

Q: What role will Axon’ Interconex play in the

of innovation. At the same time, shifting consumer

development of the car of the future?

tastes have led to greater demand for personalized

A: Axon’ Interconex is already participating in the

cars. As OEMs adapt their products, suppliers across

electrification of the automotive industry. We supply

the chain like Zanini Auto Group in Mexico must

for Continental’s catalytic converters in Germany and

change with them. “The company must constantly

develop harnesses for charging EV batteries. Axon’

adapt to the requirements of the changing styles

Interconex uses flat wires to increase the charging

of OEMs,” says Zanini Site Manager Luis Villalba.

efficiency and speed of these systems while also reducing their weight.

One major emerging trend is the increasing use of sensors. Smart vehicles are becoming more

Q: How important are Mexico’s advanced-

and more popular, as reflected in the investments

manufacturing capabilities for Axon’ Interconex’s

made by OEMs in the area of smart vehicles. The

operations?

most famous example is the autonomous car. To

A: Thanks to our IATF and AS9100 quality

get there, OEMs are taking steps to build a car

certifications, automotive remains the most

capable of knowing its position in its environment,

important sector for our Mexico operations, followed

using devices to adapt its own behavior to objects

by aerospace. These are radically different markets.

around it. An example is the lane assistant, which

Automotive is a dynamic, price-sensitive, high-

alerts the driver with a vibrating signal when the

volume market with production programs of five to

BEATRIZ AGUILAR

LUIS VILLALBA Site Manager at Zanini Auto Group Mexico

General Manager of Axon’ Interconex

car veers out of its lane. Another is the automatic

nine years depending on the platform. Aerospace is

braking system, which is activated when a car

a low-volume market with much longer and more

comes in near proximity to another moving car or

technology-intensive production programs but with

stationary object.

higher component prices.

Zanini has responded to this trend with several

Axon’ Interconex is a key supplier of mechatronic

innovative products. One is to build components

connectors and electric motors for window elevators

which allow transmission of signals through them

used in FCA cars, for instance. We also supply

without causing interference. “In the case of metal,

flat cables for airbags to several Tier 1 and Tier 2

signals cannot pass at all or they pass incorrectly.

suppliers, including Kostal, Valeo and Continental.

Zanini’s chrome products are an alternative that allow optimal transmittance,” says Villalba. Placing

Q: What are the main gaps that still exist within the

the sensor inside the car also allows for better

Mexican automotive wiring segment?

aesthetics. One example is the “radom” technology,

A: Although we supply mechatronic components,

which is often placed at the front of the car in the

stamped parts, pins and some automation

brand logo. Zanini´s radom tech can be placed

solutions, wiring is a complicated segment for us

behind the material that holds the logo. The

to work directly. Most of the decisions to purchase

company now has five clients that have adopted

one or another automotive cable come from the

this product. “We foresee more growth in this area,

US. Axon’ Interconex’s US sales team has the job

as OEMs broaden the push for intelligent cars into

of finding the right business opportunities that can

more affordable segments,” says Villalba.

be fulfilled in Mexico.

VIEW FROM THE TOP |

SPECIALTY LUBRICANTS TRANSLATE INTO ENGINE EFFICIENCY SALVADOR OROZCO Director General Mexico of Bechem Lubrication Technology

Q: What are the most demanding automotive systems

Q: How attractive is Mexico for European companies to invest

supported by Bechem Lubrication Technology’s

or reinvest?

(Bechem) lubricants?

A: Mexico is a relevant player in the global automotive industry.

A: Every moving part in a car represents a tribological

The country has a strong, skilled labor force, as well as direct

system that translates into an opportunity for us. Volume-

vicinity to the US and a wide net of FTAs. Even for Chinese

wise, demand for special lubricants depends on requirements

companies, it is competitive to produce vehicles in Mexico

specified by the OEM in terms of noise damping, load

and then export them to North and Latin America. I expect

carrying properties and conductivity, among others. A car

there will be more engineering operations coming to Mexico

may employ more than 5kg of our specialty lubricants for

in the near future.

multiple applications. Q: How challenging will it be for companies to comply with Q: How is Bechem helping its customers ensure functional

the new rules of origin outlined in USMCA?

reliability of components while reducing weight?

A: Any major change in the dynamics of the automotive

A: The key factor is to avoid energy loss and maximize its

industry is challenging and will take time. But the industry

usage throughout the car. Our parent company Carl Bechem

has never been easy and its players know that for a fact.

works directly with friction and its implications. Our No. 1

We are talking about a very robust and dynamic supply

objective is to avoid it or have it at optimum levels for the

chain that is always under improvement. I can definitely

specific application. By doing this, you could downsize

see more merges, spin-offs and acquisitions along the way.

electrical motors or other components, achieving better

Willingness to make changes on the fly and do what the

weight in the car. Our antifriction coatings are a great ally to

market dictates is more important than ever, which for

dampen noise and friction. Lightweighting is a game of grams

Bechem means staying close to customers and being able

and milligrams, so if we can use smarter lubricants to reduce

to adapt quickly to changes.

size, we add value to that cause. This is attractive to clients because better component performance always translates to

Q: What growth opportunities does Bechem expect from

lower production costs and added value.

newly-arrived OEMs? It is very interesting to see the number of OEMs arriving

Q: What is Bechem’s strategy to differentiate its offering in

to Mexico year after year and of course it represents a

the commoditized lubricants market?

great opportunity for Bechem. Not only the European and

A: Automotive is a complex and well-structured industry, since

American OEMs, to which the company has very good

a single component can be produced in multiple countries.

partnership with, but also Asian carmakers that bring a great

Carl Bechem operates globally through highly specialized

deal of dynamism to the industry in Mexico. Approaching

and well-experienced customer teams that technically

Asian car makers has always been a challenge for Bechem but

support you across the globe. By taking a deep dive into

due to all major changes in the auto industry, including M&As,

the application needs of our customers, we can always

our solutions have been carried out to numerous platforms

find room for innovation and savings. Speaking the same

and applications. Moreover, Carl Bechem has invested heavily

language as our customers and understanding their needs

in China as well.

and challenges is highly appreciated. At the same time, Carl Bechem makes robust investments in R&D. We develop the necessary equipment to test our lubricants so clients do not

Bechem Lubrication Technology is a German company founded

have to go through that process by themselves. We are also

in 1834 that focuses on the supply of specialty lubricants and

involved in our clients’ operations, which makes it easier to

metal working fluids. The company produces a special offering

design components jointly.

of lubricants and noise damping fluids for the automotive sector

115

| SECTOR AT A GLANCE

FAMILY-OWNED COMPANIES GROWING ALONGSIDE THE INDUSTRY

“

Inexperience is how corporate issues are ignored or delegated to people who should not oversee them”

116

José María Suárez, General Manager of AMQ

Both AMQ and RemeTec have undergone a process that implied transforming a local family company into a worldclass supplier for the automotive industry. Technology was key. “After the crisis of 1995, competition was very strong among small workshops. Furthermore, as CNC machines became more accessible, many workshops had this technology. As a result, we decided to invest in more sophisticated equipment that would help us to maintain competitive prices so our customers could do the same in turn,” says Suárez. Apart from technology, the expertise needed to manage it is also essential, says Huber. “In the

In the Queretaro area, manufacturing is a tradition linked to

mid-1980s, few people knew how to use a CNC machine.

the development of local companies supplying equipment

We did everything internally, including repairs, and

and components for OEMs. CNC machines and turners are

gradually grew our presence and differentiated from other

essential and most face fierce competition. RemeTec, with

manufacturers, creating a German culture in Queretaro.”

its long history, and young but successful Automanufacturas de Querétaro (AMQ) agree the keys for success include

Some challenges family companies need to overcome are

technology adoption and good governance.

related to corporate governance and adaptability. “When facing a crisis, we look at what we did well before and

RemeTec has 60 years of experience in producing precision-

what we should have improved. This is how we chose two

machined components for the automotive, aerospace and

to three brands of machines, specializing in their use and

other industries. Its offering includes horizontal and vertical

growing with them. As a result, we are very flexible and

turning and centerless grinding, among other processes.

able to work with medium to high production volumes

The company was among the few that joined the Mexican

and parts of varying complexity,” says Huber. RemeTec

delegation at the Hannover Messe fair when Mexico was the

became a supplier of aluminum guides to ZF and has

guest country. “Actively participating in events has been

also worked closely with Bosch in the past. According to

great for our business. A clear example of success was the

AMQ’s perspective, moving from a family business requires

aluminum guides that we started to manufacture in 2003

delegating tasks strategically. “The first step is to be aware

for ZF,” says Helmut Huber, Director General and Founder of

that having a good technical foundation does not make us

RemeTec. AMQ, meanwhile, is a Mexican company dedicated

entrepreneurs. Inexperience is how corporate issues are

to the production of machined components. The company

ignored or delegated to people who should not oversee

has CNC equipment like turret lathes with tailstocks and high

them. It is important to prepare, to review and to analyze,”

production lathes, as well as horizontal and vertical machining

says Suárez.

centers. The company started as a division of a 42-year-old family company. With eight years in the market as AMQ, the

Both companies agree the thriving environment in the

company created an alliance with Japan’s Kyoshi. “We have a

state contributes to the development of manufacturing

technical assistance agreement with Kyoshi that also includes

companies due to labor availability and sustained

training for our personnel in Japan,” says José María Suárez,

development.” We opened our Queretaro plant in 2006

General Manager of AMQ.

and our strong investments in measuring equipment has helped us achieve continuous year-on-year growth. We already have around 20 machines and the necessary infrastructure and human capital to support that,” says

To succeed in a highly competitive market, companies must be open to embracing new technologies and adapting their business model to a governance structure. RemeTec and AMQ learned these lessons from years of experience and in the face of a wave of new competitors

Suárez. Huber agrees: “Queretaro is a safe, growing city with many opportunities. If a person has no job, it is because they do not want to work. There are so many opportunities that, unfortunately, workers go elsewhere for pay raises that are not significant. At RemeTec, we try to develop a employee’s career, teaching and preparing our people. We are like a family. Our relationship with workers is personal and direct.”

SECTOR AT A GLANCE |

INDUSTRIAL DEVELOPERS PRIORTIZE SUSTAINABILITY, TECH

“

Investment promotion is not only a government activity but a joint effort” Manuel Barreiro, CEO of Aston Group

“Large OEMs come with satellite Tier 1, 2 and 3 companies that are often organized in complete parks. Our focus is on those that provide the auto parts that carmakers need,” says Víctor Lindoro, CEO of Insur. Insur is an industrial construction company founded in Queretaro with operations in the Bajio area. The automotive industry represents 25 percent of the company’s portfolio, which includes companies such as Ronal, NarMX and Kirchhoff.

Two large industrial developers born in Queretaro, Insur and

“Our focus is on constructing projects based on the

Aston Group, demonstrate the intricacies of the state’s real

specific wishes of a client. We conduct elaborate studies

estate sector, which values a long-term vision for a more

to determine how we can realize these wishes. Few

sustainable and technologically-advanced future. Priorities

companies go through such extensive preparations but

in the short term include attracting world-class automotive

we feel it is essential to provide the highest quality,” says

or tech suppliers that value sustainability, while taking

Lindoro. Barreiro adds that helping companies to adapt

advantage of Queretaro’s skilled labor.

to the market is key. “We try to understand our client’s process and needs. We offer them value engineering so

Aston Group is a global investor and real estate developer

they can reduce their costs or adapt to the Mexican market.

with a diversified portfolio in financial services, infrastructure,

We also visit our clients’ offices in other countries so we

natural resources and technology, among other segments.

can better understand what they want and adjust it to the

The company, created in Queretaro, has operations in

Mexican market.”

Mexico, Europe and North America. Aston Group’s real estate branch conducts industrial projects in the Bajio area

Both Insur and Aston Group insist that investment

with a special focus on the automotive industry. “We help

conditions in Queretaro are largely a product of a strong

companies throughout the automotive supply chain and we

collaboration between the public and the private sectors.

even support Mexican players trying to enter the automotive

“We are trying to be proactive and in constant coordination

segment,” says Manuel Barreiro, CEO of Aston Group.

with the Ministry of Economic Development and all the people dedicated to promoting the state. At the end of

Without a doubt, sustainability will remain a key driver

the day, investment promotion is not only a government

for the industry. Audi México has set a clear goal to be

activity but a joint effort. When government and the private

carbon neutral by 2025, while large real estate groups such

sector work together, there will always be better results,”

as Grupo Amistad have made this objective a must at all

says Barreiro. Lindoro also notes the relevance of public

its developments. Often, however, local companies fail to

investment on infrastructure and graduate education:

see the value in investing so heavily in this regard. “It is

“Queretaro has invested significantly into building the

difficult to convince local suppliers about the importance

infrastructure to connect the state to other parts of the

of sustainability and innovation in their businesses, but by

country. The state has also invested in academic institutions

showing them the long-term benefits for their operations

tailored specifically to the fields of technical expertise

they gradually come around,” says Barreiro. About 80

required by different industries.”

percent of companies do not take green or technological initiatives into account and the rest are only starting to see this as a relevant subject, he adds. One of the biggest opportunities for real estate developers in Queretaro and the Bajio region is Toyota’s newest plant in Apaseo el Grande, Guanajuato, a city located less than 30 minutes away from Queretaro’s capital city and Celaya in Guanajuato. The plant started operations in December 2019 and, as other OEMs have shown, it has provided a spillover effect on Tier 1 and Tier 2 suppliers.

Insur and Aston Group play a relevant role among industrial developers in the state. Both companies have diversified portfolios, while tending to automotive players. They provide an insider ’s perspective on the landscape for industrial development in Queretaro

117

| INSIGHT

UNCERTAINTY PROVIDES OPPORTUNITY FOR MACHINE RETROFITTING MICHAEL VON KEITZ Head of Service USMCA at Thyssenkrupp System Engineering

118

Political uncertainty can be a big turn-off for automotive

global presence, allows us to provide solutions for our

companies. As an industry used to making large

automotive customers, from local and small projects to

investments according to a long-term vision, not being

turnkey systems.”

able to forecast the path a country will follow encourages companies to put new projects on hold. Although this

A business unit of the German thyssenkrupp Group,

may mean delays to the start of new operations, the show

System Engineering is a system partner for all important

must go on at existing assembly plants.

components of the car body and powertrain chain processes in the automotive industry. The product range

“As the major automotive investments stop pouring into

also includes automation solutions for electrical storage

Mexico, many companies are looking for ways to refurbish

and drive systems as well as solutions for innovative

and repurpose their production lines,” says Michael

lightweight designs.

von Keitz, Head of Service at thyssenkrupp System Engineering. “Demand in Mexico today is in reworking

A substantial part of the retrofitting solutions of

and updating existing assembly lines to make them fit

thyssenkrupp System Engineering in Mexico is adapting

to operate for another decade.”

the newest electronics and IT solutions to older machines. “The hardware of a production line will usually run

Given the country’s political landscape, the service entity

perfectly even after 10 years of use, but we need to add

of thyssenkrupp System Engineering in Mexico is focusing

the newest sensors, controls and software,” says von

on business services such as refurbishing existing lines to

Keitz. These retrofitted production lines offer clients

increase production efficiency, spare parts management,

greater control of their production including transparency

relocation of production lines and modification of small

of performance and results and, in some cases, allow

production stations.

them to repurpose a line to make a new component.

“

As the major automotive investments stop pouring into Mexico, many companies are looking for ways to refurbish and repurpose their production lines”

Von Keitz highlights that the market has become much more competitive. “At the end of the day, the price of a production line is directly related to how much value a company can add to manufacturing plants and how professionally a supplier can handle the project,” he says. To compete in this segment, thyssenkrupp System Engineering in Mexico bets on its local presence, high engineering competencies and agile project execution. “The fact that we can service the operations locally with high technical competencies, is a great advantage for our clients, particularly for the OEMs” von Keitz says.

“We have changed the strategy in order to position

Von Keitz highlights that the company promotes the

ourselves in the market to meet the requirements of our

adoption of new manufacturing technologies in Mexico

customers better,” says von Keitz. “Even in uncertain

by remaining close to its clients. “We can be in our clients’

times, we have always been a reliable partner for our

plants and see what their difficulties are,” he says. “This

customers. Being a part of thyssenkrupp System

gives us and our clients a great opportunity to improve

Engineering, with all its experience, competences and

production equipment.”

VIEW FROM THE TOP |

FAST, ACCURATE DELIVERY REQUIRES CERTAIN MINDSET SATORU MORIYA President of Misumi in Mexico

Q: What is your strategy to become the go-to supplier of

need here in Mexico. One of the advantages is that they do

automation components for automotive companies?

not have to import the products themselves and go through

A: There are two elements to our strategy: innovation and

customs. They can use us.

time management. Our goal is to reduce the amount of time it takes from the initial request to delivery, resulting in an

Q: How does Misumi stay updated on the latest trends in

overall lower cost for the client. Cost should not be viewed

industrial equipment and Industry 4.0 technologies?

as simply the ticket price on the product, but the total of

A: We maintain close contact with OEMs and adjust our

all the processes involved in getting the product. This starts

portfolio in line with the latest trends and requirements. It is

with the design phase at the customer’s operations, where

important to point out that we are not only distributors but

it decides what specifications it requires. It even includes

also manufacturers of components. These are made in Japan,

the time it takes to send an invoice and obtain the payment.

Vietnam and China.

Clients can easily select a product from our e-catalogue. Our response time is one second and we start the order process in

One reason we came to Queretaro is because we were able

less than 15 minutes. In some conventional companies this can

to locate ourselves next to one of our subsidiaries, Dayton. It

take a day or even a week. The ability to save time with our

manufactures mold and die components. Having operations

supply management means engineers have great advantages

very close to each other means we can work together to

when sourcing a product, while saving costs. Our goal is to

service clients. We also have a large warehouse in Mexico,

be accurate and reliable in our deliveries, completing them

which allows us to deliver the next day. For components from

on time 99 percent of the time.

Japan, we use daily airfreight Monday through Saturday to guarantee quick delivery.

Q: What is Misumi’s advantage when approaching Japanese OEMs and suppliers in the Mexican market?

Q: What is an important lesson you have learned from your

A: Many of these companies are used to our products

experience in Mexico?

in Japan. They know the service and the quality of our

A: There is sometimes a communication gap that hampers

manufacturing tools. Quality is highly valued in this industry

business. You may be received by a company’s management

because products like molds and dies must be very accurate.

with open arms, but this does not always translate into

Toyota is building new operations in Guanajuato. They will

actual collaboration. It can be months before you hear from

have to build their supply chain. Our offer has over 20 million

them again. Many companies also do not follow the same

products. Because we provide such a wide range of products,

mindset when it comes to ordering products. They will call

we are also able to make their supply chain smaller. They

a distributor for a product but when a follow-up is required,

will not need to source products from a lot of different

there can be significant delays. I think there needs to be

distributors.

a shift of mindset here. At the same time there are many companies looking to upgrade their logistical network with

Q: How on track is Misumi in contracting non-Japanese

better communication, especially European companies. This

automotive suppliers in the Bajio region and northern Mexico?

means adopting invoicing technology and making everything

A: We have been in the US for more than 20 years and the

digital. We can help in these cases.

companies that work with us there already know us, much like the Japanese companies. Because of our experience there, we provide products that meet US automotive standards.

Misumi is a global provider of fixed and configurable

We can also meet the standards of other countries, such

components for the manufacturing industry. Its catalogue

as Germany. In Europe, we have a variety of automotive

spans over 20 million products. It also manufactures its own

companies working with us. We can provide the service they

parts through subsidiaries in Japan, Vietnam and China

119

BMW 3 Series, San Luis Potosi

SAN LUIS POTOSI

The San Luis Potosi automotive industry grew in eight years what it had grown in 38, according to the stateâ&#x20AC;&#x2122;s Ministry of Economic Development. San Luis Potosi is home to BMW, GM and Cummins. In total, the state has 235 automotive suppliers, including leading global companies. Between 2010 and 2019, FDI in the automotive manufacturing sector grew at an average of 44.6 percent. After a record US$861 million FDI in 2018, 2019 experienced a 59.4 percent reduction, but remained at 2016 levels.

BMW arrived to the state in 2014 and started production in June 2019. The company has speeded up the development of local suppliers and high-skilled labor aiming to participate in the automotive supply chain. Education, employment and quality of life have increased over the last three years. Priorities for the state include developing the best tooling center in the country in close collaboration with public and private research centers.

121

CHAPTER 5: SAN LUIS POTOSI 124

ANALYSIS: Thriving Environment for Consolidation

125

ANALYSIS: Flexibility: COVID-19’s Lesson to the Industry

126

VIEW FROM THE TOP: Juan Manuel Carreras, Governor of San Luis Potosi

127

VIEW FROM THE TOP: Gustavo Puente, Economic Development of San Luis Potosi

128

VIEW FROM THE TOP: Alejandro Veraza, San Luis Potosi Automotive Cluster

129

STATE PROFILE: San Luis Potosi: Performing Above National Average

130

INSIGHT: Hector Soto, San Luis Potosi Automotive Cluster

131

ANALYSIS: State-of-the-Art Production for a State-of-the-Art Model

132

VIEW FROM THE TOP: Luis Jaime González, Gestamp

133

VIEW FROM THE TOP: Antoine Alexandre, GMD Stamping

134

VIEW FROM THE TOP: Jorge Rososchansky, Bodycote

135

VIEW FROM THE TOP: Luis Palafox, Inmolding

135

INSIGHT: Jorge Ayala, Evolución en Moldes

136

VIEW FROM THE TOP: Nestor Talavera, ISGO Manufacturing

137

INSIGHT: Makoto Aida, Koyo Joint Mexico

138

VIEW FROM THE TOP: Brenda Vega, Nissha PMX Technologies

139

INSIGHT: Marty Kobayashi, Koito Group and North American Lighting Mexico

140

VIEW FROM THE TOP: Jaime Boza, Waukesha

141

VIEW FROM THE TOP: Fermín Rodríguez, WTC San Luis Potosi

123

| ANALYSIS

THRIVING ENVIRONMENT FOR CONSOLIDATION San Luis Potosi has set a clear path toward sustainable development, while committing with its neighboring states to strengthen regional growth. The state is home to GM and BMW operations as well as 235 automotive suppliers, which sets a thriving environment for the industry to consolidate in the coming years

124

San Luis Potosi is a promising territory for the automotive

Several companies that have arrived to the state in recent

industry. Over the last decade, the state has taken advantage

years have demonstrated their satisfaction with local

of the industry’s momentum and attracted considerable

and regional conditions to operate. “Our strategy was to

investment from several global Tier 1 suppliers. Despite the

set up a plant in this region to reinforce our presence at

industry’s downturn, major expansions and new arrivals are

both the manufacturing and technological level,” says Luis

likely to take place in the state due to the government’s

Jaime González, Commercial Director of Gestamp. General

willingness to promote sustainable growth and private actors’

Manager of French-capital company GMD Stamping (GMD)

commitment to regional development.

Antoine Alexandre agrees with González: “GMD established in San Luis Potosi due to its strong ties with Faurecia and

Employment in San Luis Potosi’s sector has grown 67.5

our corporate objective to increase GMD’s presence in

percent, from 30,087 people employed in the transportation

North America. This is the first plant in North America and

equipment manufacturing sector in September 2013 to

it was established with the goal of growing the business in

around 50,919 people as of September 2019. “With two OEMs

the region, starting in Mexico. Our first priority is to serve

and a vast supplier base, San Luis Potosi is thriving as an

Faurecia and the next stage in our development plan will be

automotive hub, unleashing a domino effect that is touching

to focus on the OEMs in San Luis Potosi and Mexico.”

the agricultural, tourism and service sectors. The sector is providing sustainable growth that doubles the national

Already established companies have expanded their capacity

average,” says San Luis Potosi Gov. Juan Manuel Carreras. In

as well, considering the state’s potential in the long run. “We

total, San Luis Potosi has 235 automotive suppliers, including

expanded our plant capacity by around 150 percent, including

Top 20 Global Tier 1 suppliers such as Faurecia, Valeo,

production floor, tooling facilities, offices, storage and our

Continental, Cummins and Bosch.

metrology lab. The expansion went hand in hand with growth in our sales, which we doubled over three years,” says Brenda

Over the last decade, the state’s automotive landscape

Vega, Business Development Director of Nissha PMX Tech.

changed dramatically. In 2006, GM ramped up operations

Bodycote’s Country Manager Jorge Rososchansky adds

in the state. The next OEM to arrive was BMW. “In eight

that the landscape of opportunities is clearly evident. “The

years, the industry grew the same amount it did in 38 years.

Mexican automotive industry’s impressive advancement can

Moreover, from July 2014 to October 2019, we had around 110

be seen by Kia’s growth, GM’s new projects in Ramos Arizpe

new arrivals or expansions,” says Gustavo Puente, the state’s

and BMW’s new plant in San Luis Potosi. Opportunities for

Minister of Economic Development. Between 2015 and 2018,

European companies to develop are there.”

San Luis Potosi accumulated US$1.9 billion in auto parts and vehicle manufacturing FDI, at an annual growth rate of 46.8

SUSTAINABLE REGIONAL VISION

percent, quite above other states in the region. However, the

Sustainable development is a shared long-term vision for

Bajio state also suffered the effects of the economic downturn

both the government and the private sector in the state.

that hit the industry as FDI dropped 48 percent during the

“We want development but not at the expense of our natural

first three quarters of 2019 compared to 2018.

resources. We have to adhere to a vision of balance,” says Gov. Carreras. Consequently, new investments and developments,

EXPANSIONS AND NEWCOMERS

apart from their commitment to economic growth, should

Given its location in the Bajio region and its proximity to

focus on developing the social element without harming the

Nuevo Leon in the north, San Luis Potosi has become an

environment. “We believe there should be a balance between

attractive destination for global companies to either establish

economic and social growth and environmental sustainability.

or transfer their operations. “There is room for everyone in the

We work to comply with the requirements to manage green

automotive industry. Both consolidated companies and SMEs

bonds for energy generation, while making a more efficient

can continue to grow their market share,” says Hector Soto,

use of energy,” says Fermin Rodríguez, Sales and Marketing

former Managing Director of the San Luis Potosi Automotive

Manager of WTC San Luis Potosi, one of the most relevant

Cluster, which represents more than 82 automotive companies.

local industrial developers.

ANALYSIS |

FLEXIBILITY: COVID-19’S LESSON TO THE INDUSTRY Even though San Luis Potosi was forced to shut down operations due to lockdown measures, companies were not sitting idle. OEMs and suppliers worked on health and safety protocols to be ready to return to operations, while some companies also got involved in helping those at the frontline of the fight against the pandemic After the government labeled the mining, construction and

the ones with the strongest stake in making things work,” said

automotive industries essential on May 12, between 15,000 and

San Luis Potosi Gov. Juan Manuel Carreras in an interview with

20,000 workers – mainly operators – from the Industrial zone

Grupo Fórmula.

of San Luis Potosi returned to work under strict preventive measures, according to the president of the Union of Users of

The pandemic in Mexico is far from over. However, Alejandro

the Industrial Zone (UUZI) Ricardo Pérez Castillo. “The number

Veraza trusts that one of the main lessons companies will learn

of workers that we have right now in technical unemployment is

from this crisis is how to address working-from-home schemes

approximately 75,000. Out of those, we estimate that between

to deliver better performance, as this creates a more favorable

15,000 and 20,000 will return on May 18 to begin the preparation

environment for employees with health conditions, pregnancies

of the plants. From June 1, we will see how many more of this

or disabilities. According to Veraza, in some Eastern European

group of workers can return and how many will be calling to the

countries and Germany, there is a scheme in which simple

plants,” Pérez said during a press conference in May.

assembly operations can take place at home. Essential materials are provided to collaborators so they can work from home and

To get ready, from early May, the San Luis Potosi Automotive

bring the final piece to the plant. Even though this practice has

Cluster sent to its members a presentation regarding

not been implemented in Mexico, COVID-19 opens the possibility

the elements they needed to address, including logistics,

to “other forms of labor where heavy logistics operations are

transportation and the psychological well-being of their

not needed and employees can better use their time,” he said.

personnel. “Even before IMSS released its protocols, we had already prepared something similar for companies to get ready

“We are aware that sales volumes will not be the same as

to reopen. For those members who listened, they can more

before but we expect them to be enough to cover costs. We

easily get IMSS’ approval. For those who did not, this will take a

have helped companies by providing strategic information

little more time,” explained the President of the San Luis Potosi

regarding their next steps. In the uncertain moments before the

Automotive Cluster, Alejandro Veraza.

government provided guidance for resuming operations, we gathered all the information needed to make our case, including

According to the cluster, San Luis Potosi’s government has

the conditions of the automotive sector in other countries, as

worked with both companies and the cluster to ensure the

well as best health and safety practices that were observed in

efficient flow of information. The cluster held meetings with

plants around the world and that the federal government was

ministers of economic development and labor and around 100

not aware of,” said Veraza.

companies registered for virtual meetings. “These were usual for global players. SMEs, on the other hand, were not that used to

A HELPING HAND

such meetings but this phenomenon boosted their participation

Even though auto companies halted regular operations, they

in these schemes,” explained Veraza.

supported state medical services in the fight against COVID-19. In early June, BMW Group Latin America, BMW Group Planta San

On June 9, the Secretary of Labor and Social Welfare (STPS)

Luis Potosí and BMW Group Financial Services Latin America

reported that in the first week of the so-called “new normal”

made a donation of US$180,000 in medical devices, medical

that started on June 1, it made 329 visits to work centers and

supplies and personal protective equipment to support the

assemblers in different states, including San Luis Potosi. At

state’s health emergency.

BMW’s San Luis Potosi plant, about 80 sanitary measures were verified and endorsed by the authorities in compliance

“Today, we want to continue our legacy and reinforce our

with the “Technical Guidelines for Sanitary Safety in the Work

commitment to the community. We are aware of the effort made

Environment” issued by IMSS. “Here in San Luis Potosi, there are

by health sector workers who are fighting against the pandemic

two very important OEMs: General Motors and BMW. I spoke

in Mexico and this is one way to contribute to their daily work,”

with the two CEOs and in both cases, they have a gradual plan

said Alexander Wehr, President and CEO of BMW Group Latin

and surely they will do things responsibly, with seriousness and

America, in a statement. As of June 9, San Luis Potosi had a

in accordance with the federal authorities’ mandates. They are

record of 1,308 COVID-19 cases and 90 deaths.

125

| VIEW FROM THE TOP

SECURITY, ECONOMIC GROWTH: TASKS FOR EVERY GOVERNMENT JUAN MANUEL CARRERAS Governor of San Luis Potosi

126

Q: What have been your main achievements and how has

domino effect that is touching the agricultural, tourism

the economic panorama changed in San Luis Potosi?

and service sectors. This provides sustainable growth that

A: Regarding government achievements, we have healthy

doubles the national average, which leads to many formal

public finances. We have worked to fix our accounts,

jobs and better salaries.

reducing debt while reaching our targets in health and education. The state owed more than MX$5 billion (US$253

Q: How are anticorruption and fiscal responsibility in San

million) to education and we have halved that. We also

Luis Potosi related to the federal government’s policies?

have the best public health system according to the

A: At the state level, there is room for improving public

federal Ministry of Health. In addition, we redesigned our

finances by increasing your income, cutting expenses

government structure to increase transparency. There has

and setting priorities. In the midterm, this gives enough

been strict control of government salaries, which have been

flexibility to increase investment expenditure while

reduced around 30 percent. We also created the state’s

decreasing operational costs. Regarding anticorruption

General Prosecution Office, which works hand-in-hand with

policies, local governments have to do their work to send

the state’s anticorruption system.

a positive signal to potential investors.

In terms of governability and security, we have maintained

Q: What do you need to do to ensure sustainable economic

a good relationship with the president, our local congress

and social growth?

and municipal authorities to collaborate and strengthen

A: Our priorities should be mobility and workforce. We have

our capacities. Today, we are below the national average

to be able to attract people to San Luis Potosi who want to

regarding security issues. We are creating a metropolitan

work. Economic dynamism implies being an attractive locale

state force, as well as a command, control, computing,

for potential employees. As for mobility, growth implies the

communications and contact center for the police. Poverty

challenge of how people move from place to place. Past

has also been reduced considerably over the past four

solutions are not feasible today, so the government’s role

years. It is the first time extreme and moderate poverty

is to improve this process.

have been reduced in the state at the same time, benefiting more than 100,000 people. Regarding sustainability, we are

We need to create policies that reverse migrant fluctuations

moving from two parks to a network of parks, including

by informing everyone who is interested that they can come

spaces for conservation, recreation and research. We have

and work here. They need to know they can get a job, and

advanced in water treatments and alternative energies as

be employed in a working environment that trusts their

a result of having received more investment.

skills. In automotive terms, we want to keep pressing the accelerator.

Economic development is the synthesis of all these different aspects. The manufacturing sector has enjoyed four years of

Q: What projects do you want to develop before 2021 to

sustainable growth. This is strongly linked to the automotive

ensure continuity across state administrations?

sector. With two OEMs and a vast supplier base, San Luis

A: In the long term, mobility projects linked to sustainability

Potosi is thriving as an automotive hub, unleashing a

are key. We want development but not at the expense of our natural resources. We have to adhere to a vision of balance. The most relevant aspect for the state’s capital is mobility.

Juan Manuel Carreras was elected Governor of San Luis Potosi

We have an understanding with the mayor to find answers

in 2015. During his time in office, investments in the state have

for the city’s accelerated growth. Of course, health and

reached US$8 billion across different industries, with BMW and

education must be part of that effort. Without education,

235 automotive suppliers among the most relevant

no government could keep up with the expected growth.

VIEW FROM THE TOP |

READY FOR NEW CHALLENGES TO COME GUSTAVO PUENTE Minister of Economic Development of San Luis Potosi

Q: How ready is the San Luis Potosi labor market to

Regarding people over 30, companies are more open to hiring

welcome automotive newcomers?

them. People over 40, on the other hand, have struggled. Since

A: We have helped big automotive companies to reduce

there are a lot of youngsters coming into the labor market,

their turnover rate. With one company, for example, we

we need to find places for the older set given their individual

helped its directors recognize what the company had to

experience. Universities also offer executive programs for

offer in terms of benefits compared to others in the region.

people in their 30s or 40s who could not finish their Bachelorâ&#x20AC;&#x2122;s

After one and a half years, the company had achieved

or want to start a new one.

optimum turnover rates. Talent retention is not a matter of salaries but of additional benefits.

Q: What are the most relevant changes in San Luis Potosiâ&#x20AC;&#x2122;s automotive landscape over the past 10 years and what needs

San Luis Potosi has become more attractive for employees

to change over the next five years?

given the labor marketâ&#x20AC;&#x2122;s conditions. With more competition,

A: The first automotive company arrived in San Luis Potosi in

salaries have increased, although they still remain

1968 and in 2006, GM announced its investment in the state. In

competitive for employers. In addition, formal labor has

those 38 years, around 118 new automotive companies came

grown considerably in the state. In 2015, we had 16,900

to the state or expanded its operations. By 2014, when BMW

new jobs, then 17,000 in 2016, 29,000 in 2017 and 15,000

announced its investment, 110 new companies or expansions

in 2018. Our unemployment rate remains at 3.27 percent

had happened. In eight years, the industry grew the same

as of October 2019 while informality has decreased below

amount it did in 38 years. Moreover, from July 2014 to October

the national average.

2019, we had around 110 new arrivals or expansions.

By creating more jobs, we also create more opportunities

Of course, this growth rate will not remain exponential.

for engineering and technical graduates. Yearly, we produce

However, it is a sign of how important the momentum is for

approximately 4,082 engineers who graduate from all

the state. To be prepared for the future, we are developing a

universities in the state. Almost 94,000 students are

one-of-a-kind tooling center in collaboration with CIATEQ. At

enrolled in engineering-related programs at the technical

this research facility, Ph.D. graduates are working on a joint

and university level. This creates a universe of people who

venture with five Portuguese investors. Almost all molds

can eventually contribute to the sector. Companies that

are imported to Mexico and our bet is for San Luis Potosi to

have been struggling to find qualified people need to

become the Mexican Portugal in terms of tooling. Within the

improve what they are willing to offer an employee, not

next five years, one of our main challenges is to strengthen

only in terms of salary but working benefits.

the supplier base. The Center-Bajio-Western Alliance between Aguascalientes, Guanajuato, Queretaro, Jalisco and San Luis

Q: What are you doing to help those over 30 years old to

Potosi is geared toward attracting more companies to the

shift from informality to formal employment?

region. A regional commitment, for example, is to homologate

A: We are getting involved at high schools and universities

our supplier registry so we can make virtual matches to

with our dual-education program. More than 64 companies

create three or four regional supplier forums following a B2B

and six universities and technical institutions have already

structure to make the automotive industry stronger.

signed up to collaborate on this program. Students can participate in internships at these companies, which leads to an almost 100 percent hiring rate within six months

Gustavo Puente became Minister of Economic Development of

after graduation. Since they know what to do at the

San Luis Potosi in 2015. He was president of CANACINTRA San

company already, they can do it more efficiently given

Luis Potosi and in September 2019, he became President of the

their prior experience.

National Association of Ministers of Economic Development

127

| VIEW FROM THE TOP

REMOTE WORK: COVID19’S GREATEST LESSON FOR THE INDUSTRY ALEJANDRO VERAZA President of San Luis Potosi Automotive Cluster

128

Q: How is the cluster addressing the COVID-19 pandemic?

035 has helped in this regard since its implementation in

A: Sales volumes will not be the same as before but we

November 2019. The second element is labor costs, which

expect them to be enough to cover costs. We have helped

could be difficult to get to the standard established by

companies by providing strategic information regarding their

USMCA. Companies should not worry about increasing labor

next steps. In the uncertain moments before the government

costs. Rather, this should be a motivation to gain efficiency in

provided guidance for resuming operations, we gathered

processes so labor cost increases do not have a considerable

all the information needed to make our case, including the

impact. Finally, companies should focus on buying raw

conditions of the automotive sector in other countries, as

materials in Mexico instead of importing components.

well as best health and safety practices that were observed

Through our supplier development committee, we aim to

in plants around the world and that the federal government

link big companies and small or medium suppliers in the San

was not aware of. From early May, we sent to our members a

Luis Potosi region.

presentation about the elements that they need to take care of, including logistics, transportation and the psychological

Q: What milestones has the cluster achieved and what

conditions of their personnel. Even before IMSS released

opportunities lie ahead?

its protocols, we had already prepared similar elements for

A: Half a year has been lost to the pandemic. The other half

companies to get ready to reopen. For those members who

was heavily influenced by the implementation of NOM-035

listened, they can more easily get IMSS’ approval and for those

and the coming changes in rules of origin. Those two topics

who did not, this will take a little more time.

were our main focus. We also had our auto supplier forum, while participating in other events.

Q: How is the state government helping the sector cope with the pandemic?

As for the opportunities that are to come, the lesson for most

A: San Luis Potosi’s government has worked with both

companies after the pandemic is how to address home office.

companies and the cluster so information can flow more

In some cases, companies can achieve better performance

efficiently. We held meetings with ministers of economic

as this creates a more favorable environment for employees

development and labor and around 100 companies registered

with health conditions, pregnancies or disabilities. In some

for the virtual meetings. These were usual for global players.

countries, there is even a scheme in which simple assembly

SMEs, on the other hand, were not that used to such meetings

operations can take place at home. Essential materials are

but this phenomenon boosted their participation in these

provided to the collaborator so they can work at home and

schemes. We do not have the figures yet regarding job losses

they bring the final piece to the plant. This practice has been

directly caused by COVID-19 in the sector. We are aware that

carried out in Eastern Europe and Germany. This scheme has

10 percent of positions may be subject to cuts, but nothing

not been implemented in Mexico, thus COVID-19 opens our

is certain yet.

mind to other forms of labor where heavy logistics operations are not needed and employees can better use their time.

Q: How are the cluster’s members getting ready for USMCA? A: All provisions have been set. There are three main elements

Q: What are the cluster’s plans to foster regional efforts?

on which the industry should focus. The first is labor. NOM-

A: Joint efforts with other states will be useful to create new synergies. Through our webinars, we have had up to 500 companies in the same conference room from Tlaxcala,

The San Luis Potosi Automotive Cluster is a civil association

Chihuahua, Nuevo Leon and the Bajio. Before, even people

that groups actors involved in the sector, including academic

working for the same company but in different locations

institutions, private companies and the government. Its goal is to

did not know each other. These webinars have helped us to

address common worries and needs of these players

accelerate the communication the clusters provide.

STATE PROFILE |

SAN LUIS POTOSI: PERFORMING ABOVE NATIONAL AVERAGE The state is home to GM and BMW. Even though US

Between 2015 and 2018, San Luis Potosi attracted US$1.9

President Donald Trump's election led GM to announce

billion in auto parts and vehicle manufacturing FDI, at

the suspension of an expansion in the state and Ford

an annual growth rate of 46.8 percent, well above other

to cancel a new plant projected in the state, BMW’s

states in the region. "The sector is providing sustainable

venture remained on schedule and started production

growth that doubles the national average,” says San Luis

in June 2019.

Potosi Gov. Juan Manuel Carreras.

1.16

Total number of ‘green’ vehicles sold 2016 - Aug 2019

570

Sep-17

50,919 Sep-19

42,347

37,943 Sep-16

Sep-14

30,387

Cars 647,601 Trucks 366,292 Motorcycles 176,643 Buses 5,147 800

2.12

700

4.46

Spain

500

Germany

VEHICLE PARK SIZE Employed IN 2018 (Gto) People

400

* NAICS sector 336 includes automotive among other manufacturing segments

300

Countries with the highest contribution to total FDI 1999 - 3Q19 (US$ billion)

4.89%

Sep-13

Share of national automotive FDI received 1999 - 3Q19

33,132

35,474

Sep-15

US$1.84 billion

200

US$1.71 billion

46,670

Auto parts production FDI

100

Vehicle production FDI

129

Sep-18

US$3.55 billion

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

600

Automotive FDI received (1999 - 3Q19)

PEOPLE EMPLOYED IN TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs Light-vehicle OEMs

Top global Tier 1 suppliers

Cummins San Luis Potosi (truck engines)

GM San Luis Potosi (vehicle 2 assembly, transmissions and stamped components) 3

1 2

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

BMW San Luis Potosi (vehicle assembly)

| INSIGHT

MAPPING SAN LUIS POTOSI’S INDUSTRY OPPORTUNITIES HECTOR SOTO Former Managing Director of San Luis Potosi Automotive Cluster

130

Auto clusters like that in San Luis Potosi and the suppliers

San Luis Potosi also has become a vital region for

seeking to grow their business alongside the broader

the automotive industry and it has continued upside.

automotive industry can help each other to advance their

“Because of the growth potential of the state, the

respective goals, says Héctor Soto, Managing Director of

San Luis Potosi Automotive Cluster is mapping the

the Automotive Cluster of San Luis Potosi. For the cluster,

industry’s capacity and growth opportunities to ensure its

growth of SME suppliers means higher membership, while

continuous development. San Luis Potosi has a privileged

the companies benefit from the array of services the cluster

geographic location and good connectivity to the rest

offers. “Among the strategies, San Luis Potosi’s Automotive

of the country,” Soto says. According to the state’s

Cluster aims to create conditions and tools for SMEs to be

Ministry of Economic Development, San Luis Potosi’s

incorporated as automotive suppliers,” Soto says.

road network stretches over 8,000km. It has more than 1,200km of railways and two airports, one national and

The San Luis Potosi Automotive Cluster’s membership

one international. In addition, the Bajio region, including

has climbed to 82 members since 2015, of which 61 are

San Luis Potosi, hosts 35 percent of the country’s 2,500

companies and the rest are institutions related to the

automotive providers.

sector. Among the benefits and value proposals offered by the cluster are its Automotive B2B Synergy platform,

To succeed, however, Soto says companies need to have

support with certification processes, agreements with

a strategic and integral vision to capitalize on emerging

academic institutions, strategic alliances and participation

opportunities. “We are looking to help our members

in key events in the sector.

capitalize on opportunities by providing them with four key solutions. The first is to help small and medium

The cluster has designed and implemented several

suppliers to grow, as well as helping to grow players that

programs and strategies to enable Mexican micro, small

are already consolidated in the market. This is followed by

and medium-sized enterprises to become better integrated

strong support for talent, supply chain and technological

into the production chains of multinational companies, with

development,” he says. To strengthen this strategy, the

different degrees of success. Strengthening suppliers in the

cluster is teaming up with other actors in the industry.

sector will help to increase the cluster’s membership to 120

“The San Luis Potosi cluster is now part of the National

companies and position San Luis Potosi alongside other

Cluster Network of the Automotive Industry. This initiative

older clusters, like those in Nuevo Leon and Guanajuato,

will strengthen and develop the automotive industry in

according to Soto.

Mexico, while also allowing us to connect assemblers with local providers,” says Soto.

In addition to the integration of smaller players, the Automotive Cluster of San Luis Potosi aims to increase

Automotive suppliers’ needs also tend to differ based on

the capacity of suppliers already consolidated in the

the type and size of the business. “For some suppliers,

market. “There is room for everyone in the automotive

their need is to find funding alternatives or schemes to

industry. Both consolidated companies and SMEs can

buy technology, while for others, a certification such

continue to grow their market share. The purpose of the

as the IATF 16949 can be a goal,” Soto says. Despite

cluster is to help all players that participate in the industry

the variety of needs and types of members, the cluster

grow through value proposals according to their needs,”

has one overriding goal. “We are looking to grow and

Soto says. According to AMIA’s 2018 Dialogue about the

attract more opportunities to the state. There are several

Automotive Industry, the Bajio region represented 29.8

companies and players related to the automotive industry

percent of auto parts production, while the northern region

that are collaborating to make San Luis Potosi the next

represented 50 percent.

pole for the automotive industry,” he says.

ANALYSIS |

STATE-OF-THE-ART PRODUCTION FOR A STATE-OF-THE-ART MODEL BMW’s arrival to San Luis Potosi in 2014 comes 20 years after the group’s first manufacturing venture in Mexico. The new state-of-the-art facility in San Luis Potosi will produce the 3 Series seventh generation under the highest efficiency standards within the BMW Group BMW Group celebrated its 25th anniversary in Mexico in 2019.

maintenance system. The assembly plant is able to support

The group manages the BMW, MINI and BMW Motorrad

1 billion 3 Series variations and it can adapt to new launches.

brands, which have grown 10 percent on average over the

The facilities also include a 9 million auto parts stock capacity

last five years. The maker’s best-selling models are the three-

and a 2.4km test track. As sustainability is a must for German

door MINI, BMW Series 3 and X1. BMW also inaugurated

manufacturers, most processes are highly efficient, including

its production plant in San Luis Potosi Plant in 2019. The

a zero-waste-water paint shop. The plant will be the most

company’s manufacturing history in Mexico goes beyond San

efficient for BMW Group. Energy sources are renewable and

Luis Potosi. BMW set down in Lerma, State of Mexico, in 1994.

will contribute to CO2-free energy sourcing, including a solar

A year later, the company started manufacturing operations

energy system of 70,000m2 at the plant.

for 3 Series and 5 Series models in Mexico. This continued until 2003, when the group decided to suspend operations

“From the beginning, we projected the plant in a way

for reasons that remain unclear. That same year, the group

that can react quickly and flexibly enough to new model

inaugurated a 6,000m -capacity logistics center to attend

variants and production volumes. Within our state-of-the-

the aftermarket demands in Mexico.

art platform, we use Industry 4.0’s innovative technologies.

Our plant is characterized by new automation solutions and In 2014, when BMW Group was celebrating its 20th anniversary

driver assistance systems, while focusing on sustainability

in Mexico, a new manufacturing plant was announced in San

from the very beginning,” says Hermann Bohrer, Director of

Luis Potosi. Over a four-year period, the company started to

BMW Plant.

create local engagement with the plant’s activities through dual education programs, local suppliers’ events and training

A POLE FOR LOCAL DEVELOPMENT

programs. By the end of 2018, the plant had produced its first

The arrival of BMW heightened expectations among the

model and in June 2019, the plant was formally inaugurated.

automotive sector in the region. “The manufacturing sector

The plant’s investment totaled US$1 billion over a 300ha

has enjoyed four years of sustainable growth. This is strongly

surface, providing 2,500 jobs. Its sole focus is on the seventh-

linked to the automotive sector. With two OEMs and a vast

generation 3 Series with a production capacity of up to

supplier base, San Luis Potosi is thriving as an automotive

175,000 units per year.

hub,” says Gov. Juan Manuel Carreras.

“In Mexico, we can count on a solid supplier base. For

Gustavo Puente, Minister of Economic Development of San

over 10 years we have bought high-quality, innovative and

Luis Potosi, highlights the role that BMW and GM, which also

technologically sophisticated products here. In each BMW

has operations in the state, have had in the development

Group vehicle, there is at least a component from one of

of the state’s automotive industry. “The first automotive

our 220 Mexican suppliers. Our plant will benefit from short

company arrived in San Luis Potosi in 1968. In 2006, GM

delivery times and the flexibility of its supply chain,” said

announced its investment. In those 38 years, around 118

Andreas Wendt, Purchasing and Suppliers Member of the

automotive companies arrived to the state or expanded

BMW AG board, on the plant’s inauguration. Since 2008,

operations. By 2014, when BMW announced its investment,

BMW has established a purchasing office, which has helped

110 new companies or expansions had arrived. In eight years,

to develop a local supplier base that accounted for a US$2.5

the industry grew the same amount it did in 38 years.”

billion trade value in 2018. During the building process, BMW established educational BMW’s San Luis Potosi facilities are state-of-the-art,

and training programs in the area that led to a smooth

embracing sustainability and Industry 4.0. Five-hundred

transition by the time the plant was about to begin operations.

robots are in operation across different areas, including

Four technical institutes at the plant had already trained 250

collaborative robots and 55 assembly robots. Surface

trainees prior to inauguration. The training center will provide

inspection is fully automated and the plant is the first in the

employees with the skills needed to work in a high-tech

BMW Group that has a production control room and a smart

production environment.

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| VIEW FROM THE TOP

PREVENTION, QUALITY CONTROL TO ENSURE GROWTH LUIS JAIME GONZÁLEZ Commercial Director of Gestamp

132

Q: How important is Mexico for Gestamp’s global sales?

components we are going to deliver, we work together with

A: Mexico is a key country for the development of our

the client’s designers to seek creative solutions based on

company, to continue growing and strengthening Gestamp's

our expertise, which adds value to the product and does

relationship with all OEMs. Between 2016 and 2017, we started

not impact its production costs. Also, all R&D departments

three new operations in Mexico. First, we focused on opening

work as an arm of the customer to develop the best product

our second plant in Toluca to supply components to FCA and

at the best cost. Every project is supported by an expert

manage the projects we won with Ford, BMW and Daimler.

team, fully dedicated to the customer. Beyond knocking

The second step was to develop the San Luis Potosi plant.

on doors, we approach customers like Japanese or Korean

This new greenfield project was focused on an OEM that was

OEMs to offer them our capabilities and let them know that

supposed to be in the same state, but in the end this customer

we already have a plant near them to support their needs.

left the region. The project was critical, but fortunately, other

This will also help the economy of the region and grow the

OEMs in the same region believed in the country and the

local supplier base. This is part of the commitment from

market and announced production of new vehicles in San Luis

Gestamp to Mexico and to Mexican society.

Potosi. We now supply components to those OEMs, which allowed us to continue the development of this plant, which

Q: How can European companies reinforce their position

officially opened in 2019 but started operations in 2018. We

within the Mexican automotive industry?

also have an operation to export components to the US as

A: European providers like Gestamp have a different mindset:

well as to local assembly plants in Mexico.

they bet on technology, they do not leave everything to human intervention and they focus on prevention because

Q: How will the plant in San Luis Potosi help Gestamp

they know the future involves saving money. We invest in

increase its presence in the Mexican market?

prevention and quality control. Gestamp has a systematized

A: First, it will help us in terms of location because our

process. We have specialized equipment and staff who

operation was rooted in the center and south of the country.

check all the technical specifications, chemical properties

We had two plants in Puebla, two in Toluca and just one in

and components of the steel we use in our components.

Aguascalientes. The Bajio region and the northern zone were

All of this is useful data that we can later consider in

completely neglected. Our strategy was to set up a plant in this

processes like stamping. During the assembly process we

region to reinforce our presence at both the manufacturing

use ultrasound testing, which is a fast, reliable and cheap

and technological level. With this plant, we also participated

technique that also avoids producing scrap and waste. We

for the first time with new technologies that are rare in the

also have cameras inside the place of assembly that can

Bajio region. From the San Luis Potosi plant, we are exporting

identify leaks, cracks or poor welding quality.

products to the OEM’s plant in the US. Q: How will the lightweighting trend impact Gestamp? Q: What is your strategy to support clients during the

A: So far, we have not seen an impact since there are few

development of new projects?

companies in the market that do efficient and lighter stamping

A: Whenever we have a project, we analyze it and assign

like we do. The US and Europe have implemented stricter

a team to support the client. Once we have a draft of the

standards regarding lightweighting techniques and even though Mexico is still not up to par in this regard, we are confident because R&D and new technologies are our field

the

of expertise. Furthermore, we are constantly highlighting our

design, development and production of metal automotive

capabilities with temporary exhibitions where we demonstrate

components. Including Mexico, the company is present in

our offer to the engineers at OEMs through simulations,

over 20 countries

products and a series of expert talks.

Gestamp is

international

group

dedicated

VIEW FROM THE TOP |

TAKING ADVANTAGE OF THE DEMAND UPTURN ANTOINE ALEXANDRE General Manager of GMD Stamping

Q: What role does San Luis Potosi play in GMD Stamping’s

There are many opportunities in Mexico as the country

(GMD) global operations?

is growing rapidly. We are not sure how long this will

A: GMD established in San Luis Potosi due to its strong

last since the industry has cycles, but now is the time

ties with Faurecia and our corporate objective to increase

to take advantage. Demand for stamped components is

GMD’s presence in North America. Traditionally, we did not

strong now and potential clients have come to visit us.

have presence in Mexico, the US or Canada. This is the first

We have 10 potential clients in the pipeline and USMCA

plant in North America and it was established with the goal

gives certainty and confidence that more companies will

of growing the business in the region, starting in Mexico.

come to Mexico.

Our first priority is to serve Faurecia and the next stage of our development plan will be to focus on the OEMs in San

Q: What role does GMD want to play in the EV revolution?

Luis Potosi and Mexico.

A: One of the most important issues for EVs is autonomy and GMD Group is working to reduce component weight

Our offering for OEMs will be based on body and chassis

so autonomy can improve. GMD Group has an R&D

components, which will differ from our traditional focus

department in France that is already focusing on this.

on seating components. The latter involve a certain level of complexity because they are safety components

Regarding seat components, reducing their thickness can

and must follow many norms regarding crash tests and

reduce the overall weight of the system considerably.

resistance. Seat components are also high-tonnage

Weight is proportional to the thickness of the

components. Before the end of the year, we will acquire

components. By reducing weight, we help our clients

two stamping machines of 2,000-ton pressing force to

shift toward electric motors. It is lighter to use a single-

handle thicker steels.

component seat than a two-piece that is welded and we can do that.

Q: What are the main advantages of GMD’s value proposition compared to other stamping suppliers?

Q: What are your growth projections for 2019-2020

A: We have high-tonnage machines that follow a transfer

and when do you expect to see results from your OEM

stamping process. Our machines have several dies that

strategy?

stamp components in succession to gradually reach the

A: Our goal for 2019 was to increase profit. We have enough

needed end geometry. This process requires more skill from

space to triple the size of the plant. In terms of machinery,

the worker, which was an issue in Mexico. However, our

we received one machine before the end of the year, plus

team is completely local. We are not the only company

one we will receive in 2020. With those, we will fill the

that can offer this but it is certainly an advantage.

capacity at our existing plan, which will help us to deliver on our commitment to our main client, Faurecia. We also

Q: What opportunities will USMCA’s new rules of origin

have other clients that represent around 10 percent of our

give to European suppliers in Mexico?

business and that gives us more opportunity to grow. We

A: USMCA will allow Mexico-based companies to export

will move to three working shifts from one and half once

and import to and from the US free of tariffs. The main

we grow our manufacturing capacity.

advantage is that trade flows freely, although there are a lot of rules. However, we have a specific trade department to support our clients in this matter. As an example, our

GMD Stamping is the Mexican branch of the French Tier 2

experts work with Faurecia to help them interpret the

supplier of stamped parts, plastics and sealers, GMD Group.

new rules and laws through our previous experience with

GMD Stamping has almost 1,000 workers and 10 subsidiaries

NAFTA and globally.

across the world

133

| VIEW FROM THE TOP

THERMAL TREATMENTS: HOT MARKET WITH STRONG FUTURE JORGE ROSOSCHANSKY Country Manager of Bodycote

134

Q: How is Bodycote’s Mexico operation positioned in

A: Our business is supported by three pillars: technology,

the market?

quality and service. In terms of technology, Bodycote

A: Bodycote’s portfolio in Mexico is mainly dedicated to the

focuses on offering premium heat treatments, such as

automotive industry. Up to 70 percent of the components

low-pressure carburizing. In terms of quality, Bodycote

that we treat are exported to the US and the remaining 30

places great importance on delivering cutting-edge heat

percent are destined for the domestic market. Around 90

treatments. This translates to better components, as

percent of our clients in Mexico are global customers that

well as reductions in the levels of scrap generated at our

have Bodycote as their go-to heat-treatments supplier. The

customers’ operations and the costs this entails regarding

rest of our client portfolio is made up of Mexican companies

manufacturing processes.

that want to meet OEM specifications. We also supply these services to several OEMs, which makes us an attractive

Bodycote remains close to its customers to reduce

option for their suppliers.

response times and remain a competitive option. In some cases, we can deliver heat-treatment services to

Being a direct supplier to OEMs helps us to market our

OEMs in less than 24 hours. While each Bodycote plant is

heat treatments throughout the supply chain. When

largely autonomous, all regions have a team that handles

Bodycote serves other Tier 1 and Tier 2 customers, the

quality, engineering, metallurgy and health and safety.

company takes advantage of its experience as a Tier

These teams not only support local Bodycote plants but

1 to help them. Bodycote’s experience also helps our

also our customers’ operations.

customers to be better positioned in their quest toward obtaining the certifications that OEMs request.

Q: What impact do you expect from USMCA on European companies?

Q: What are the key automotive trends boosting growth

A: Bodycote’s customers consider USMCA’s ratification

in the heat-treatment market?

will make investing in Mexico extremely attractive for

A: As cars become increasingly complex, the size and

European companies because they will have to deploy

weight of their parts are reduced progressively. For

new business in the country to comply with regional

instance, new transmissions coming to the market have up

content requirements. Heat treatments are also factored

to 10 speeds and require more elaborate parts with more

when calculating regional content; all services that

complex functions than previous models. These smaller

Bodycote offers locally are considered Mexican content

components require more technologically advanced heat

that add to our customers’ regional content, which

treatments to work properly; Bodycote’s investments

makes us an attractive partner in complying with new

in new technologies have become a key strength that

regulations.

enabled the company to achieve double-digit growth in Mexico in 2018.

Q: How open are European companies present in Mexico to reinvesting in the country?

Q: How does Bodycote ensure it stands out in a highly

A: The Mexican automotive industry’s impressive

competitive industry like automotive?

advancement can be seen by Kia’s growth, GM’s new projects in Ramos Arizpe and BMW’s new plant in San Luis Potosi. Opportunities for European companies to

Bodycote is a UK-based supplier of thermal treatment

develop are there. In the case of Bodycote, the arrival of

processes. With over 180 plants and several technology

new OEMs to Mexico, including BMW in San Luis Potosi

development centers, Bodycote is the global leader in the

and Toyota in Guanajuato, means demand for new parts

heat-treatment market

that will require heat treatments.

VIEW FROM THE TOP |

SPECIALIZATION ROOTED IN EXPERIENCE, TRAINED WORKFORCE LUIS PALAFOX Director General of Inmolding

Q: How is Inmolding evolving to fill the existing gaps in terms

Q: How does Inmolding’s value proposition differ from that

of plastic injection components in Mexico?

of foreign competitors or other local suppliers?

A: After six years, we have improved our method of

A: Our differentiators are quick response, flexibility,

processing engineered plastics, including our response

customer service and zero defects. We consider ourselves a

time, injection parameters and minimizing defects. For

complement to big Mexican companies and foreign investors.

two years in a row, our projects have been delivered

Our value proposition is focused on low tonnage of around

with zero defects to our clients. Additionally, our staff

75 to 160 tons. Instead of bringing these pieces in containers

is trained and certified in scientific plastic injection

as they used to, it is more strategic for OEMs to outsource

processes. We are a flexible company with a very quick

production of these components to a local company here.

response capacity. If a client wants to change from model A to model B, we can do that in a matter of hours. Another advantage is that we operate with just-in-time

Inmolding is an injection molding company located in San

stock to reduce our clients’ inventory burden. We can

Luis Potosi. The company offers a variety of services, including

store components until the client requires them and

mold transfer, assembly of plastic parts and product, tool and

deliver them at the right time to the OEM.

process development

INSIGHT |

SUPPORT FOR LOCAL MANUFACTURES WILL BOOST INDUSTRY GROWTH JORGE AYALA Director General of Evolución en Moldes

Mexican companies working in plastic or metal mold

of molds were imported from the US, but now the highest-

injection should look for ways to create differentiating

quality molds come from other countries, such as Portugal

solutions and services if they are to break into a market that

and Canada. Today, Chinese and Korean molds, have 26

is dominated by imports, says Jorge Ayala, Director General

percent of the market, and their fundamental advantage is

of Evolución en Moldes. “Approximately 95 percent of the

cost, where the price of the primary raw material, steel, is

molds are imported from China, the US and Portugal, while

a significant variable, according to AMMMT.

only 5 percent is provided by local manufacturers.” Ayala points out, adding that, “the molding industry in Mexico has

“The large percentage of multinational players and the

been estimated to exceed US$8 billion and will continue to

entry of Asian companies are increasing competition, as

develop in the years to come.”

the latter offer inexpensive rates, while the former have brand recognition in the market. Nevertheless, there is

Evolución en Moldes has 49 years of experience in plastic

broad room for growth and opportunities in the automotive

and metal mold injection. The company is also a founding

supply chain for local manufacturers,” Ayala says. AMMMT

member of the Mexican Association of Manufacture of Molds

expects local manufacturers will represent between 40 and

and Dies (AMMMT). In the last decade, nearly 50 percent

50 percent of the country’s supply chain by 2030.

135

| VIEW FROM THE TOP

HIGH PRECISION FILLS SUPPLY CHAIN GAP NESTOR TALAVERA Plant Manager of ISGO Manufacturing

136

Q: How have you innovated in your technological processes

Our plant in San Luis Potosi is focused 100 percent on the

to offer the best products at the most competitive costs,

automotive industry. Our customers have realized ISGO

while complying with automotive industry specifications?

pieces are precise and complex components, which they

A: ISGO has a team of engineers dedicated to innovating

also confirm when they visit us at the plant. We are one of

and to giving our customers ideas on how to save

the few plastic injection companies in Mexico to have a mold

costs while complying with automotive standards and

workshop capable of producing new tooling components

regulations. Our main raw materials are plastic-based

and performing engineering operations for our clients. We

resins. Last year, we worked on compounding plastic

have around three years of experience producing molds.

with natural-fiber elements to build a lighter and cheaper

We can produce 20 per year and we are looking to increase

product with unique properties. This development

this volume. In addition, our sister company ISGO Tool and

was made with the help of CONACYT and other local

Die provides repair and engineering services, which are

universities and organizations.

widely welcomed by our customers. This added advantage has attracted more customers that request precision

ISGO Manufacturing’s value proposition lies in our

products with very limited tolerances.

investment in state-of-the-art technology. We have refurbished our equipment to solidify our bet on high-

We want to set a trend for plastic injection in terms of

precision and high-volume products. Simple plastics with

volume. Our goal is to work on molds with 40 to 60

no added value are used by many companies, whereas only

cavities that can offer greater precision and speed. We

a few can handle precision plastics. ISGO has specialized in

are also looking to become a Tier 1 supplier. We already sell

engineering and quality operations for such products, from

products to OEMs through Tier 1 suppliers but now we are

pre-production to mass production. A big differentiator

preparing a project to become a Tier 1 supplier for Audi.

is our know-how to manufacture high-precision and safe components, which not many companies can offer. We

Q: What is ISGO’s strategy to promote its tooling and

manufacture petrol pumps, seat recliners, sunroofs and fuse

injected plastic components?

connectors. In particular, we provide radiator components

A: We opened a tool shop at our San Luis Potosi site. We

for Audi’s Q5 model.

have already started to build tools for Volkswagen, Audi and some other clients. However, to approach potential

Q: How important is the automotive sector for ISGO and

customers, we have to go where decisions are taken,

what have been your strategies to attract new clients from

meaning Germany and the US.

the pool of suppliers investing in the country? A: Over 75 percent of our operations are in the automotive

We have a strong sales force that is constantly in contact

sector. We have offices in Detroit and Frankfurt to be in

with Tier 1s and OEMs. Additionally, we have sales

close contact with engineers and to be involved in the early

offices in Detroit and Frankfurt and we have a strong

development stages of a product. We normally work with

relationship with the Automotive Cluster of San Luis

OEMs and Tier 1 suppliers three years before a vehicle is

Potosi and CLAUT.

released, so we can review components together. Q: What are the main opportunities that lightweighting provides ISGO’s global operations? ISGO Manufacturing is a Mexican custom injection-molding

A: We started several projects to develop engine parts that

and assembly company. It was founded in Monterrey in 1967

are traditionally metal-made. We are looking for lighter and

and supplies automotive, electronics, consumer, packaging

more affordable plastic combinations that can perform well

and cosmetic products and components

in highly demanding environments.

This is a big opportunity. Since we are a plastics company,

may expand these plants or open a new one in northern

sustainability is always a priority. Our R&D is focused on

Mexico, either in Ciudad Juarez or Tijuana.

natural fiber mixtures with resins and polypropylene for plastic injection to create more ecological components. Some

We have closed most of our projects for 2020 in 2019. Our

of these initiatives have been presented to OEMs already.

strongest plans are for our plant in Puebla. We just launched a big project this year called W167 for a Tier 1 supplier to

Q: How are local players addressing the issues related to

support Mercedes-Benz’s production in Aguascalientes. We

gaps in the supply chain to help the overall production

aim to grow around 10-15 percent in 2020.

chain grow? A: The biggest gaps in the plastics supply chain are high-

Q: What are the most important challenges that Mexican

precision and high-volume pieces. Another is supplying

automotive companies face to participate in international

directly to OEMs since they import most of these components.

supply chains?

In Mexico, plastic imports account for US$8 million to US$10

A: The rules of the game in the automotive sector are

million. We are confident we are capable of bridging this gap.

different from other industries. This industry is very specific in its requirements and is always looking for perfect quality

Q: What are ISGO’s most important growth and expansion

and delivery. Mexican automotive companies need to develop

plans for 2019 and 2020?

the skills to be aligned with market demands.

A: Our sales in Mexico have grown an average 35 percent in the last 20 years and there is an opportunity to grow around

One of the main challenges is talent retention, from

20 percent per year for the next five to 10 years. We are

management to engineering positions and technicians.

constantly improving our capacities so we can offer more

The turnover rate is around 12-18 percent among several

options to satisfy automotive market needs. We opened a

companies in San Luis Potosi. At ISGO, we started with a 12

second plant in Monterrey in 2018 and in 2019 we opened a

percent turnover rate in 2017. We have maintained a 5 percent

smaller plant in Puebla with around 10 machines. This plant

turnover rate for eight months, mainly by taking care of the

is most likely to grow in the short term. In the future, we

people we invest in.

INSIGHT |

SHARED BENEFITS KEY FOR GROWTH MAKOTO AIDA Former President of Koyo Joint Mexico

Asian companies follow a win-win vision when investing in

San Luis Potosi. But not ready to rest on its laurels, Koyo

Mexico by getting the most out of the Mexican workforce,

Joint Mexico is aware of the improvements needed to expand

while sharing their know-how. However, advances in

its business to other OEMs arriving to the country. “We had

engineering and quality capabilities are necessary to grow

no idea BMW was coming. It is within our future plans to

the local supply chain, says Makoto Aida, President of Koyo

be a supplier to BMW, but we need more engineering and

Joint Mexico. “Companies need to improve engineering and

quality,” Aida says. Nevertheless, key differentiators for Koyo

quality so OEMs request more pieces from companies like

Joint Mexico’s components are their safety and functionality.

Koyo Joint Mexico. That way, we can bring more operations to the country,” he says.

Tier 1 companies have room to transfer more operations to Mexico as automotive manufacturing grows in the country.

Koyo Joint Mexico is a subsidiary of Koyo Machine Industries.

Though Koyo Joint Mexico manufactures three different

“We are part of JTEKT. When we heard Toyota was coming

components, only one is produced in Mexico. The other

to Guanajuato, we planned our arrival to Mexico accordingly,”

pieces are manufactured in China and Thailand. “Koyo Joint

Aida says. In Mexico, the company has invested US$10 million

International is thinking about transferring part of that

to manufacture steering intermediate shafts at its plant in

production to Mexico,” says Aida.

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| VIEW FROM THE TOP

LONG-TERM PERSPECTIVE IS KEY BRENDA VEGA Business Development Director of Nissha PMX Technologies

138

Q: What milestones has Nissha PMX Technologies

Q: What role does Mexico play in the production of

achieved since the expansion of its plant in 2018?

advanced electronic devices for automotive applications?

A: We expanded our plant capacity by around 150

A: Mexico’s role is very relevant and its importance is

percent, from 3,700m to 9,700m , including production

growing. The country has many Tier 1 and Tier 2 companies

floor, tooling facilities, offices, storage and our metrology

that have manufactured advanced electronic devices

lab. The expansion went hand in hand with growth in our

for years and we are proud to supply components to

sales, which we doubled over three years. From 2018 to

some of the most-recognized ones. In the future, we

2019, we grew around 40 percent. Since 2018, we have

see more companies trusting in Mexico to establish their

launched many solutions related to the automotive

manufacturing operations on advanced electronics devices

industry.

for multimedia applications.

We also increased our tonnage capacity for injection

Q: What are the most important advantages provided by

machines. We now have multiple 900-ton and 1,000-ton

the acquisition of Polymer Tech?

presses, which required a considerable change in our

A: The most important advantage is strengthening

infrastructure for plastic injection. In the 2018-2019 period,

our presence in the Mexican market by offering a fully

we grew our capacity to integrate new technologies,

integrated product: IMD. We have been supporting world-

adding value to our products by integrating different

class Tier 1 companies for 14 years, while growing strategic

processes. For example, in-mold decoration (IMD) is a

relationships with our customers.

process in which Nissha PMX Technologies excels. IMD is Nissha’s trademark. We also integrated secondary

Q: How important is Mexico’s relationship with the US for

processes such as hot stamping and laser marking.

Asian companies and how does it share your development strategies?

Q: What features of Nissha PMX Technologies’ value

A: The US-Mexico relationship is important regardless of

proposition help the company stand out in a heavily

a single-company perspective. It is important to highlight

competed market?

the importance of the automotive industry for the US

A: Our differentiators are our cutting-edge turnkey

and Mexico. Nissha PMX Technologies takes into account

solutions. We are involved from the design stages

changes in tariffs, trade relationships and the strategies

through all the processes until mass production. Another

of European and Asian companies when designing its

differentiator is our engineering support. We have the

strategy. We are working closely with our suppliers and

flexibility to provide engineering support across different

customers to strengthen our partnerships.

locations worldwide. This kind of support for plants in Europe or Asia is a feature our clients are looking for.

Q: What challenges and opportunities will the new rules of origin in USMCA bring for Nissha PMX Technologies’

In addition, we are specialized in different kinds of

Mexico operations?

products that are critical for control processes, which

A: We are working on that with our current and potential

has helped us become a trustworthy supplier.

customers. For us, there is a big opportunity to increase the support we offer by being a local solution. These new rules are an incentive for companies to increase their

Nissha PMX Technologies is a subsidiary of Nissha USA. It was

local supply chain. Nevertheless, the main challenge is to

established in 2005 in San Luis Potosi for the manufacturing

continue being price-competitive and to have the technical

of injection molded parts used for automotive under-the-hood

and technological capacity to provide a solution to clients

components, as well as interior and exterior components

that used to rely on foreign companies.

INSIGHT |

QUALITY-ORIENTED PRODUCTS, SUPPLIERS MARTY KOBAYASHI Corporate Officer of Koito Group and President of North American Lighting Mexico

Both quality and responsiveness are added values for a

easily convinced by seeing the company’s manufacturing

company looking to enter an automotive supply chain,

process with their own eyes. “Every time a client needs a

according to Corporate Officer of Koito Group and

solution, they pay us a visit. When they see our facilities,

President of Koito’s subsidiary North American Lighting

they are impressed by our organizational scheme for large

(NAL) Mexico Marty Kobayashi. “Delivering high-quality

production volumes. This gives clients confidence,” he says.

products in the time they are needed can be a main differentiator for a company,” he says.

Koito Group and NAL Mexico’s manufacturing systems have benefited greatly from the Kaizen system,

Japanese suppliers are characterized by an efficient

which has allowed the group to identify potential

manufacturing production based on the Kaizen model,

technological innovations and adapt them to the newest

which focuses on improving working standards through

trends and requirements from OEMs. NAL’s portfolio

problem visibility to determine the root of the problem

includes headlights and backlights with the latest LED

and gradually test possible solutions for the process.

technologies, which is a testament to the industry’s

According to Kobayashi, one of Koito Group’s biggest

global shift toward LED technologies. “Since it is difficult

achievements was to install a new plant outside of Japan

to find cheap automotive LED components, Koito Group

that followed the Kaizen model. “Our employees helped

has a special lighting-source development division to use

significantly to achieve this and now they contribute to

cheaper alternatives,” Kobayashi says.

the company’s mission,” he says. NAL Mexico started operations in 2014 and it plans to A major determinant to improve quality is being more

reach full production capacity at its San Luis Potosi

customer-oriented, says Kobayashi. Koito Group and

plant by 2020. The company is already trying to make

NAL Mexico have focused on customer feedback to

its operations more local although Kobayashi says

improve the overall quality of their product and build a

Mexican automotive companies often have a hard time

relationship with current and potential customers based

when entering Asian supply chains. However, having

on trust. “Every month we receive feedback and by taking

a local supplier base can provide benefits for both

care of PPMs we can know where we stand in terms of

Japanese and Mexican companies. “A local supplier

customer satisfaction,” he says.

base would be a major advantage for NAL Mexico because we are still importing products from China and

An adequate sales strategy is also needed for companies

Japan,” he says. The company welcomes new supplier

to attract potential clients. Japanese companies work

applicants, as long as they comply with NAL Mexico’s

following long-term projections once they close a deal

quality and responsiveness needs. “We want to avoid

with an OEM. Koito Group, together with its subsidiaries,

problems we have had with other suppliers regarding

is no exception. “Our business relationship with a new

deliveries,” he says.

client starts at Koito Corporation. Once an agreement is reached, the group defines which of its subsidiaries

Developing a supplier base is key for NAL Mexico and the

will take care of the OEM. In Mexico, we are supplying

Koito Group, which is why the group normally implements

lighting systems to Toyota Guanajuato, Toyota Baja

programs to strengthen the capacities of its current

California as well as to Honda, Mazda, Nissan and Ford,”

suppliers and potential collaborators. “We are sending

says Kobayashi.

NAL workers to local companies to support them in implementing Kaizen processes so they can comply with

NAL Mexico relies on word of mouth for new clients.

our requirements. Our employees have been excellent

However, Kobayashi says new customers have been

when helping local companies,” Kobayashi says.

139

| VIEW FROM THE TOP

RELIABLE SUPPLIERS REMAIN IN BUSINESS JAIME BOZA Managing Director of Waukesha

140

Q: How does Waukesha’s San Luis Potosi facility

talent from other automotive-intensive regions, raise

complement the company’s global operations?

salaries and find new ways to motivate employee retention.

A: Waukesha opened this factory in 2014 as a strategy to

The lack of skilled toolmakers is a major challenge for the

supply for AAM’s Guanajuato operations. The company

state’s automotive industry. While Puebla, for instance,

was originally founded in the 1970s as a manufacturer of

has the centers of Benteler, Gestamp and Magna where

tooling but it evolved to also supply stamped components

molds and dies technicians are trained, San Luis Potosi

for AAM and eventually also Continental, Cummins and

lacks this infrastructure. This situation forces stamped

other suppliers. The San Luis Potosi plant is an integral

parts suppliers to make an extra investment in terms of

part of the development plans of Waukesha. We are in the

time and money to train workers who are sometimes hired

process of growing our capacities with the goal of catering

elsewhere.

to new clients such as BMW, Volkswagen and Audi. Q: What is Waukesha’s strategy to deal with talent Stabilizing Waukesha’s San Luis Potosi plant is the

shortages in San Luis Potosi?

biggest priority for the company. This will come as a

A: We do not discriminate among workers based on age.

result of keeping clients happy with the quality of our

It is common for companies to replace some incredibly

parts and tooling equipment while also keeping our prices

talented and experienced collaborators of 50 years

competitive and delivering when requested. For us, that

of age and older with younger workers, particularly

means strengthening our tooling and maintenance areas

in management positions. Waukesha has adopted an

and training workers and managers. As a consequence

innovative system to train collaborators. Because industrial

of this strategy, Waukesha’s Mexico plant will continue

companies in San Luis Potosi often see themselves

making its name among potential automotive clients. The

needing to hire all kinds of unskilled workers, we needed

industry looks for reliable suppliers, so it is extremely rare

to develop a strong system that fills the gaps. Before

for automotive companies to switch suppliers once they

reaching the production line, all workers learn about the

have established a good relationship and developed mutual

manufacturing and safety procedures that they must

trust. Once Waukesha’s San Luis Potosi manufacturing

follow through extremely simple methods. This system

operations are successfully consolidated in 2020, our main

teaches them the key points they need to follow and what

target is to start operating as a Tier 1 supplier for BMW,

happens if they do not follow them properly, which eases

Volkswagen and Audi.

the training process.

Q: What talent challenges are stamped parts suppliers

Q: What are the main competitive advantages that

based in San Luis Potosi facing?

differentiate Waukesha in the stamped components and

A: The automotive industry in San Luis Potosi has

tooling markets?

experienced abrupt growth with the arrival of GM and BMW

A: The fact that we design and manufacture our own dies is

in the last few years, which has caused a labor shortage in

a key differentiator, especially considering that Waukesha

skilled profiles such as toolmaking. This has incentivized

continues to consolidate its San Luis Potosi operations.

employee poaching and pushed companies to bring in

While most companies will purchase their tooling equipment from suppliers in Canada, the US, China or elsewhere, Waukesha’s in-house dies production gives us

Waukesha is a supplier of tooling equipment, stamped

a great deal of flexibility when offering quotes for tooling

components and steel sheets founded in the US. The company

and stamped parts. Waukesha can offer savings of 5-8

opened a manufacturing facility in San Luis Potosi in 2014 as

percent compared to our competitors, which can weigh

part of its strategy to remain close to its global clients

on clients’ decisions to choose one or another supplier.

VIEW FROM THE TOP |

FINDING BALANCE BETWEEN ECONOMIC GROWTH, ENVIRONMENTAL RESPONSIBILITY FERMÍN RODRÍGUEZ Sales and Marketing Manager of WTC San Luis Potosi

Q: How does WTC San Luis Potosi differentiate its

We have a relevant marketing strategy that is the basis of

industrial offering from that of its competitors?

all we develop. This strategy, beyond promotion, is based

A: Our facilities are among the few, if not the only facilities

on selling high-quality products. We are one of the few

in the country, that guarantee power availability of up to

industrial parks with an intermodal terminal, which is also

400MVA. This provides any company with access to the

the largest in the country. We also have a fluids terminal

power output it needs for its operations. We also have a

that receives fuel from Texas. The first wagon charged with

company called Ranman Energy that has a new permit

fuel that did not belong to PEMEX arrived to our facilities.

issued by CRE to generate electric energy and supply it

Some of our major customers in this facility have a wide

to the national grid. This will allow us to offer competitive

presence in the US and some are established in Texas.

prices in terms of electric energy in the open market. We also have a free-trade zone available. It is not an We believe there should be a balance between economic

obligation for our customers to join this, but we have clients

and social growth and environmental sustainability. We

that take advantage of that. A big portion of Amazon’s

work to comply with the requirements to manage green

import operations to Mexico take place at WELLDEX

bonds for energy generation, while making a more efficient

Logistics’ facilities, which is one of our authorized clients in

use of energy. Some of our projects, such as Faurecia’s

this area. In addition to offering security, this optimizes time

headquarters in Puebla, are in the process of becoming

when crossing the border because the customs process is

LEED certified.

done inside the park.

Q: How has growth of the automotive sector impacted

Q: Which elements must an automotive company or

WTC San Luis Potosi’s development?

supplier consider when investing in Mexico?

A: Up to 80 percent of our portfolio is in the automotive

A: One of the most relevant factors that attract large

sector. We have the capacity to develop a project

companies to San Luis Potosi is the state’s location, because

anywhere in the country through the built-to-suit

it has access to all seaports and the country’s main borders.

scheme. We assume the responsibility of finding the

Another relevant factor was the available workforce, along

property, constructing the building according to company

with the infrastructure already in San Luis Potosi in terms

requirements and renting it. The current infrastructure in

of natural gas and water supply.

the Bajio region has allowed us to keep growing. BMW’s arrival also meant the arrival of several suppliers. At our

The country still needs to advance in terms of automation.

parks, this opportunity translated to logistics that focused

About 20,000 people work at our park and although

on the OEM. It also meant the arrival of a Schnellecke

some processes have been automated. Automation does

Logistics’ Training Center that now acts as our partner at

not mean cutting staff. It only requires adjustments in the

many industrial facilities.

production line. We are part of the North American Strategy for Competitiveness (NASCO) and one of the central issues

Q: As a developer, what challenges have you identified

is training standardization for all workers, which is key to

in the country?

the future.

A: I believe that not only in Mexico but at a global level, the consumption slowdown hints at an international recession. But I believe that every time this happens we must become

World Trade Center San Luis Potosi (WTC San Luis Potosi)

more creative to create synergies with other companies in

is a Grupo Valoran company that combines business with

the industry. I believe we need to interact more to become

commercial and logistics services to create a strategic

a more competitive bloc.

industrial and logistics complex for its clients

141

Nissan Kicks, Aguascalientes

WESTERN STATES

Aguascalientes, Jalisco and Zacatecas aim to take advantage of local expertise to strengthen the presence of automotive companies in the region. Aguascalientes, a long-standing automotive player, is home to Nissan's largest manufacturing facilities in the country. Being the cornerstone of the sector in the state, it has a tradition of welcoming world-class suppliers, either local or global, to participate in its supply chain.

Jalisco is taking advantage of its reputation as Mexico's Silicon Valley to become Mexico's EV hub. The state already supplies 20 percent of Tesla's components, according to government estimates, and is empowering local players to take the lead. Zacatecas has a legacy in mining, but according to its government, the manufacturing industry is its main job generator. For the state, consolidating sustainable economic growth is directly linked to attracting automotive suppliers.

143

145

CHAPTER 6: WESTERN STATES 146

ANALYSIS: Western States Bet on Automotive Supplier Development

148

STATE PROFILE: Western States: Ramping Up Automotive Hub

150

ANALYSIS: On the Road to Becoming Mexico’s Ev Hub

151

VIEW FROM THE TOP: Ernesto Sánchez, Minister of Economic Development of Jalisco

152

VIEW FROM THE TOP: Carmen Hernández, Jalisco Automotive Cluster

153

ANALYSIS: Unemployment the Greatest Concern Amid COVID-19 Crisis

154

VIEW FROM THE TOP: Gonzalo Esparza, Tachi-S

156

VIEW FROM THE TOP: Gerardo Varela, ZF Services

157

VIEW FROM THE TOP: Cuitláhuac Pérez, Grupo MAEN and Maindsteel

158

VIEW FROM THE TOP: Edi Degasperi, Radici High Performance Polymers

159

SECTOR AT A GLANCE: Western States Ready for Industry Megatrends

| ANALYSIS

WESTERN STATES BET ON AUTOMOTIVE SUPPLIER DEVELOPMENT Aguascalientes, Jalisco and Zacatecas are states with a clearly defined industrial vocation, either in automotive, tech or mining. However, local governments and the private sector are betting on developing local suppliers and attracting automotive FDI as a key for sustained economic growth

146

Mexico’s western region is a mix of consolidated

and services, displacing local companies. Eight of those

automotive leaders and local governments determined

local companies came together to see if we could unite

to boost the local industry’s supplier base. Home to

our strengths. In fact, our only choice was to unite or

Nissan’s main manufacturing facilities and Honda’s El

disappear. We were able to lift our level of infrastructure

Salto plant, the region attracted a historic US$7.98 billion

and preparedness, not just as a group but also individually,

in FDI over the 1999-3Q19 period, which accounts for 11

and began winning projects. Every member has growth

percent of the total automotive FDI received in Mexico

over 30 percent,” says Cuitláhuac Pérez, Founder and

over that period.

President of Grupo MAEN, a business group representing 41 automotive companies and institutions in the state.

The region is home to 13 global Tier 1 suppliers including Lear, ZF, Continental, Valeo and MAHLE. Mexico’s

It is no surprise that Japan is the state’s largest FDI

technological hub is there, Nissan’s main manufacturing

investor with US$5.46 billion during the 1999-3Q19

operations are there and Zacatecas is pushing to be a

period. The state represented 8.44 percent of total FDI in

leading automotive player as well. In all aspects, Mexico’s

the automotive sector in the country in the same period.

western region is well-placed for more heavy lifting in the

Again, Nissan has played an important role in this figure.

country automotive industry.

A2 came with an additional business park, called Douki

“

We do not necessarily look for local suppliers, we look for world-class suppliers and it turns out that Mexican suppliers are world-class” José Román, President and Managing Director of Nissan Mexicana

Seisan Park, developed by Nissan and Vesta, to locate suppliers in the same facility as the plant. The park cost US$57 million and is the base of operations for POSCO MAPC, Tachi-S and Sanoh. Nissan itself says contracting Mexican suppliers makes sense. “We do not necessarily look for local suppliers, we look for world-class suppliers and it turns out that Mexican suppliers are world-class. Our products are exported to more than 80 countries, which means our quality has to be world-class. That is a challenge companies have to deal with,” says José Román, President and Managing Director of Nissan Mexicana.

NISSAN’S PRODUCTION HOME

Tachi-S outlines some of the challenges Mexican

In 1982, Nissan Mexicana inaugurated its A1 plant

companies face to enter the supply chain. “We have

in Aguascalientes, its second in the country. Thirty

given opportunities to some stamping suppliers, for

years later, after a US$2 billion investment, in 2013

example, but production volumes are usually beyond

Nissan Mexicana inaugurated its A2 plant in the state.

their capabilities. They need to jump from being a small

A2 produces 30 units per hour while A1 produces 65.

company to a medium-sized company at least. They know

The company is the cornerstone of Aguascalientes’

how to stamp or do plastic injection, but they do not

automotive sector.

know how to manage an operation that requires 200 employees while maintaining quality,” says Gonzalo

While it is true that often Asian OEMs come with close

Esparza, SEO for Americas Region of Tachi-S.

Tier partners, there are many opportunities for local companies to partner with Mexico’s second-largest

By September 2019, the number of people employed

manufacturer. “Nissan decided to build a new plant in

in the transportation equipment manufacturing sector

Aguascalientes. Many foreign companies arrived with the

was 41,947, almost 100 percent growth from the 22,817

aim of supplying the plant with the necessary products

employed in the sector in September 2013.

‘SILICON VALLEY’

of Tier 1s. Throughout their history in Zacatecas, these

Some have labeled Jalisco as “the Mexican Silicon Valley.”

companies have invested approximately US$450 million,”

The state is home to 600 tech companies, with a specialized

says Carlos Bárcena, Minister of Economy of the State of

workforce of 78,000 professionals. However, when

Zacatecas. The state is home to Aptiv, which alone has

technology and cars meet, there is room for Connected,

five manufacturing plants in the state, employing 14,000

Autonomous, Shared and Electric (CASE) vehicles. That is

workers. The government is confident of the state’s human

Gov. Enrique Alfaro’s bet: to develop an EV supplier base

capital availability to “capitalize on the strengths of the

in the state by 2024.

mining industry to generate a small automotive cluster the uses that same proven model,” says Bárcena.

“We want to finish our six-year term with 5 percent growth in state GDP. Furthermore, we want to begin 2020 with

The state government offers fiscal precincts, competitive

growth of at least 3 percent. To achieve this, we are

prices and logistical strengths for international companies

leveraging the key industries in the state mainly through

aiming to invest in the region. Across different industrial

investment but also by boosting exports. We are already

parks, the average land price is around US$25/m2, according

national leaders in telecommunications and information

to the government. Automotive FDI in Zacatecas reached

technology. Now, we want to boost the use of EVs by

US$0.46 billion in the 1999-3Q19 period and it is solely

developing their production chain. We want to have at least

focused on auto parts manufacturing.

one assembler of these types of vehicles,” says Ernesto

government estimates.

Jalisco is home to 600 tech companies with a specialized workforce of 78,000 professionals

The Jalisco Automotive Cluster is closely collaborating in

THE CASE FOR CASE

this regard by empowering SMEs on 4.0 manufacturing. “For

Given the technological drivers of the region, Mexican and

Tier 1 companies, it is clear that technology, digitalization

foreign companies focused on developing CASE vehicles

and automation are a must in their processes, which is why

and components have chosen the region to establish their

many have already implemented IoT. SMEs cannot migrate

operations. K&S Mexicana and Schutz Lubricants, to name a

to Industry 4.0 if they do not have the basic elements. This

few, are companies focused on improving vehicle efficiency

is a challenge for us as a cluster,” says Carmen Hernández,

and increasing fuel efficiency or battery life.

Sánchez, Minister of Economic Development of Jalisco. The state has the potential to achieve this ambitious goal given the presence of automotive suppliers, including Aisin, ZF, Continental and Bosch, among others, which already supply 20 percent of Tesla’s components, according to

Director General of the Jalisco Automotive Cluster, formed by 23 automotive players in the state.

Regarding autonomous vehicles, TecnaCar, a Spanish company with fully autonomous vehicles with

The cluster also collaborates with the government on

manufacturing applications, chose Aguascalientes to land

launching the first stage of the EV supply chain initiative.

its operations. “When talking about autonomous vehicles,

With an initial US$450,000 fund, the mission is to enable

the biggest challenge we face is understanding the harmony

seven young SMEs already involved in electric mobility

between man and machine. Clients need to understand that

production and services to potentially integrate them in

autonomous equipment is not here to replace workers,”

larger supply chains.

says Francisco Torrente, COO of TecnaCar.

EMERGING AUTOMOTIVE HUB

Local companies have also emerged in this thriving

Gov. Alejandro Tello’s administration in Zacatecas started

environment. Telemática y Controles is a Mexican-owned

in 2016. The state is one of the greatest silver and mineral

company founded by two former bus drivers who saw an

producers in the world. Yet, Tello’s bet is to take advantage

opportunity with video surveillance products to improve

of Zacatecas’ manufacturing engine and grow as an

public transportation efficiency in the Puerto Vallarta area.

automotive hub.

“Once integrated, our system can show people in real time at what time their bus will arrive, with a 10-second

“Zacatecas’ main job generator is the manufacturing

precision rate. These tools help companies know if

industry, which represents almost 45,000 jobs. Of those,

driver havedone their job well, while drivers behave well

25,000 are in the state’s 27 automotive companies,

because they know they are under surveillance,” says Luis

most of them Tier 2 and Tier 3 companies and a handful

Guzmán, Director General of Telemática y Controles.

147

| STATE PROFILE

WESTERN STATES: RAMPING UP AUTOMOTIVE HUB Aguascalientes, Jalisco and Zacatecas have formed a

chains. Zacatecas, taking advantage of its successful

regional bloc that local governments and the private

experience in the mining industry, aims to strengthen the

sector are determined to consolidate as an automotive

manufacturing sector in the state. Finally, Aguascalientes,

hub. Jalisco, with a tech tradition, has set the goal

home to Mexico's top seller, Nissan, is learning how to

to develop local SMEs to participate in EV supply

embrace industry trends.

148

AGUASCALIENTES

JALISCO

ZACATECAS

Automotive FDI received 1999 - 3Q19 (US$ billion)

6.14

1.38

0.46

Vehicle production FDI (US$ billion)

3.8

0.06

0.0

Auto parts production FDI (US$ billion)

2.34

1.32

0.46

8.44%

1.90%

0.63%

Share of national automotive FDI received 1999 - 3Q19

HEAVY AND LIGHT-VEHICLE OEMs

Honda El Salto (vehicle and motorcycle assembly)

Heavy-vehicle OEMs Light-vehicle OEMs Top global Tier 1 suppliers

Nissan-Renault Alliance - Daimler COMPAS 2 Aguascalientes (vehicle assembly) 3

Nissan Aguascalientes 2 (vehicle production)

4 Nissan Aguascalientes 1 (vehicle assembly)

13 top global Tier 1 suppliers are present in the Western States region

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

23,845

40,074 26,205

33,453 14,768

23,919 16,154

20,769

15,391

19,410

27,916 14,229

18,523

22,817 11,922

18,279

29,453

30,194

41,947

— Zacatecas

25,664

— Jalisco

22,646

— Aguascalientes

*NAICS Sector 336 includes Automotive, among others

Sep-13

Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19

Zacatecas VEHICLE PARK SIZE IN 2018 Jalisco

Total number of 'green' vehicles sold 2016 Aug 2019

380,032 Aguascalientes Cars 2,222,924 235,985 Trucks

Motorcycles

158,857 1,023,371 198,262

373

69,518 475,844 31,663

Aguascalientes Jalisco Zacatecas

3,510 Buses 10,845 1,969 0

500

1,000

1,500

2,000

4 2

2,500

4,498 156

Countries with the highest contribution to total FDI 1999 3Q19 (US$ billion) Japan

5.46

16.57 Canada

6.85

149

| ANALYSIS

ON THE ROAD TO BECOMING MEXICO’S EV HUB Gov. Enrique Alfaro has set an ambitious goal to unleash Jalisco’s potential to become a hub for EV suppliers. The state government started to implement this strategy in 2019, following the state’s already consolidated place as Mexico’s tech hub As some of the world’s biggest IT companies set up shop in

2019, 27 investment deals were closed in the automotive,

Guadalajara, including Toshiba, IBM, HP, Oracle, Cisco and Intel,

high-tech, energy and metal mechanic industries, coming

the state quickly became home to a thriving technological hub

from the US, the Philippines, China, Taiwan, Russia, Thailand,

that some have dubbed “the Mexican Silicon Valley.” The state

Spain and India.

is now home to around 600 technology companies, supported 150

by a specialized workforce of 78,000 IT professionals. Since

THE NEXT EV HUB

1999, the computer and electronics product manufacturing

Alfaro’s government has set an ambitious goal for the state’s

segment has received a total of US$3.87 billion in FDI. In the

technological development: EVs. “We want to finish our six-

2010-2019 period, the average annual growth rate for FDI

year term with 5 percent growth in state GDP. Furthermore,

related to technology activities in the state was 75 percent.

we want to begin 2020 with growth of at least 3 percent. To achieve this, we are leveraging the key industries in the

A DEVELOPED TECHNOLOGICAL HUB

state, mainly through investment but also by boosting exports.

Jalisco’s technological hub has been developed under a triple

We are already national leaders in telecommunications and

helix scheme, where the government, academia and the private

information technology. Now, we want to boost the use of

sector have contributed to create a greater technological and

EVs by developing their production chain. We want to have

entrepreneurial environment. The state government, during

at least one assembler of these types of vehicles,” says

the 2013-2018 administration, created a series of institutions

Ernesto Sánchez, Minister of Economic Development of

to address particular elements of the IT agenda. Among

Jalisco. The government’s vision is to consolidate Jalisco as

these are Jalisco’s Center for Artificial Intelligence, Center

a leader in the EV segment, having a spillover effect across

for Advanced Technology (CIATEQ), Jalisco Institute on IT

different sectors such as automotive, electronics, metal

(IJALTI) and the Innovation Center to Accelerate Economic

mechanic, high tech and electric energy. The goal is to “take

Development (CIADE). The current government headed by

advantage of automotive suppliers based in the state and the

Gov. Enrique Alfaro has announced its intention to create 20

sustainability trend at the global level to provide a direction for

more Innovation, Science and Technology Centers (ICT) in

the electronic and IT sector toward participating as suppliers

Jalisco’s main cities through the state’s Ministry for Innovation,

for the electric mobility industry,” says Jalisco’s Annual

Science and Technology. The government has also supported

Government Report 2019.

a variety of research projects, including in the health, food and automotive industries.

Jalisco’s potential in this regard can be observed in the fact that 20 percent of Tesla’s components are produced

The private sector has increasingly taken the initiative to

in the state, according to government estimates. The state

foster technological projects related to the fourth Industrial

is working in close collaboration with Jalisco Automotive

Revolution. There is also a 4.0 Industrial Cluster in Jalisco,

Cluster, SEDECO and other industrial chambers and

which groups more than 20 tech companies related to

related associations to identify potential SMEs that could

artificial intelligence, IoT, cloud computing, cybersecurity, Big

be suppliers. The work will also be useful to identify the

Data, collaborative robots, augmented reality and 3D printing.

gaps local suppliers might need to fill in. This initiative led to the creation of a MXN$10 million (US$450,000) fund

Intellectual property has been key for R&D operations as well

to enable seven young SMEs directly involved in electric

as spurring innovation in the state. According to the Mexican

mobility industries to be integrated into EV supply chains.

Intellectual Property Institute (IMPI), in the 2012-2018 period,

This implies certification processes, international norm

Jalisco was second in number of inventions, just behind Mexico

compliance, technological training and adequate equipment.

City. The state delivered 781 patents, 433 utility models and

AT Motors – based in Jalisco and in charge of assembling

1,492 industrial designs. In the six-year period, growth in terms

BAIC, Foton and DFSK models – was the first automaker to

of number of inventions was 25 percent, when the national

collaborate in the initiative. The company offered 158 SKUs

average is between 1 and 3 percent. According to Jalisco’s

to 25 SMEs in the state, out of which 15 purchasing offers and

2012-2018 administration, between January and September

five prototypes emerged.

VIEW FROM THE TOP |

STRATEGIES TO BOOST MEXICO’S TECHNOLOGY HUB ERNESTO SÁNCHEZ Minister of Economic Development of Jalisco

Q: What are your administration’s priorities regarding

Q: How have the ratification of USMCA and the trade war

economic development? What will be your focus and

between China and the US impacted Jalisco’s development?

which areas do you consider more relevant?

A: At first, tariff threats made us accelerate our diversification

A: We want to finish our six-year term with 5 percent

strategy. Of course, all American investments are welcomed.

growth in state GDP. Furthermore, we want to begin 2020

We still have a strong agenda with the US, mainly with

with growth of at least 3 percent. To achieve this, we are

California and Texas, but we are looking forward to doing

leveraging the key industries in the state mainly through

business with the Asian market. The tension between China

investment but also by boosting exports. We are already

and the US is making Chinese companies look at Mexico and

national leaders in telecommunications and information

specifically Jalisco when it comes to advanced manufacturing

technology. Now, we want to boost the use of electric

and automotive manufacturing focused on electric vehicles.

vehicles by developing their production chain. We want

We will see an influx of Chinese investment, which will be

to have at least one assembler of these types of vehicles.

significant in reaching our GDP growth objectives.

We have already drafted a development strategy at a state level and there are several other industries we will

Q: What strategies are you implementing to help

keep supporting, such as agricultural products and more

digitalize SMEs?

traditional sectors like jewelry, textile and footwear.

A: We have a digital transformation project for SMEs that is divided in three stages. The first is a cultural transformation

Another key pillar in Jalisco is the energy sector. During

or a digital evangelization because most of these companies,

the first six months of this administration, we focused on

if not all of them, do not know what they ignore. In other

developing the State Energy Plan to provide certainty to

words, they do not know they need to change and automate

investors in the energy and fuels sectors. We focused on

to join this transformation. We must change companies’

electric generation and some commercial schemes but

mindsets and we are relying on university students doing

mainly on cogeneration, which represents large investments.

their social service to propagate this conversion. We are

Our strategy has aligned to the environmental protection

also working closely with the Mario Molina Institute, which

rules established in the Paris Agreement and we have the

belongs to Jalisco’s Ministry of Innovation. We have also

advantage of being among the states with the best solar

created programs specifically designed to teach companies

radiation and strong winds. However, to succeed we also

to export, including JALTRADE, which will now be the Foreign

need to collaborate with the federal government to address

Trade Directorate.

the sector’s needs and ensure the needed distribution for everyone to access the energy generated. Regarding

It is impossible to automate without order, which is why in

fuels, we are talking about transport networks, storage

the second phase we will establish a system of administrative

and distribution, not only of gasoline and diesel but also

management. The third phase of the project focuses on

natural gas. The State Energy Plan also considers the

digitalization mainly regarding e-commerce. We also want

transformation of the state’s mobility, which will eventually

to join the automotive manufacturing industry and all industry

move toward electrification.

4.0 efforts, which also forces us to develop the service sector to receive people displaced by automation.

All these initiatives will lead us to 5 percent growth in GDP. We expect to be the best logistics hub in Mexico by leveraging our airport and building infrastructure around

Ernesto Sánchez has as Bachelor’s in electronic engineering

it to support its growth. We are also signing partnership

from ITESO and a Master’s in administration from Central

agreements with big logistics hubs, such as the port of

Michigan University. He worked for IBM for eight years, six of

Laredo-Texas and the port of Manzanillo.

them in the manufacturing area in Guadalajara

151

| VIEW FROM THE TOP

JALISCO CLUSTER POSITIONS FOR GROWTH CARMEN HERNÁNDEZ Director General of the Jalisco Automotive Cluster

152

Q: What are your main objectives as the new leader of

capabilities, supported by foreign partners. We also have

the Jalisco Automotive Cluster?

a strong interaction with the technology industry.

A: When I joined the cluster in March 2019, we started restructuring our operations. We needed to sensitize Jalisco’s

Q: How are you helping companies to integrate technology

companies to the need to pool their efforts so that investors

into their operations?

would look at the state as a destination for automotive

A: For Tier 1 companies, it is clear that technology,

technological manufacturing and development.

digitalization and automation are a must in their processes, which is why many have already implemented the Internet

We also reshaped our administrative area and we created

of Things. The market niche with the highest potential for

executive boards for each of our work committees, which

technification is micro companies and SMEs. With these

gave them a sense of responsibility and commitment. We

players, we have to create a program to teach them about

have opened the floor to dialogue and participation, which

digitalization and why it is important.

has given companies a new dynamic. Today, we have four work committees, the main one focused on supply chain,

SMEs cannot migrate to Industry 4.0 if they do not have

followed by human capital, academia and R&D.

the basic elements. That is a challenge for us as a cluster: to make them more aware of this need so they look for the

23 companies are already members of the Jalisco Automotive Cluster

resources to reinforce their limits, making the transition to digitalization faster and easier. Q: What advantages does Jalisco offer in terms of logistics? A: Jalisco has a competitive advantage against Guanajuato and other states. Manzanillo, even with its limitations, is

Twenty-three companies are actively participating

the entry port for the sector in Jalisco. The Bajio region is

in the cluster through work meetings, forums and

reaching its limits, which means the industry requires what

conferences. Fourteen companies were invited to join

we can offer. Celaya has two railway lines — Ferromex and

when we began operations but they never did. Those

Kansas City Southern —that connect Jalisco’s loading and

companies are our goal for 2020.

unloading point with companies across the Bajio region.

Q: What are Jalisco’s key contributions to the

Another advantage we have is that the automotive

automotive industry?

industry in Jalisco is not yet saturated. We only have

A: We have a significant volume of auto parts exports.

Honda, which unfortunately will stop manufacturing its

Jalisco also has great flexibility. Our SMEs are looking for

HR-V in El Salto and will move to Celaya in early 2020.

business opportunities and they have made their processes

For now, the OEM will continue its operations in Jalisco

flexible to meet the required production capacity. The

but only focused on the production of motorcycles and

state is already increasing its manufacturing equipment

spare parts. Salaries in Jalisco have proven to be very attractive in

The Jalisco Automotive Cluster began operations in 2017, led

the automotive industry and when we visit universities,

by President Rubén Reséndiz under the guidance of Nuevo

people are genuinely interested in knowing about the

Leon Automotive Cluster General Director. It represents the

automotive industry because they know it will offer them

interests of automotive companies in Jalisco

better conditions.

ANALYSIS |

UNEMPLOYMENT THE GREATEST CONCERN AMID COVID-19 CRISIS Health and safety protocols in western states have allowed companies to resume operations following a two-month shutdown. However, those lost days will be hard to recover and some fear that the consequences of the pandemic will still be felt at the end of the year Fearing that a prolonged operational stoppage would lead

represent an opportunity for the aftermarket, but Varela is

Canadian and US companies to seek suppliers in other regions,

not that certain in this regard. “With the decrease in people’s

automotive companies are working to set conditions to keep

purchasing power and unemployment, it is difficult for the

their operations going. According to General Secretary of

auto parts sector to benefit from this crisis. Gone are the times

the Mexican Workers Confederation in Aguascalientes José

when less growth in the vehicle fleet meant more growth in

Alfredo González, the resumption of operations was an urgent

the aftermarket. That correlation no longer exists,” he pointed

need for western states and their economy. “Investments

out. However, Varela is confident that overall, every crisis

made by the US private sector could continue and even

brings an opportunity. “Mexico’s ability to enhance its position

increase, as trade tensions with China help position Mexico

as an exporter of auto parts is one opportunity. Due to the

as an attractive option for national and international investors.”

devaluation of the peso, labor costs are going to drop and we will be more competitive. This will open the door for us to

On May 18, days after the government listed the automotive

export auto parts to countries where vehicles manufactured

industry as an essential activity, Nissan and Mercedes-Benz’s

here are purchased,” he says.

COMPAS plant in Aguascalientes resumed operations. Likewise, “auto parts manufacturers started reaching out

LAYOFFS A MAJOR CONCERN

to their suppliers to get ready and recommence logistics,

Even though the automotive industry rejected the idea of

security and cleaning services immediately,” said Director

layoffs at the country’s plants after a two-month shutdown,

of Foreign Trade at INA Alberto Bustamante. Mexico’s

the Federation of Aguascalientes Workers (FTA) reported

market leader and second-largest vehicle producer, Nissan

on June 4 the loss of 500 jobs at the entity, mostly

Mexicana, has implemented health protocols that include

because of dismissals at Nissan, it said. However, Director

social distancing in all the stages of an employee’s work day,

General of AMIA Fausto Cuevas said the organization has

including transportation, dining halls and working stations, as

no record of such layoffs. Meanwhile, Executive President

well as temperature checks, ventilation and self-assessment

of ANPACT Miguel Elizalde, said “all employees have

questionnaires for COVID-19 symptoms. In Zacatecas,

continued to receive their full salaries. Companies are

Gov. Alejandro Tello Cristerna agreed with the auto parts

supporting employees and they know how important this

manufacturing industry on the gradual return to operations.

is in the present situation.” According to the Ministry of

The industry generates more than 25,000 jobs in the state

Economy of the state of Jalisco, in the months of March

through various plants located in Zacatecas, Fresnillo and

and April 2020, 44,171 formal jobs were lost in the state.

Calera. “Now, thousands of families will have a job and an

The sectors with the greatest impact have been services,

income in these times when the national economy is going

the construction industry and processing industries. The

through a difficult time,” he said.

jobs lost during March and April place Jalisco fourth in terms of the highest number of job losses.

But while some in the automotive industry trust that things will go smoothly from now on, ZF Group, which has one of its

In response, the Jalisco government approved an

main shock absorber-producing plants in the state of Jalisco,

emergency economic relief package of MX$1 billion

believes that in 4Q20, economic activities will still be at 80

(US$45.6 million) to mitigate in effects of COVID-19 in the

percent of capacity as the industry adapts to the new normal

short term. The administration allocated MX$450 million

during July, August and September. “I do not think we will

(US$20.5 million) to 0 percent interest rate loans for micro

be able to make up for volumes and days lost. The coming

and small companies and MX$400 million (US$18.2 million)

economic crisis in Mexico also complicates the situation,” said

in loans for self-employed and people working in informal

Director General of ZF Services Gerardo Varela.

trades. In addition, as part of the Jalisco COVID-19 Plan, the Jalisco Business Development Fund (FOJAL) created

Rudi Esquivel, President and Founder of the National

an emergency fund for employment protection. The fund

Confederation of Workshops (CNT), believes the drop in

totals MX$60 million (US$2.7 million) and aims to help 200

consumption of new vehicles due to the COVID-19 crisis will

companies with 16 to 100 employees.

153

| VIEW FROM THE TOP

STRATEGIC PARTNERSHIPS TO FOSTER GROWTH GONZALO ESPARZA SEO for Americas Region of Tachi-S

154

Q: How important are alliances to Tachi-S’ business?

A: We had four months where production stopped, just

A: Globally, we have established relationships with other

like many other companies. Nevertheless, we made a

automotive companies like Toyota Boshoku (TB). This allows

commitment to Honda to support them no matter what. We

us to make mutual use of the footprint of those businesses

kept our workforce intact; we absorbed all those costs so

and to jointly develop new technologies. In the last year, our

we could assure Honda that we would be ready to restart

alliance with TB was the most relevant but locally we are

operations when they were ready. Tachi-S maintained its

analyzing the possibility of creating new alliances or joint

commitment to its customer, despite the implications. It was

ventures to develop other components. We expect to close

a sacrifice, but it was worth it. It was a tough commitment

these deals in 2020 so we can expand our capacities.

and last year our financial recovery was very slow given that our volumes were not at the levels we expected.

Q: How has Tachi-S progressed in its plans to do advanced engineering and prototype-designing at TSELA?

Q: How will Tachi-S’ Mexico operations help the company’s

A: In the area of prototypes there have been advances but

OEM clients more easily meet USMCA’s rules of origin?

these remains incipient. The intention is to consolidate this and

A: The presence in Mexico of automotive suppliers helps

we are training people to work on prototype manufacturing.

OEMs to increase their regional content. Rules of origin and

We have closer ties with our sister company in the US as

trade conditions change over time. Before, they were the

well. The engineering part is going to take more time since

same for suppliers and for OEMs. Now, one of the new rules

this is a matter of technology development, concepts and

affecting OEMs particularly is labor costs. An unavoidable

processes. Advanced engineering in Mexico will take three

reality is that some products make no financial or operational

more years to ramp up properly. We still need to consolidate

sense for OEMs to manufacture in the US, so the logical

testing operations and advanced engineering for prototype

option is to manufacture them in Mexico. In this sense, Mexico

development.

is the best solution for auto parts.

Q: What results has Tachi-S achieved in its goal to supply

Q: How has lightweighting impacted the vehicle seats sector?

Mazda and Toyota as a Tier 2 supplier?

A: It has influenced the entire industry by creating the need to

A: We were successful in that goal and are ramping up mass

find alternatives for materials and processes. Regarding seats,

production for Toyota through its Tier 1 suppliers and for

weight reduction is related to their structure. Our alliance

Mazda through its Tier 1 suppliers. The objective with Toyota

with TB is part of Tachi-S’ strategy to find lightweighting

was achieved as a result of our already-established global

alternatives for seats. Tachi-S has been a little behind this

alliance with TB. The Mazda achievement was made through a

trend but our alliance with TB will help us catch up and

deal with its seat supplier. We are now analyzing the possibility

allow us to compete against other companies. Weight

to grow both operations. For example, we can explore new

reduction also means a necessary alignment to other market

opportunities to export components within Mazda.

necessities. In fact, weight is a consequence of focusing on other necessities.

Q: How has the reboot of Honda’s Celaya plant helped Tachi-S recover its production levels after a tough 2018?

Q: What role does Tachi-S want to play in the autonomousvehicles revolution? A: The other major trend is autonomous vehicles, as well

Tachi-S México is based in Aguascalientes. Its production is

as shared economy. This will definitely set a breaking point

focused on seats for Nissan, Honda and Kasai, as well as other

for seats, which are currently designed for users who do

components for the industry, including trims, frames, foaming

the driving. These new vehicles will require seats that are

and bending of tubes and wires

designed for users who are resting or doing other things.

Autonomy will force a seat redesign. Tachi-S is focusing on

Those in which we see potential, we give them business and

R&D to be ready for the autonomous trend.

basic orientation and that is it. We are working on a follow-up strategy to rectify this situation.

Q: How important are Mexican companies within Tachi-S’s supplier base?

Q: What opportunities will new OEM operations such as

A: They are very important and our national content is

BMW or Toyota bring for Tachi-S?

growing. There are limitations for Mexican companies

A: In reality, as a seat supplier and a tooling company,

regarding technology and raw materials that cannot be

the opportunity to collaborate with these new OEMs is

found locally, however. In our experience, many local suppliers

complicated. They usually arrive with their assigned suppliers.

are not ready for that level of operation. We have given

In the midterm, a door will open to become a Tier 2 supplier

opportunities to some stamping suppliers, for example, but

for these companies as we did with Mazda and Toyota. Maybe

the amount of business usually is beyond their capabilities.

in the long term we could be talking about Tier 1. Regardless,

They need to jump from being a small company to a medium-

as a Tier 2 company there are many opportunities as well

sized company at least. For them to grow, they need to be

and in fact, we are already in discussions with some of these

prepared. They know how to stamp or do plastic injection, but

companies.

they do not know how to manage an operation that requires 200 employees while maintaining quality. Government

Q: What are Tachi-S’ most important growth projections and

support in these cases is vital.

expansion plans for 2020? A: In 2019 we opened a new trim cover plant where we are

Q: What is Tachi-S’ strategy to collaborate with both OEMs

about to launch mass production. We are also reaching full

and other suppliers to develop the capacities of Mexican

capacity for our laminate processes. In 2019, our goals were

companies?

to start operations as a Tier 2 company and implement new

A: We need to acknowledge this has been a key omission

processes. For 2020, we are visualizing new operations as

on Tachi-S’ part locally. We have developed some suppliers

a Tier 2 with new OEMs, mostly for EVs. Some of this new

very successfully. We accompanied them from the very early

business is already in the advanced stage. From Mexico,

stages and they have grown alongside Tachi-S. However,

we are either going to supply components to affiliated

there have also been unsuccessful experiences because we

companies in the US that would sell seats to those companies

have not designed a system to follow up with these suppliers.

or sell directly from Mexico to those companies.

155

| VIEW FROM THE TOP

COVID-19 BREAKS DYNAMICS BETWEEN FLEET AND AFTERMARKET GROWTH GERARDO VARELA Director General of ZF Services

156

Q: How Important is the aftermarket for ZF’s operations?

Q: How is e-commerce influencing aftermarket strategies?

A: The aftermarket is vital to ZF as we are suppliers of various

A: At the moment, 93 percent of our sales are done through

systems, components and auto parts for the assembly of new

traditional channels, such as a dealer network, while the rest

cars that sooner or later will need spare parts. We believe

come from our website, Mercado Libre and Amazon. The crisis

that the aftermarket has different drivers to satisfy installers

generated by COVID-19 has given us the opportunity to grow

and end-user requirements. Consequently, ZF Services has

in this segment – sales through e-commerce increased 74

developed successful strategies to lead this market. Our

percent in April and May. However, this is not sustainable over

focus is on building a complete product portfolio. We have

the long term because once we return to the new normal, the

specialized in five areas: suspension, powertrain, chassis,

growth of e-commerce is going to slow down. It is not going to

braking systems and steering and suspension. In these

fall into negative levels, because people have already realized

systems, our average quality claim is 0.4 percent, which gives

that they can order their auto parts through digital channels.

our product portfolio a clear advantage over our competitors.

The scenario that we consider most likely is that we will be living in a new normal during July, August and September.

This business unit is very important to ZF and we have defined

In 4Q20, our perspective is that all economic activities will

the structure and factors that will lead us to success in this

resume at 80 percent of their capacity. This will mean an 18

market. First, we focus on coverage. As OE suppliers, we

percent drop in our sales from 2019 and I do not think we will

meet OEMs’ minimum quality standards and in some cases,

be able to make up for volumes and days lost. The coming

when we identify certain design deficiencies in the original

economic crisis in Mexico also complicates the situation.

equipment, we correct them. In this way, we can offer a component that will guarantee a continuous use of the vehicle

Q: Is the drop in consumption of new vehicles an opportunity

under normal conditions. Another important factor that we

for the aftermarket?

consider is coverage for the vehicle fleet. Our goal is to be

A: It is an opportunity but a very limited one. According to

able to cover the needs of 95 percent of the vehicle fleet in

AMDA, car sales will drop more than 20 percent in 2020

Mexico. In the case of shock absorbers, we cover 99 percent of

compared to 2019 due to the pandemic. Although it is true

the national demand, but there are other areas such as brake

that this drop will not generate growth in the vehicle fleet,

systems where we cover 92 percent.

there are two factors that must be taken into consideration: most components and auto parts are manufactured in China

The third factor that we take into account and in which

and the peso has devaluated by up to 26 percent this year,

we find ourselves successful is customer service. We can

while these types of products are bought in dollars. This has

deliver an order within 24 hours. One area in which we have

caused auto parts made in China to increase in price from 10

worked and in which we have a lot of experience is pricing.

to 15 percent. With the decrease in people’s purchasing power

At ZF Services, we always make sure that the price for the

and unemployment, it is difficult for the auto parts sector to

end-user is appropriate, based on the current value of the

benefit from this crisis. Gone are the times when less growth

vehicle. All these factors have allowed us to position in the

in the vehicle fleet meant more growth in the aftermarket.

mind of not only of the installer and the distributor, but

That correlation no longer exists. Our estimates are that the

also of the end-user.

aftermarket will decrease between 20 and 25 percent by the end of 2020. However, every crisis brings an opportunity. Mexico’s ability to enhance its position as an exporter of auto

ZF Friedrichshafen is a German manufacturer of drivetrain and

parts is one opportunity. Due to the devaluation of the peso,

chassis components for light and heavy vehicles and off-road

labor costs are going to drop and we will be more competitive.

vehicles. Its aftermarket operations are managed by the ZF

This will open the door for us to export auto parts to countries

Services subsidiary

where the vehicles manufactured here are purchased.

VIEW FROM THE TOP |

INVESTING IN NEW TECHNOLOGY SHOULD BE A MORAL COMMITMENT CUITLÁHUAC PÉREZ Founder and President of Grupo MAEN and Maindsteel

Q: How has Grupo MAEN evolved and added companies

A: I think this has to do with the client-supplier relationship.

since its founding in 2013?

Before, the role of the supplier was limited. The client

A: In 2013, Nissan decided to build a new plant in

determined all the characteristics and the conditions of

Aguascalientes. Many foreign companies arrived with the

the contract. We decided to take this one step further

aim of supplying the plant with the necessary products

and develop together with the client. Tachi-S was our first

and services, displacing local companies. Eight of those

commercial partner in these consultations. There is now

local companies came together to see if we could unite our

a more equal relationship as we go through the process

strengths. In fact, our only choice was to unite or disappear. We

of building prototypes, pilots, and post-pilot models. The

were able to lift our level of infrastructure and preparedness,

advantage is that better cooperation also reduces the

not just as a group but also individually, and began winning

chance of producing something that fails.

projects. Every member has growth over 30 percent. This drew the attention of others that wanted to join and today

Q: What do you think Mexican companies should do

our group is comprised of 41 businesses.

regarding future car technologies? A: First, we must realize that Mexico, historically, is a

Q: How do the group’s companies work together to innovate?

strong manufacturing country. We have to continue

A: We meet every 15 days to discuss various topics. Currently,

pursuing growth through more production capacity. But,

we are looking at the potential impact of USMCA, its rules of

as in our group, companies should look at investing in

origin and the government’s decisions. We conduct our own

the development of original parts for future products.

analyses of how we can continue in the automotive industry

Regarding EVs, for example, there is already development

and what is the best strategy. We also invite participants from

taking place. Maindsteel has a mobility division that is

outside the group.

developing prototypes of three electric light vehicles: a bicycle, a scooter and a two-passenger vehicle. The goal is

The next step is our commitment to invest in new technologies.

to offer those vehicles at a very competitive price. Other

Every company must invest a certain percentage of its returns

group companies are cooperating. For example, CIDEM is

into new technologies every year. Innovation can be acquired,

developing controls and harnesses. Many of the companies

contracted or developed in-house. Several companies have

in our group are transforming into Tier 1 developers.

deals with international suppliers that provide the financing for acquiring their machines. Some members, such as Maindsteel

Q: What will Grupo MAEN mean for further employment

and CIDEM, are specifically dedicated to R&D. At Grupo

in the region?

MAEN, we are in the process of developing a research center.

A: Maindsteel, for example, employs 400 people. Over the next two years, we will open four new divisions:

Q: How do you develop a product?

Maindsteel Plastic, Maindsteel Medic, Maindsteel Mobility

A: The first factor is to understand its requirements.

and Maindsteel Industry. With these four divisions we

Specifications of the automotive sector are often very narrow.

will hire 250 to 300 new people. Other companies are

The life cycle of a product is often five to six years. In that time,

also seeing solid growth. Our average annual growth is

a lot can happen in terms of changes to specifications. You

22 percent in sales.

must start to implement systems, tools, technology, training and accessories. At Maindsteel, we are committed to acquiring five new patents every year.

Grupo MAEN , founded in 2013, represents a group of 41 companies and institutions in the Aguascalientes’ automotive

Q: What elements of Grupo MAEN’s value proposition have

sector. The goal of the group is to determine common

enticed world-class automotive companies?

strategies and to drive collaborative innovation

157

| VIEW FROM THE TOP

LOCAL PRODUCTION, LIGHTER PARTS A WINNING MIX FOR PLASTICS SUPPLIER EDI DEGASPERI North America Country Manager of Radici High Performance Polymers

158

Q: How does Radici Group adapt its operations to the

polymers are still imported because there is no company

automotive industry?

that can produce them locally. Thanks to being a vertically

A: Radici Group’s three main business units are chemicals,

integrated producer of Nylon 6 and Nylon 6.6 polyamides,

which produces advanced resins and nylons; fibers, that

we can ensure solid product availability in times of

designs new synthetic fibers and high-performance

shortage.

polymers, which focuses on engineering plastics and engages more directly with the automotive sector.

Q: What opportunities does the lightweighting trend

Globally, up to 60 percent of our operations are oriented to

create for Radici Group’s engineering plastics offering?

the automotive industry but this figure increases in some

A: This a hot topic for the automotive industry. Radici

regions. In the US and Mexico, the automotive market

Group has been engaged in lightweighting for a while,

represents roughly 70 percent of our sales.

enabling the company to develop new materials that can replace metal in components and reduce their weight

The automotive industry always pushes for innovation and

without compromising integrity or performance. We offer

is highly dynamic, which makes it an exciting sector to

plastics with astounding mechanical properties, such as

be part of. It is demanding in terms of quality, service,

glass-filled polymers that ensure component strength.

on-time deliveries, ppm rates and material performance. As a manufacturer of raw materials, Grupo Radici’s main

With structural simulations prior to designing components,

clients are Tier 1 suppliers, such as Robert Bosch, Valeo

Radici Group’s engineering team demonstrates the

and Hella, as well as several Tier 2 suppliers.

advantages of engineering plastics to automotive suppliers that are not familiar with these products. We have

Q: What is Radici Group’s strategy to offer a competitive

collaborated with several Tier 1 and Tier 2 customers to

portfolio to companies based in Mexico?

use specialty plastics in traditionally metallic components,

A: Our strategy is to supply locally to the markets where

such as brackets, support brackets, engine mounts and

we are present whenever possible. The company’s high-

battery supports to reduce overall vehicle weight.

performance polymers division has nine compounding plants distributed across Europe, Asia, North America

Q: What areas of opportunity has Radici Group identified

and Brazil to be close to clients. Radici Group acquired a

in the Mexican market?

plastics company in Mexico in 2015 that, along with the US

A: As an Italian company, Radici Group is strongly attached

plant, enables the company to locally produce and deliver

to the European market, its carmakers and Tier 1 suppliers.

several of the products in its portfolio. By supplying most

Having previously collaborated with large European

of our local clients with materials produced in Mexico, we

automotive suppliers in Europe gives us an advantage to

avoid problems and costs related to imports.

work with them in North America and build the necessary trust in our operations.

Although we have started producing materials locally, Radici Group has to import some products, such as

The acquisition of a US-based plastics company that had

specialty nylons, from abroad. In Mexico, most resin

over 200 approvals from GM, Ford and FCA really helped us boost our growth in North America and China, since the North American automotive industry is a key target

Radici Group is an Italy-based chemicals company that

for Chinese raw materials. Our strong presence in the US

supplies engineering plastics and synthetic products used

market is an advantage for our Mexico operations because

in several high-performance parts and critical automotive

of the strong ties that Mexico-based companies have with

components

US carmakers.

SECTOR AT A GLANCE |

“

WESTERN STATES READY FOR INDUSTRY MEGATRENDS

It is true that when you innovate you can restructure operations and, in some cases, robots can now do the job. However, innovation should not replace jobs” Hector Vázquez, Director General of Industria Muellera Vázquez

AUTONOMOUS VEHICLES The feasibility of an autonomous-driven vehicle is setting the stage for a paradigm shift in mobility and car ownership. Companies are shifting their vision beyond vehicle sales to become mobility providers. While fully autonomous vehicle applications remain in development, the technology is already being implemented in manufacturing operations. Tecnacar is a Spanish-capital company specialized in autonomous vehicles for industrial operations. It sees great potential for the adoption of such systems to increase productivity, without compromising the human aspect of labor. “Autonomous equipment is not here to replace workers. Our goal is the automation of processes and the development of people’s responsibility and abilities,” says Francisco Torrente, Director

Technology disruption is reshaping industry in the

General and COO of Tecnacar de Mexico.

country’s western states as electrification, innovation and vehicle autonomy trends ramp up in the region. Long-

INDUSTRY 4.0

standing automotive companies such as Schutz, K&S

The challenges of Industry 4.0 for the sector are major but

and Riken are preparing for the electrification revolution

the region is getting ready to embrace the revolution. Carmen

while newcomers such as Tecnacar and Industrias

Hernández, Director General of the Jalisco Automotive Cluster,

Muelleras Vázquez are embracing autonomous vehicle

says clusters have a role to play in this. “For Tier 1 companies,

applications and industry 4.0, respectively. “Our company

it is clear that technology, digitalization and automation

understands the current challenges and for this reason we

are a must. The market niche with the highest potential for

need to capture new business apart from that oriented

technification is micro companies and SMEs. We have to

to ICE components,” says President of Riken Mexico,

create programs to teach these players about digitalization

Akiyoshi Takizawa.

and why it is important. SMEs cannot migrate to Industry 4.0 if they do not understand the basic elements,” she says.

ELECTRIFICATION As more OEMs integrate electric and hybrid models to

Companies from different areas of the supply chain

their portfolio, suppliers also need to adapt to be ready

understand what Industry 4.0 entails and the smooth

whenever combustion engines become a thing of the past.

transition they should strive to achieve while keeping in

An internal combustion engine’s (ICE) drivetrain has more

mind that people still need jobs. “It is true that when you

than 200 parts, whereas a Tesla drivetrain, for example,

innovate you can restructure operations and, in some

has around 17. “Technology in the automotive market is

cases, robots can now do the job. However, innovation

changing and increasingly focusing on the electric segment.

should not replace jobs,” says Hector Vázquez, Director

Given that our parent company, Sumitomo, has different

General of Industria Muellera Vázquez, a Jalisco-based

departments focused on research and the implementation

supplier of springs for heavy vehicles.

of new technologies, we can always implement these new advancements and maintain our market competitiveness,” says Seichiro Imanaga, President and CEO of K&S Mexicana. EVs are driven by efficiency; therefore, companies with products that increase the overall performance of the vehicle will have more success than others. “Electric cars will still need lubricants in various parts of the car and, depending on the material used in the components, the lubricant will need to meet certain specifications,” says Fernando Mosqueira, Operations Director of Schutz Industrial Lubricants & Specialties in Mexico.

Beyond technology, human capital is a key resource for companies to grow and increase productivity and efficiency. Mexico’s workforce availability has been a great attractor for potential investors but that alone is no longer enough. Specialization is also necessary to remain competitive

159

Audi Q5, Puebla

PUEBLA & TLAXCALA

This region in central Mexico, home to Volkswagen, has a 60-year legacy in automotive manufacturing. More recently, it has welcomed Germanyâ&#x20AC;&#x2122;s Audi and Mexicoâ&#x20AC;&#x2122;s Zacua. Combined, both states account for 8.9 percent of automotive FDI received in the country since 1999. The last decade was the most dynamic period for both. Combined automotive FDI in both regions grew at an annual average rate of 226.3 percent. Contrary to the industry, automotive FDI in Puebla grew almost 4.5 times in 2019 compared to 2018, for a total of US$1 billion.

Puebla and Tlaxcala will set the stage for sustainable practices related to vehicle manufacturing. The arrival of Audi, whose plant uses 100 percent renewablesourced electricity, wastes zero water and is targeted to be carbon neutral by 2025, is raising the bar for companies that want to participate in its supply chain. They need to make sustainability a must, rather than an added value.

161

CHAPTER 7: PUEBLA & TLAXCALA 164

ANALYSIS: Local Suppliers Key for the Consolidation of Central Mexico’s Automotive Industry

165

STATE PROFILE: Puebla and Tlaxcala: German Quality Production

166

VIEW FROM THE TOP: Jorge Vázquez, Economic Development of Tlaxcala

167

ANALYSIS: Audi and Volkswagen Supporting Puebla Amid COVID-19

168

VIEW FROM THE TOP: Mónica Doger, CLAUZ

170

ANALYSIS: German Automakers Paving Way in Central Mexico

171

VIEW FROM THE TOP: Carl Orstadius, SKF de México

172

VIEW FROM THE TOP: Francisco Maciel, Faurecia Mexico

173

INSIGHT: Florian Hanft, Sonavox

174

VIEW FROM THE TOP: Marcos del Rosario Haget, Eagle Tlaxcala Mexico

175

INDUSTRY PERSPECTIVE: Luis Espinosa, Productos Químicos Industriales de Puebla

Ulrich Thoma, Industrias Norm

176

VIEW FROM THE TOP: Sergio Ramos, TIM

177

VIEW FROM THE TOP: Francisco García, Bilsing Automation Mexico

178

TECHNOLOGY SPOTLIGHT: Coats: 250 Years of Thread Expertise

163

| ANALYSIS

LOCAL SUPPLIERS KEY FOR THE CONSOLIDATION OF CENTRAL MEXICO’S AUTOMOTIVE INDUSTRY With Volkwagen's long-standing presence and Audi's recent arrival to the region, Puebla and Tlaxcala have grown into a pole for automotive production and investment. Tlaxcala, in particular, has enjoyed significant growth as a hub for wanting to participate in German supply chains

164

While Puebla and Tlaxcala are not the largest contributors

record US$293.3 million in FDI, according to the Ministry

to Mexico’s automotive exports, the two states play an

of Economy. “Tlaxcala has already been growing. The

essential role in the industry’s supply chain. Both states

supplier base for automotive companies in the state

have built strong manufacturing arms that have turned them

has been growing year on year, especially in the past

into attractive destinations for FDI and make them strong

three years because of the state’s proximity to Audi and

exporters for the industry. However, both states still need a

Volkswagen,” says Marcos del Rosario Haget, CEO of Eagle

push to develop a strong supplier base that complements

Tlaxcala Mexico.

the needs of international OEMs operating in those states. “There are not many local suppliers in Tlaxcala and Puebla.

Tlaxcala continues to invest and position itself on Mexico’s

Most Tier 1 companies providing to OEMs are transnational.

automotive map. The state is now the sixth-leading

Out of 10 Tier 1 companies, three are domestic,” says Ulrich

auto parts manufacturer in the country, according to

Thoma, President of CLAUZ.

Alberto Bustamante, Director of Foreign Commerce and Normalization of INA. The automotive industry is also a

PUEBLA

priority for the state, which has named the sector as one

Puebla is Mexico’s 16 -largest contributor the country’s GDP th

of its seven strategic industries.

and an attractive destination for FDI. Between 2009 and 2019, the state received US$9.7 billion in FDI, according to the Ministry of Economy, thanks to its ideal location at

FDI FOR PUEBLA AND TLAXCALA (US$ million) Puebla

Tlaxcala

2009

182.3

72.2

country by 11,377km of highways, 1,056km of railroads and

2010

783.0

91.2

two airports. The state’s connectivity is complemented

2011

593.8

251.2

by a strong workforce and attractive incentives from the

2012

757.0

79.5

2013

1,439.1

80.7

2014

1,054.7

120.7

2015

798.2

143.1

2016

1,155.9

252.2

Puebla fell by 14.0 percent and 4.6 percent, respectively,

2017

937.4

166.9

according to INEGI. This drop in production was caused

2018

619.7

145.2

in part by the temporary production halts of two of the

2019

1,390.8

293.3

the center of Mexico and excellent connectivity. Puebla is connected to major economic powerhouses in the

local government that include recruiting, tailored training programs and some tax cuts. However, the state’s automotive industry has run into a road bump. During 2019, automotive production and exports in

state’s strongest automakers, Audi and Volkswagen, which

Year

Source: Ministry of Economy.

in turn reflected internal production hurdles and a fall in demand of some vehicles. Audi, for instance, exported

Considering the benefits that the automotive industry

2,479 fewer vehicles during 2019 than the previous year,

provides to both states, local governments have introduced

according to AMIA.

competitive initiatives to attract FDI, new companies and more production to the state. The local industry is also

TLAXCALA

committed to the consolidation of companies already

While Puebla slows down, Tlaxcala seems to be gaining

installed in those states through the development of

speed. The latter is still not attracting FDI at the accelerated

supporting programs that address existing needs. “To

rate of its neighbor but it is steadily increasing its

strengthen these local companies, the cluster created three

contribution to Mexico’s economy and its participation in

committees focused on human development, science and

the automotive industry. During 2019, the state received a

technology and provision,” says Thoma.

STATE PROFILE |

PUEBLA AND TLAXCALA: GERMAN QUALITY PRODUCTION This region in central Mexico was the birthplace of one of

Tlaxcala doubled the FDI it received in the 2000-2009 period,

Mexico's most beloved models: "el vocho" (Volkswagen’s

going from US$111.9 million to US$242.1 million. Employment

Beetle). Volkswagen has been in Puebla for over 60 years,

in the manufacturing sector has grown in both states as an

while Audi, also part of the Volkswagen Group, arrived just five

immediate effect. In Puebla, the same year Audi officially

years ago. Automotive suppliers in the state have flourished

started operations, employment in the sector jumped by

around both companies. In fact, between 2010 and 2019,

10,000 jobsEMPLOYED from September 2016 to September 2017. PEOPLE IN TRANSPORTATION

EQUIPMENT MANUFACTURING SECTOR*

US 4.77

Spain 0.39

Spain 2.07

Canada 0.20

Total number of ‘green’ vehicles sold 2016 - Aug 2019

1,492

181

10,692 Sep-19

45,346

47,650 10,998 Sep-18

48,301 9,231 Sep-17

38,700

38,427

993,387 Cars 452,464 Trucks 142,948

460,990

96,429 Motorcycles 52,911 11,238 Buses 6,406 1,000

US 1.87

Puebla VEHICLE PARK SIZE IN 2018 Tlaxcala

800

Germany 5.40

165

* NAICS sector 336 includes automotive among other manufacturing segments

600

Countries with the highest contribution to total FDI 1999 - 3Q19 (US$ billion)

7,789

0.55%

Sep-16

8.39%

400

Share of national automotive FDI received 1999 - 3Q19

6,768

US$403 million

Sep-15

US$1.56 billion

200

Auto parts production FDI

6,198

US$0.0

38,481

Vehicle production FDI

US$4.54 billion

Sep-14

US$403 million

37,668

US$6.10 billion

5,833

Automotive FDI received 1999 - 3Q19

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR* 50

TLAXCALA

Sep-13

PUEBLA

Tlaxcala Puebla

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs Light-vehicle OEMs

Top global Tier 1 suppliers

Volkswagen Puebla (vehicle assembly and foundry and stamped components)

2 Zacua Puebla (vehicle assembly) 3 3 1

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

Audi San José Chiapa (vehicle assembly)

| VIEW FROM THE TOP

PAVING THE WAY FOR A COMPETITIVE STATE JORGE VÁZQUEZ Minister of Economic Development of Tlaxcala

166

Q: What factors have motivated the arrival of foreign

has helped us boost investment to the state. Furthermore,

investment to Tlaxcala?

the governor’s decision to base his development plan on

A: Investment came thanks to a strategic development

education, health and employment creates a good business

plan under Governor Marco Antonio Mena. One of

climate and a favorable context for investment.

Tlaxcala’s great opportunities is the government’s recognition that employment and education should be

Q: What strategies is SEDECO in charge of implementing

the backbone of its state development plan, which means

within this plan?

the government’s efforts are going to lead to greater

A: Our motto is to be a facilitator, remove obstacles and

promotion, better conditions and more investment from

allow investment. We are not partners but allies to the

the private sector.

industry, with a goal to build trust, which sadly has been lost in many countries, especially in Mexico. We also have

This is not only true for the automotive sector. Tlaxcala

knowledge on public procedures at the three levels of

has also established a balance between the industrial

government – local, state and federal – which allows

and services sectors, after having a purely industrial

investors to focus on doing business and concretizing

tradition. Over time, social and economic conditions have

their investment plans. All this involves work, such as

improved, bringing better private schools and better road

raising awareness among municipal presidents and

and services infrastructure. Over the past three years,

collaborating with federal delegations.

three hotels and four malls have been inaugurated and also the state’s first golf club. Separately these may seem

The governor is guided by the same motto and

irrelevant, but all of these services provide an ecosystem

a c c o m p a n i e s i nve s t o r s t h ro u g h o u t t h e e n t i re

for the industrial sector to consider further investment

establishment process. I think this is an important

supported by quality living conditions.

differentiator. All this, combined with SEDECO’s strategic sectorial knowledge provides a high value.

Tlaxcala is among the states with the highest industrial investment in four strategic sectors: chemical, textile,

With ProMéxico’s disappearance, if governments do not

tourism and automotive, which has resulted in economic

take the lead in promoting their states, few investors will

growth above 4 percent. Compared to the national

take them into account. This does not only mean using

average, we have strong growth, employment generation

digital platforms but also institutions such as the Ministry

like never before and the largest number of jobs created

of Economy and the Ministry of Foreign Affairs in favor of

in the history of Tlaxcala.

investors.

Q: What actions has the state taken to provide investors

Companies are interested in knowing who they are working

with certainty and security?

with, so it is important that the governor knows them. That

A: Tlaxcala’s security indicators say this is the second-safest

creates confidence, which is the basis of most of today’s

state nationwide, just below Campeche. We have invested

decision-making process. Many states provide economic

US$1.35 billion in security over the past three years, which

incentives, others offer greater geographical advantages or large investments in industrial parks. Here we have all three and our true differentiator is treatment, service and

Jorge Vázquez was appointed by Gov. Marco Antonio Mena as

above all, support from the public sector.

Minister of Economic Development of Tlaxcala in 2017. From 2010 to 2011, he served as Legal Director of the Congress of

Q: What efforts has Tlaxcala made to promote the

the State of Tlaxcala

state abroad?

A: With the scarcity in budgetary resources, it is not only

Fortunately, there is a will and vocation to coexist with

necessary to have imagination but true management

public institutions and academic institutions.

efficiency. Gov. Mena has requested the formation of thematic committees to properly market the state since

Tlaxcala continues to participate actively and we

SEDECO Tlaxcala could not continue without the support

recognize the work of CLAUZ’s President Ulrich Thoma.

of the state Ministry of Public Security, the Ministry of

He is a motivated man, concerned about the region and

Tourism, the Ministry of Culture and the Ministry of Social

the automotive sector’s development. We still have to

Communication. Also, the foreign trade missions we have

learn a lot and I think there must be greater solidarity

participated in and, above all, being able to find contacts

among all groups to find synergies so that we all do well.

through embassies, have been an engine for us. Q: How does Tlaxcala meet investors’ needs regarding We must rely on those who already have the expertise and

skilled labor and sustainable practices?

who have seen their products reach the world. Governors

A: Tlaxcala can hardly compete with states such as

who believe that investors will find out that there is

Queretaro or Guanajuato in terms of budget, so we have

adequate territory in the country by themselves will hardly

to find differentiators that can set us apart. We are very

see any progress in investment attraction. We have to draft

competitive in the industrial parks we are developing and

strategies for all of Mexico. We are all Mexico and being

our goal is to develop parks where resources are reusable

selfish will not benefit anyone. We have to be consistent,

to the largest extent.

analyze and diagnose our capabilities and then make promotional decisions.

USMCA, despite creating certainty, gives us new challenges and opportunities and entrepreneurs will have to adapt to

Q: What is the extent of your relationship with CLAUZ?

the new rules. This is not a risk but an opportunity to grow

A: Our relationship came after many years of working

and become sustainable. Regarding our workforce, we have

together with Puebla. I think the cluster is maturing,

to be congruent with the efforts of entrepreneurs and the

although it still has a lot to learn from the other clusters.

stability we are looking for to reduce turnover in the state.

ANALYSIS |

AUDI AND VOLKSWAGEN SUPPORTING PUEBLA AMID COVID-19 Audi and Volkswagen closed operations at their Puebla facilities in mid-March due to the lockdown measures indicated by the federal government. As COVID-19 spread through China and then Europe, both companies started to suspend operations at several facilities while waiting for the peak of contagions to pass In Puebla, zero new vehicles were produced during April

For its part, Audi México supported Puebla’s healthcare

and May due to these shutdowns. Despite, the harsh

system. “Audi México is committed to society and human

conditions, neither company waivered in their commitment

rights. We want to contribute directly to fight the SARS-

to the local community. Volkswagen employees pitched in

CoV-2 pandemic,” said Niels Bosse, Human Resources and

around MX$1 million (US$45,311) to support 300 families in

Organization Vice President of Audi México. Audi started

Puebla with groceries for 10 weeks. “Many people cannot

the production of Q5 in 2017. The company was among the

work from home; their way of living requires them to go

first automakers in the country to suspend operations on

into the streets every day to earn the income they need

March 23, later extended to May 31.

to subsist. Even if they try to perform their activities as they usually would, they find few people on the streets,”

To support the economic recovery of Puebla, the OEM’s

said the company in a statement. Volkswagen Mexico also

home state, the company designed a project to produce

donated 900 hard plastic masks manufactured at its Puebla

40,000 reusable hard plastic facemasks that will be

Technical Development Center. The company is Mexico’s

donated to local communities near its production plant.

fourth-largest auto producer and exporter, with its main

Eleven thousand additional facemasks with the same

manufacturing plant in Puebla and another production

characteristics were produced for when Audi’s collaborators

facility in Guanajuato.

return to the plant.

167

Audi manufacturing process, San Jose Chiapa, Puebla

168

INSIGHT |

“

PUEBLA, TLAXCALA GET READY FOR A POST-COVID-19 WORLD

Companies are realizing that even if a crisis like this does not happen again, supply chain regionalization is essential” Mónica Doger, Director General of CLAUZ

“All these details are essential for companies and are crucial given that a single contagion could endanger the very operation of the plant,” says Doger. Not complying with health measures is not an option since there is strong pressure from US companies and large automakers to guarantee certainty from Mexican suppliers. “In economic terms, given that there is still uncertainty regarding the situation, it is difficult to draft proper financial plans. Financial plans will come back online as OEMs start producing again; auto part manufacturers will resume operations sooner to

As the automotive industry in Mexico resumes its course

better support them. Today, the question is how do we make

after being shut down for almost two months, members

our companies a safe place to resume operations.”

of the Automotive Cluster of the Center Region PueblaTlaxcala (CLAUZ) are concerned about their contractual

When the COVID-19 storm finally subsides, Doger sees plenty

obligations, which could lead to client losses or penalties,

of potential for the Puebla-Tlaxcala region. “Our first priority

says Mónica Doger, Director General of CLAUZ. “As clusters,

is to strengthen our local supplier base. Companies are

we are complying with the guidelines established by the

realizing that even if a crisis like this does not happen again,

federal government. There is a strong commitment from

supply chain regionalization is essential. There is a great

every company to take care of employees; they are our

opportunity for the country to level up in terms of supply,

priority. Naturally, there is a commitment to automotive

even more so considering USMCA’s rules to increase Local

supply chains at the national and international levels,

Content Value (LCV). If we combine COVID-19 with USMCA’s

however,” Doger says.

new rules of origin, there is no doubt that the Puebla and Tlaxcala region, as well as all suppliers across the country,

CLAUZ has implemented strategies to prepare its members

must strengthen their capabilities.”

to resume operations. “We remain in close communication with all our members, as well as INA and AMIA, to accelerate

CLAUZ has already drawn up a local supplier development

the sharing of strategic information. Along with the

map to identify the short-term, middle-term and long-

National Automotive Cluster Network, which groups nine

term needs of its members. The Tlaxcala and Puebla

automotive clusters in the country, we are working closely

governments have been closely involved in this process,

on communication, training and conducting surveys among

Doger says. “We expect their support in terms of promoting

our associates to understand their concerns,” says Doger.

investment, political certainty and human development. Both SEDECOs remain our strategic partners and they

CLAUZ has also worked on a joint document to help

participate in our innovation committee as well. CLAUZ

companies resume operations. Based on the guidelines

is an ecosystem where universities, government and

provided by the Mexican Social Security Institute (IMSS), the

companies are working to strengthen and further develop

Ministry of Health (SSA) and state ministries of economy.

the automotive sector in the region.”

In this document, the cluster addresses health and cleaning protocols, as well as inventories in different areas. “It is

Partnerships with public and private academic institutions

important that companies are aware of the stock they

are also part of the plan. The cluster is working on an

already have, as well as their incoming purchasing orders. It

important project with GIZ, the German international

is essential that an adequate process is conducted, including

cooperation agency, to raise the level of professionals in the

the necessary personnel and material. Companies should

region. The objective is for companies to take advantage

also have the necessary protective equipment to prevent

of this to teach students through practical experience.

COVID-19: thermometers for temperature checks, masks, face

“All clusters have the mission to strengthen the role of

masks and sanitizing gel,” she explains. Doger also advises

the automotive sector. My vision is to help the current

companies to implement travel and training restrictions,

ecosystem between government, academic institutions and

to close dining halls, to make sure employees comply with

companies to thrive. It is also important that we help to fill

social-distancing rules while in locker rooms, to sanitize

the gap between what the industry needs and how human

employee transportation units and to provide additional

capital evolves. Our goal is to foster investment, increase

training for security personnel and receptionists.

exports and create more jobs.”

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| ANALYSIS

GERMAN AUTOMAKERS PAVING THEIR WAY IN CENTRAL MEXICO German vehicle manufacturers monopolize the automotive landscape in the Puebla and Tlaxcala region. Volkswagen, with more than 60 years of production history, and Audi, with its first production facility in the country, are paving the way for the region’s manufacturing vocation

170

At the heart of Mexico, two big automotive players have

COMMITTED NEWCOMER

established a strong German presence. One has already

Audi is the German newcomer to the scene, having arrived in

forged a more-than-60-year legacy in the country. The other

Mexico only a few years ago. “We want to show that after just

is starting to build its own. Both consolidated leaders in its

five years, Mexico is delivering optimum production costs and

respective segment, Volkswagen and Audi represent the

quality and that we are prepared to produce more models,”

cornerstone of Puebla and Tlaxcala’s automotive landscape.

says Andreas Lehe, who was recently appointed President

“Volkswagen has been consolidating its production while Audi

of Audi Mexico. The company, part of Volkswagen Group,

arrived to Puebla a few years ago to produce the Q5 for the

invested around €1 billion (US$1.06 billion) in building the first

entire world,” says Ulrich Thoma, President of CLAUZ, the

Audi plant in the Americas on a 460ha surface in San Jose

cluster that groups Volkswagen, Audi and big automotive

Chiapa, Puebla, providing 5,000 jobs. Since 2017, the plant has

players in the region.

maintained production of 155,000 units per year.

Volkswagen’s history in the country is one of opportunities,

The industrial complex has state-of-the-art equipment for

milestones and iconic models. The assembly facility was built

manufacturing processes, making it a premium production

in 1965 and by 1967, it was already producing the iconic Beetle

platform for a premium model. The plant’s stamping and

model, known in Mexico as the “Vocho.” This model alongside

bodywork manufacturing shops have some of the safest and

the “combi” were highly valued by the Mexican market. In fact,

most advanced robots in the Americas. The painting stage

21.5 million Beetles were manufactured at the Puebla plant

at Audi’s plant reduced CO2 emissions by 90 percent while

from 1976 until 2003.

solving the 2,400m altitude challenge.

The German manufacturer reinvested in its production

All these efforts are aimed at a single goal: production of

operations in Mexico in 2010, expanding its manufacturing

the Q5, given that it is the only model being manufactured.

facilities in Puebla to assemble Jetta’s sixth generation. Three

“Our daily production is already the highest for a single car

years later, Volkswagen’s engine manufacturing facility in

in the whole Audi group. We are very proud because we

Silao, Guanajuato, was inaugurated, aiming to supply the

deliver this car to the entire world: to Europe, to the US and

plants in Puebla and Chattanooga, US. To date, Volkswagen

to Asia. Moreover, for the last two to three years, Mexico has

has manufactured more than 13 million units in the country.

reached the same quality standards as Germany. This is even more impressive considering this is the first plant outside of

Volkswagen was Mexico’s fourth-largest light-vehicle producer

Germany that handles an entire assembly operation,” says

in 2019 with 443,414 units. The company was also the fourth-

Lehe. Unlike most OEMs in the country, Audi México’s top

largest exporter with 415,921 units mostly directed to the

export destination is Germany with a 41.95 percent share,

US market, Canada and Germany. The Tiguan was the most

followed closely by the US with 41.24 percent and then

manufactured model in the country in 2019 with 221,131

Canada with 7 percent.

units. At Puebla, Jetta, Golf and Beetle models are also manufactured.

Notably, Audi México is paying special attention to sustainability. Facilities are waste-water-free thanks to a

“Volkswagen Group is focusing on a new and attractive model

175,000m3 lagoon that can store water for reuse. By August

offensive that covers practically all segments to counter the

2019, the company supplied 50 percent of its electric

negative factors the industry is experiencing,” said Steffen

energy needs from renewable sources. By March 2020,

Reiche, appointed in 2018 as President of Volkswagen de

this figure rose to 100 percent. “Sustainability is one of our

México, in MAR 2018. Volkswagen Group has also announced a

main targets. As a German company in Mexico, we have

heavy investment of €34 billion (US$37.1 million) on e-mobility,

the possibility to generate a true impact and make this a

autonomous driving, digital connectivity and new mobility

relevant topic in the industry. These initiatives have reduced

services. How fast this will land into Mexico is a question the

our carbon footprint and our goal is to be a CO2-neutral

market will answer.

facility by 2025,” says Lehe.

VIEW FROM THE TOP |

CONSOLIDATING BUSINESS FOR OPPORTUNITIES AHEAD CARL ORSTADIUS Director General of SKF de México

Q: What role does SKF play in the automotive industry

Q: What are SKF’s short-term investment plans to increase

in Mexico?

its market share?

A: In 2020, SKF will celebrate its 100th anniversary. We have

A: SKF de México is considering new investments next

grown hand-in-hand with the OEMs established in Mexico.

year to expand our capacities in Puebla due to new deals

Our main plant for bearing components is in Puebla and we

we are closing. Our numbers this year have increased

have two sealing plants in Guadalajara. We have been a key

considerably and we are gaining market share. We have

supplier for the industry in Mexico.

a broad product offering, some of which is not produced here. But we are market leaders for bearings. We are also

Q: What is SKF’s added value when competing with other

transferring production from other countries to our sealing

bearing and sealing companies?

plants in Guadalajara. Today, Mexico represents the biggest

A: Our distinctive element is quality. We offer quality

volume in seal production for SKF Group, while our bearing

performance and warranties. Innovation is the second added

plant in the country is the second-most important globally.

value and in bearings, we offer hubs for light and heavy vehicles. Each bearing hub that exists today has been an

Q: What is the role of automation and sustainability within

SKF invention. A third element is our global footprint. OEMs

SKF de México’s operations?

have global operations and they require companies that can

A: There have been remarkable developments regarding

provide quality and that can partner with them across regions.

automation. One important aspect relates to sensors. Our

Our Puebla plant enables us to export to the Americas, Europe

know-how is being applied to our production lines as we are

and Asia.

measuring conditions for the operation of our equipment. As for sustainability, more than 20 years ago our CEO

Q: How is SKF collaborating with new OEMs arriving to

launched our beyond zero goal. This implies not only zero

the country?

environmental impact but also a positive impact for our

A: On the one hand, almost automatically we gain business

customers. On the one hand, it is reducing our ecological

because we are already working with practically every OEM

footprint. On the other, we offer a product that reduces

in other regions. When they come to Mexico, they want to

friction and weight, which implies energy efficiency for

have those providers that have the global footprint they are

our customers. Moreover, we are heading to more exact

used to. On the other hand, Local Content Value (LCV) is

forging molds, which will prevent the creation of large

really important. We have greater production capacity here

amounts of scrap.

for bearings than most of our competitors. Once installed, many OEMs will approach us.

Q: How is SKF preparing for autonomous and electric vehicles?

Q: What challenges does SKF find with local suppliers?

A: We are strongest in components for wheels and that will

A: A factor that is of great importance for us is steel production

not change for a while. EVs will not require as many bearings.

for bearings in Mexico. Some of our suppliers are developing

Our contribution to EVs will be related to weight, friction and

their capacities but as of today, quality steel for use in bearings

rotation. In terms of rotation, if we are talking around 30,000

is not yet produced here. Bearings have some of the highest

to 50,000rpm, that will require new technology.

specifications for steel and we are being left behind in that regard. Furthermore, forging production has also been limited considering we bring forged products from other countries.

SKF de México is part of SKF Group, a leading global technology

Forged products are not hit with tariffs, but special steel is,

provider since 1907. The company produces bearings and seals

which makes it difficult for forging companies to be price-

for the original and service automotive markets. It started

competitive. IMMEX is also providing new opportunities.

operations in Mexico in 1920

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| VIEW FROM THE TOP

LOCAL DEVELOPMENT FOR THE CAR OF THE FUTURE FRANCISCO MACIEL CFO and Country Lead of Faurecia Mexico

172

Q: What role does sustainable mobility play in Faurecia’s

Q: Faurecia has two R&D centers in Mexico. What led the

offering to the automotive industry?

company to bet on R&D in Mexico?

A: We have been working on innovative solutions for

A: Human talent availability is one of the reasons why we

fuel savings, air quality and zero emissions, focusing on

continue to focus on promoting innovation and development

emerging hydrogen fuel cells and battery packs. As a world

in Mexico. In addition, we have a competitive advantage in

leader for the last 15 years in air quality and energy efficiency

development costs against traditionally oriented countries

solutions for passenger vehicles, Faurecia is expanding its

such as France or Germany. Another important factor that

experience in passenger vehicles to commercial vehicles

maintains interest in Mexico is the trust of our customers,

and high-power engines.

who allow us to develop their products locally.

Sustainable mobility technologies are aimed at significantly

Q: How have Faurecia’s technological developments in

reducing emissions for cleaner cities. Through strategic

interiors for autonomous vehicles been received?

partnerships around the world, Faurecia addresses the

A: One in every three vehicles in the world are equipped

megatrends and expectations of consumers in today’s

with some component manufactured by Faurecia. In the

automotive industry, from customization, connectivity and

specific case of Mexico, our customers trust not only the

autonomy to sustainable mobility and zero emissions.

manufacturing of their products, but also their development. So, Faurecia is participating in the complete cycle of a car.

Q: What is Faurecia’s strategy to sustain growth? A: Faurecia cares about being close to its customers and the

OEMs are confident in our work. We have established

current market, so it directs its strategies to the needs of

technological alliances with them to develop their products

the future, anticipating solutions for its customers’ vehicles.

offering innovations and technological solutions. Several

For several years, Faurecia has been working on the cockpit

vehicles in the Mexican market were developed by Mexican

of the future, facing new challenges to make vehicles more

engineers in Puebla. With the recent acquisition of Clarion

intuitive, connected and personalized. Faurecia’s vision

and the creation of our fourth business division, Faurecia

for the cockpit of the future focuses on providing a more

Clarion Electronics, we are complementing our portfolio of

versatile, predictive and connected environment that aims

products oriented to infotainment systems and autonomy

to personalize the journey and enable occupants to make

in car management.

the most of their time on board. Q: How is Faurecia participating in the development of EVs After the recent acquisition of Clarion Electronics, Faurecia

regarding lightweighting and efficiency?

continues to add elements to maintain constant innovation.

A: For several years, Faurecia has collaborated with the

Faurecia’s Cockpit Intelligence Platform (CIP) integrates key

leading brands of electric cars in technological solutions

functions such as driver information, infotainment, safety,

that allow them to embrace electrification and sustainability.

comfort, thermal management and sound system to ensure

A clear example is the manufacture of decorative pieces in

the cockpit interacts intuitively and provides a seamless and

wood, which provide an advantage in weight and are totally

predictive on-board experience for all.

biodegradable. Likewise, there are developments based on natural fibers and light materials such as aluminum, all aimed at equipping electric vehicles with quality interiors adapted

Faurecia Mexico started operations in 1997 to manufacture

to the new sustainability trend. It is important to mention that

interiors. The company has 14 plants in the country for seating,

these developments and their manufacturing processes are

interiors and clean mobility, two R&D centers and one shared-

being carried out at our development and manufacturing

service center. Its headquarters are located in Puebla

centers in Puebla.

INSIGHT |

WAITING FOR THE SECOND CHINESE WAVE FLORIAN HANFT Plant Manager of Sonavox

The trade war between Washington and Beijing has made

conquer the light-vehicle market and companies will learn

Mexico a safe haven for Chinese companies. “Chinese

from that,” he says.

companies have had more aggressive growth in Mexico because the products that are manufactured today in

According to data from the Mexico-China Chamber of

China and sent to the US should now be made in Mexico

Commerce, China will send the largest delegation of

to avoid tariffs,” says Sonavox’s Plant Manager Florian

Chinese companies registered in the country in May 2020,

Hanft. However, the unstable relationship between the

with 1,600 companies that will bring 50,000 different

US and Mexico means there are still challenges to face.

products to the Mexican market.

Since the beginning of the conflict, the US has imposed

In May 2019, Vice President of the Chamber Jorge

tariffs on more than US$360 billion of Chinese goods,

Romero reported that the trade balance between the

while China has retaliated with tariffs on more than US$110

two nations is around US$78 billion annually in favor of

billion of US products. For a Chinese-capitalized company

China, with more than 70 percent of the goods being

like Sonavox, which is dedicated to manufacturing of

machinery and tools. “This showcases the commitment of

audio products and systems for the automotive industry,

Chinese investors in Mexico,” said Romero to El Universal

2020 is a crucial year. Most of the company’s components are shipped from Asia because of the lack of suppliers in Mexico where the company is headquartered. This creates a challenge for the company to build a stronger regional presence to brave the trade war. “It is a challenge to develop local suppliers. Currently, 80 percent of our components come from China, as Chinese suppliers manage larger volumes of tens of millions and offer much better prices than suppliers located in Mexico that might sell only a couple of million units.”

“ in May 2019.

China today markets many products across the world and its quality is improving a lot. It is not like before”

Sonavox’s commitment to Mexico is also strong and the

According to Hanft, Sonavox is the first Chinese company

company is already in talks with OEMs like Volvo, Audi

in Tlaxcala, which has now been followed by other players

and GM to grow its business locally. In the medium term,

that have visited the state to see how the company is

Sonavox wants to concentrate its efforts on improving

doing and to gauge its relationship with the government.

its internal processes in Mexico and on the development

“This is essential for Chinese investors,” he says. There are

of new technologies in China, like its pedestrian warning

four Chinese light-vehicle assembly companies in Mexico:

system, with more advanced technology. In addition,

BAIC, FAW, JAC and Foton.

Sonavox Mexico will gain a new certification in early 2020 to attract more local clients.

According to Hanft, the second wave of Chinese companies is already underway. “One of the difficulties

Hanft also trusts that the concept of Chinese products

we face is making our relationship work, as Mexican

and their stigma regarding cheap price and poor quality

and Chinese cultures are very different. However, the

is already changing. “China today markets many products

Chinese are very persistent and the second wave of

across the world and its quality is improving a lot. It is not

companies will take advantage of the teachings of their

like before; today, we are offering high-tech products at

predecessors; we already saw FAW fail in its attempt to

very competitive prices.”

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| VIEW FROM THE TOP

LARGE AUTOMAKERS ARE BIG OPPORTUNITIES FOR LOCAL PLAYERS MARCOS DEL ROSARIO HAGET CEO of Eagle Tlaxcala Mexico

174

Q: What growth opportunities has Eagle Tlaxcala

Q: Why should Audi, Volkswagen and other OEMs choose

identified with OEMs in Puebla and other states?

Eagle Tlaxcala over other interior component suppliers?

A: We are focused on interior components and we want to

A: We have high-quality products, more than 30 years

integrate ourselves vertically in the industry by producing

in the market and we are a financially consolidated

plastic and foam and sending it to the customer to sheathe

company with no debt whatsoever. All our investments

it before sending it to the US. We remain competitive

have been made with our own funds. Furthermore, our

thanks to our good quality and our bet for 2020 is to

location is strategic for Volkswagen and Audi, representing

collaborate directly with OEMs on powertrain components.

considerable savings in transportation. The size of our

This will give us additional room for growth. We are

projects will determine if we continue to finance our new

talking directly to Volkswagen and Audi, since they are

ventures with our own capital. We do prefer reinvesting

next door, although we have also targeted Queretaro and

since it represents savings in terms of the costs on a loan.

Cuernavaca. There are several OEMs we can work with in

In 2019, our investments came from our own pocket,

terms of powertrain components. These are not part of a

including the cost of our molds. We expect 45 new molds

sequenced process, so there is no need to be closer to the

from our three major suppliers.

OEM to sell the components. We will handle this business directly at our plant in Tlaxcala.

Q: How do you choose your mold suppliers and what opportunities do you see for local suppliers?

Negotiation for purchasing these components is conducted

A: Foam models are produced here in Mexico. The main

directly in Mexico. Volkswagen has its purchasing manager

challenge Mexican companies face is not technological

locally, while Audi also trusts in Volkswagen for purchasing

but related to design. Local players do not normally

decisions. We have very interesting offers for Audi, for

have qualified people to perform engineering design.

example. Furthermore, we can replicate any project at

If a company does not know how to design the mold,

our partner plants located in the Czech Republic, China,

what materials to use or how to do the tooling, it

Germany, the US and Mexico. These plants are not

simply cannot compete. Once you have the design, the

financially related but we work with them as partners.

machine works by itself. Mexican companies need to train young people and make them experts in design.

Q: How ready is your plant for new processes?

They can learn in Canada, Portugal, Germany and China,

A: We are introducing a new production line for our

which are the leading countries in molding. Once they

powertrain offering. At the same time, we are building

are trained, economic growth will come from local

two new lines for interior components, the first of which

production. Machines without the talent to use them are

will be ready to produce in October. By the end of 2020,

worth nothing.

we will have the powertrain line installed and one more line for injected foam. Regarding certifications, we are already

Q: As the President of the Tlaxcala Automotive Council

ISO and IATF compliant. We are a clean industry and we

at CLAUZ, what opportunities do you see for Tlaxcala to

have implemented best practices with employees, all to

grow as an automotive hub?

provide an added value to the automotive industry.

A: Tlaxcala has already been growing. The supplier base for automotive companies in the state has been growing year on year, especially over the past three years, in particular

Eagle Tlaxcala Mexico is an interior component manufacturer

because of the stateâ&#x20AC;&#x2122;s proximity to Audi and Volkswagen.

that supplies OEMs with foam-injected products. The company

If the trade war between the US and China continues, there

is located in Tlaxcala and has over 35 years of experience in the

will be an opportunity for Mexico to grow its attractiveness

automotive industry

for Chinese suppliers that want to export to the US.

INDUSTRY PERSPECTIVE |

CHALLENGES FOR PUEBLA SUPPLIERS Audi’s arrival to Puebla opened a door for new

There may be a few optimists who trust the sector

suppliers in the area, but it also created challenges

will soon recover its strength, but others are

for those looking to suppy the OEM. “There used

choosing to diversify within the same market to

to be much less demand for anti-scratch additives.

brave the challenging times ahead. “Factors such as

These are now coveted products among high-

the delay in the ratification of USMCA impacted the

end manufacturers,” says Luis Espinosa, CEO

industry,” says President of the Automotive Cluster

of Productos Químicos Industriales de Puebla

of the Center Region Puebla-Tlaxcala (CLAUZ) and

(PROQUIPUSA).

Director General of Industrias Norm Ulrich Thoma.

In August 2019, Audi said its plant in San Jose

In December 2019, the auto parts chapter of the

Chiapa, Puebla, would be the first in the country

National Chamber of the Transformation Industry

to be completely wastewater-free. The company’s

(CANACINTRA) reported a drop of 30 percent in

next step is to increase the use of green electric

the jobs generated by companies in the automotive

power sources. “When OEMs look for national

sector in the year and warned that in 2020, layoffs

suppliers, these suppliers need to have a

would continue. The lack of a robust local supply

differentiator in their products. This requires

chain has been another constant challenge hindering

significant change in products, certifications and

the industry’s development. “In Mexico, there is a

a focus on social responsibility,” said Espinosa.

huge need for Tier 2 companies. The lack of those companies hampers Mexico’s ability to support Tier

LUIS ESPINOSA

ULRICH THOMA

CEO of Productos Químicos Industriales de Puebla (PROQUIPUSA)

Director General of Industrias Norm

According to Espinosa, PROQUIPUSA and

1 companies,” says Thoma. Uneven support causes

several other Puebla manufacturers had to

a chain reaction that impacts both clients and

work on their quality and standards to compete

suppliers, according to Thoma.

against components coming from Monterrey or Mexico City. Eventually, CANACINTRA supported

In the face of uncertainty and hardship, Thoma

the Puebla supply chain to develop and integrate

says the key is to diversify. “We have worked on

to meet the needs of the OEMs in the state. “With

making auto parts for Volkswagen but we have

this local dynamic, PROQUIPUSA benefited from

also shifted our focus to spare parts. We need to

offering products with more efficient logistics,”

have the flexibility to take advantage of investments

says Espinosa. Despite this local boost, the

in different areas.” Thoma also underlines the

current political and economic environment does

importance of being an established company, with

not help the sector, says Espinosa, who cites a

the necessary certifications, healthy finances and

precarious landscape in terms of security and

skilled human capital to brave whatever the market

legal assurances from the government. “There

throws at it.

is a great deal of uncertainty that affects mostly large companies.” The industry does not stop,

Although he acknowledges the need to also embrace

however, and companies like PROQUIPUSA are

Industry 4.0, Thoma says that due to international

still betting on the market. “We will continue to

circumstances, the Mexican company is pausing

invest in the domestic market and we will focus

its effort in this regard. “Industry 4.0 is a positive

on replacing the imports with local content

trend but we are hitting the brakes on it in favor of

production,” Espinosa says.

traditional manufacturing.”

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| VIEW FROM THE TOP

STAINLESS STEEL NICHE PROVES A KEY ADVANTAGE SERGIO RAMOS Director General of TIM

176

Q: How are TIM’s operations divided between different

Q: What is TIM’s participation in technology development

industries and what role does the automotive industry play

processes?

in your strategy?

A: Our parent company, Novametal Group, has 15 factories

A: We work for industries including automotive, aerospace,

worldwide. TIM is not the largest but it is the most specialized

oil and gas, energy, naval, construction, medical devices,

of those. We have entered delicate markets, such as the health

chemicals and food. The automotive industry in particular

industry, for which we produce steel for surgical scalpels. Our

has become very important for us. Today, between direct

success has gained the trust of the group to develop products

and indirect business, 67.5 percent of our production is

independently. Previously, all technological developments

destined to the automotive industry. This is due to the work

originated from our headquarters and we only followed

we started in 2013 in collaboration with our headquarters in

instructions.

Switzerland and our parent company in Italy that already saw potential in the global automotive market. Since 2011,

Q: Is it a challenge for TIM to find skilled labor in Tlaxcala?

the company has worked with OEMs such as Volkswagen

A: It is definitely a challenge. We were among the first

Mexico, supplying exhaust systems and catalysts. We also

companies to settle in the state, which is traditionally a

work directly with companies like Bosch and Continental

livestock and agricultural region. As a result, our first recruits

that produce parts for Audi.

were people who came from an agricultural background. In the beginning, the company sent all employees to France for

Q: What is the competitive edge of your products over

training, which allowed us to create a training plan that is now

other brands?

very robust. Our entire staff has training in different areas on a

A: In Mexico, there is no other factory like TIM’s. It is the

monthly basis, which is one of the reasons why people in our

only plant dedicated to stainless steel and special nickel

company have a very high added value. We have employees

alloys, although we also work with aluminum. This is an

who have been with us since the plant was founded in 1999.

advantage because traditionally there has been mostly

More than 80 percent of our workforce has been working with

carbon steel in the country. Stainless steel is divided into

us for more than 10 years.

two branches: round and long products. Along with another plant in San Luis Potosi that produces flat products, we are

At TIM, we trust that Tlaxcala will continue to grow at an

the only company established in the country that uses this

industrial level. Industrial parks continue to expand and

kind of steel.

eight new factories have arrived. The state is becoming an interesting benchmark in the automotive industry.

Another advantage we have over other companies is that we produce our own raw material in the Italian Aosta region,

Q: Will the recent addendum related to steel in the

where we have a production capacity of 15,000 tons per

renegotiated USMCA affect TIM?

month under the highest global quality standards. We

A: It affects us, but it has always been that way. We use raw

have sought to be a world-class company, and we have

material to obtain wire. For example, from raw material that

certificates for quality, processes, safety and even imports

has a diameter of 5.5mm we obtain a product of 0.15mm,

and exports.

which is the thickness of a hair. That is called fine wire and involves a very long and complex process. Few factories in the world can do this. However, since our raw material comes from

Trefilados Inoxidables de México (TIM) is a leader in the

Italy, NAFTA’s rules do not consider our products regional.

production of stainless-steel products characterized by high

We are exploring the possibility of smelting the product in

quality, corrosion and mechanical resistance and a long

Mexico. This is a project that we have been developing for

product life with low maintenance costs

almost two years now.

VIEW FROM THE TOP |

A PORTFOLIO TO BOOST EFFICIENCY FRANCISCO GARCÍA Operations Director of Bilsing Automation Mexico

Q: How has the company evolved after 30 years of

Q: How is the lightweighting trend shaping Bilsing

experience in automotive stamping and body shop

Automation Mexico's operations and your customers’

applications?

products?

A: Bilsing Automation has been working in Mexico

A: We have a complete catalog of carbon fiber-made

since 2004 through representation from the Bilsing

bars and toolings that can reduce the total weight of the

Automation Deutsch company and then Ibérica. In 2016,

equipment by about 30 to 40 percent. Unfortunately, only

Bilsing Automation Mexico, better known as Bilsing

a small fraction of the companies we are working with and

Mexico, started operations with a commercial office and

the potential clients we have visited this year in Mexico

in May 2019 opened its current location in Cuautlancingo,

have plans for e-mobility projects. Regarding the car of

Puebla, with new offices, a showroom and a 430m

the future, curved shapes will prevail, lighter material will

workshop.

be preferred and in general, all manufacturing processes will be much more environmentally friendly. This will

We are working only in the light-vehicle sector, but we

be a must.

have the capabilities to work for the heavy sector as well. Among our main customers in the automotive sector are

Q: What advantages has the Puebla and Tlaxcala region

companies llike Volkswagen Group, BMW, Volvo, Hyundai,

brought to your operations?

Nissan, Tesla, Renault, Toyota, Ford, Jaguar, Land Rover,

A: We are trying to involve small local workshops in some

GM, Mercedes Benz, PSA Group, KIA, Daimler, the FCA

of our peripheral processes. We have found high quality

Group, Gestamp, Benteler, Magna and CIE Automotive.

and efficiency among these local suppliers.

Besides the automotive industry, we also offer our solutions to the home appliances and plastic molding

As for qualified labor, engineers in the area are very

industries, as well as for hydroforming and carbon fiber

highly qualified and creative. Nevertheless, we think new

processes.

generations need better training on teamwork, conflict resolution and communication and social skills.

Q: How does your product portfolio help companies to achieve greater efficiency to reduce costs?

Q: How are the constraining trends present in the

A: Our devices are designed, manufactured and

automotive industry influencing Bilsing’s plans for

assembled according to the highest quality standards,

the future?

offering the strongest grip for materials or die cutting

A: We are designing a global strategy that will allow

parts without damaging their surfaces. Our equipment

us to successfully face all the present and near-future

also works to achieve maximum velocity from one die

challenges in the automotive industry. We are ready to

operation to another with the accuracy expected. At the

change and adapt. Our goal is to become one of the Top

moment, we are participating with our devices in the

3 branches of the Bilsing Group globally, so we need to

manufacturing of a variety of die cut parts for the new

have an even bigger presence in Mexico, especially in the

Volkswagen Tarek being produced in Puebla for Mexico

San Luis Potosi, Aguascalientes and Bajio regions. We are

and Brazil.

already working toward that.

All our tooling systems are custom-made for all our clients and their components can be adjusted, installed

Bilsing Automation is a global company with 30 years of

or removed individually, which eliminates the need to

experience in automotive stamping, body shop applications, as

remove all the arms in a tooling magazine to change or

well as in developing material for injection molding, packaging

adjust one of them.

and hydroforming. The company has been in Mexico since 2004

177

| TECHNOLOGY SPOTLIGHT

178

COATS: 250 YEARS OF THREAD EXPERTISE Coats Neophil is UK industrial thread company Coats’ solution for the automotive industry. The company, with more than 250 years of experience, has been a world leader in thread manufacturing and is the only truly global supplier of thread for industrial applications. The company has a manufacturing footprint that extends to more than 40 countries and a workforce that stretches across more than 67 countries. In addition to its global footprint, Coats has a unique color management tool. With Coats Color Stitch, the same color sample can be replicated instantly in two different parts of the world with the same results. In 2017, Coats Group PLC entered the FTSE 250 index, which lists 250 companies with the greatest stock capitalization in the UK above £1 billion (US$1.23 billion). To attend the needs of automotive companies, Coats engineered a product that addresses safety critical applications: Neophil. This thread was developed to survive high-speed, multidirectional sewing through multiple layers of fabric. The product was also designed to endure a vehicle’s lifetime, including abrasion, scuffing, sunlight and heat, among other critical conditions. Neophil has proven performance in the manufacturing of critical parts like seat belts and airbag systems. Given Coats’ experience in managing colors, the thread is ideal for decorative stitches for gear stick covers and headliners. Other potential applications include automotive carpets, mats, convertible tops, seat covers, side-door panels and spare wheel covers. Neophil is made of bonded nylon. It has three different caliber ranges: 20, 30 and 40. It has the ability to adapt to the final component’s color and minimizes sewing costs. Neophil caliber 20 has a resistance of 8,900cN with a 17 to 32 percent elongation range. Neophil caliber 30 has a 5,870cN resistance with the same elongation range. Finally, Neophil caliber 40 has a 4,470cN resistance with a 16 to 31 percent elongation range. Amid stricter rules of origin that target greater regional content, Coats offers the possibility for suppliers using imported threads to increase their RVC. “Most of our competitors use threads imported from Asia and Europe. Coats can offer an edge to companies wanting to increase their regional content for the North American market,” says Wenevir Maldonado, Commercial Director Latin America North of Coats México.

179

MEXICO CITY & STATE OF MEXICO

Welcome to the beating heart of the country. Mexico Cityâ&#x20AC;&#x2122;s metropolitan area, with over 20 million inhabitants, is the most densely populated region in the country. Mexico City alone represented 18.8 percent of total vehicles sales in 2019. Even though the city has few manufacturing operations, it hosts OEM headquarters, as well as industry associations. The State of Mexico is the country's most populated state and has a strong manufacturing vocation. It is home to three light and three heavy OEMs, as well as Nissan's and Ford's engineering centers.

The region is strategic for several segments of the automotive supply chain, including armoring, EVs and the luxury and premium segments. With a combined vehicle park of 10.8 million cars and 1.3 million trucks, the region represents a great opportunity for aftermarket players and incoming players with an after-sales service offering.

181

CHAPTER 8: MEXICO CITY & STATE OF MEXICO 184

ANALYSIS: The Heart of Mexico’s Operations

185

STATE PROFILE: Mexico City and the State of Mexico: Engineering Development Region

186

VIEW FROM THE TOP: Elisa Crespo, Automotive Cluster of the State of Mexico

187

VIEW FROM THE TOP: Juan José Zaragoza, DuPont Transportation and Industrial

188

VIEW FROM THE TOP: René Schlegel, Robert Bosch México

189

ANALYSIS: Is Mexico City Looking at a Prolonged COVID-19 Lockdown?

190

VIEW FROM THE TOP: José Pin, 3M Automotive and Aerospace Solutions Division

191

VIEW FROM THE TOP: Martin Toscano, Evonik Industries de México

192

VIEW FROM THE TOP: Jesús González, Schunk Group

193

INSIGHT: Wenevir Maldonado, Coats México

194

SECTOR AT A GLANCE: Supply Chain Starting to Electrify

195

INSIGHT: Heinz Ulb, BIG KAISER México

196

SECTOR AT A GLANCE: Changing Times Call for Aftermarket Evolution

197

INSIGHT: Matsuru Mano, Pioneer Electronics de México

198

VIEW FROM THE TOP: José Álvarez, Cofremex

199

VIEW FROM THE TOP: Hector Blanco, Roberlo

200

VIEW FROM THE TOP: Rafael McCadden, Colliers International

201

INDUSTRY PERSPECTIVE: Luis Viniegra, Vinco Automotivet

Pablo Barcos, BTS Development

183

| ANALYSIS

THE HEART OF MEXICO’S OPERATIONS At its heart, Mexico has both its corporate hub and a major industrial center with a strong automotive tradition. Although new automotive hubs are developing across the country, Mexico City and the State of Mexico maintain their position as the metropolitan hubs for automotive investment Economically speaking, Mexico City and the State of Mexico

The state has built a strong presence in the automotive

make up the beating heart of the country. Mexico City is the

industry with light-vehicle manufacturing plants

main contributor to national GDP at MX$3.63 billion (US$193

belonging to Ford, FCA and GM. The State of Mexico also

million), which represented 16.4 percent of total GDP in 2018,

assembles light and heavy trucks, with Daimler, Volvo,

according to INEGI. The State of Mexico ranked second at

Ford, Isuzu, Chrysler, Fiat and GM plants. With a total of

MX$1.96 billion (US$104 million), or 8.83 percent. These two

286 companies and 56,137 employees, the automotive

states hold almost a fifth of Mexico’s population with 25.05

industry now represents 9.2 percent of the state’s GDP,

million inhabitants and while they complement each other,

according to the government of the State of Mexico. The

their economic profiles and capabilities are very different.

sector is now a significant attractor of FDI, which by 3Q19

184

accounted for 12 percent of the total FDI in the state,

MEXICO CITY

and represents over half of the state’s exports, according

The capital of the country is also its strongest economic driver

to SEDECO.

thanks to its profile as a metropolitan center and business hub. Mexico City has 8.85 million inhabitants, although several

Between 2007 and 2018, the state showed annual

million more travel daily from neighboring states for work

growth in exports of transport equipment of 12.1 percent,

and leisure. The high number of inhabitants and visitors

according to SEDECO. The ministry also states that FDI

has considerably elevated the price of real estate, gradually

in the sector represented approximately 12 percent of

pushing large manufacturing operations to other states. By

the total received by the state between 1999 and 3Q19.

January 2020, manufacturing workers represented only 10.2

By 2018, more than two out of every three products

percent of all employed individuals in the city, according to

exported by the state were transportation equipment.

INEGI. As a result, Mexico City gained strength as a business

And the industry wants more. “We want to make the

center. Now, commerce, government and services jobs employ

automotive industry a trademark in the State of Mexico

74.2 percent of the city’s active workforce, according to INEGI.

and be the leading developer of human capital in terms of innovation and Industry 4.0,” says Elisa Crespo, Executive

On the consumer side, Mexico City is the largest market for the

President and Adviser of the Automotive Cluster of the

automotive industry. According to AMDA, between January

State of Mexico.

and November 2019, Mexico City registered 211,086 of the country’s car buyers, which is 18.8 percent of the national total. Moreover, although there has been a national slump

STATE OF MEXICO’S EXPORTS BY ECONOMIC SECTOR (2018)

in car sales, Mexico City has registered only a 2.5 percent

Value (US$ billion)

deceleration in that same period compared to 2018, which was

Transport equipment

13.88

the lowest nationally, only behind Nayarit and Aguascalientes,

Chemical industry

1.72

which registered growth of 1 and 3 percent, respectively.

STATE OF MEXICO For decades, the State of Mexico was the country’s

Food industry

0.95

Other

3.73

Total

20.28

Source: SEDECO and INEGI

manufacturing powerhouse. Thanks to its young and large population and its central geographic location, the state

To achieve this goal, the state has a few issues to address.

became a key producer of a diverse range of products, from

Considering the state’s strong manufacturing backbone,

clothes and pharmaceuticals to vehicles and automotive

one of the main problems the automotive sector faces

components. While the state fell to third place in 2019, it is

locally is the lack of available human capital. “In terms

still a manufacturing hub for many industries. The state is the

of gaps, labor is still one of our main issues, including

second-largest economy in the country and is in third place for

employability, staff turnover and finding people with the

FDI attraction, of which over 50 percent goes to manufacturing

right expertise,” says Crespo. Customs, unfair competition

industries, according to the state (SEDECO) and federal

and corporate corruption are other significant problems,

ministries of economy. The State of Mexico now produces

explains Heinz Ulb, Director of Engineering and Sales at

10.1 percent of all of Mexico’s manufacturing products.

BIG KAISER México.

STATE PROFILE |

MEXICO CITY AND THE STATE OF MEXICO: ENGINEERING DEVELOPMENT REGION Both states make up the beating heart of the country.

Today, the State of Mexico is home to the US Big Three

The region is the largest market for vehicle sales, with an

and two heavy OEMs. Engineering centers are also

18.8 percent share of the national market. Most OEMs that

present in the region following a lifetime automotive

arrived to the country during the last century established

legacy. Combined, Mexico City and the State of Mexico

their headquarters and even some manufacturing plants

represent a 12.5 percent share of Mexico's automotive

in the region.

FDI from 1999 to 3Q19.

Countries with the highest contribution to total FDI 1999 - 3Q19 (US$ billion)

US 25.44

US 57.88

Spain 7.75

Spain 21.10

6,590 Sep-19

54,621

57,159

53,851

45,015

44,244

* NAICS sector 336 includes automotive among other manufacturing segments

Mexico City VEHICLE PARK SIZE 2018 State ofIN Mexico

5,278,405 Cars

5,530,839

85,492 Trucks 1,261,009 406,671 Motorcycles 496,457

Total number of ‘green’ vehicles sold 2016 - Aug 2019

6,000

5,000

4,000

7,825

3,000

Buses 30,901 54,614 0

19,645

6,621

8.88%

2,000

3.62%

Sep-18

7,095

Share of national automotive FDI received 1999 - 3Q19

Sep-17

7,189

2.75

Sep-16

7,138

Auto parts production FDI (US$ billion)

Sep-15

3.71

0.85

44,408

1.78

7,399

Vehicle production FDI (US$ billion)

Sep-14

US$6.46 million

1,000

US$2.63 billion

42,029

Automotive FDI received (1999 - 3Q19)

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

7,014

STATE OF MEXICO

Sep-13

MEXICO CITY

PEOPLE EMPLOYED IN TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

State of Mexico Mexico City

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs Light-vehicle OEMs Top global Tier 1 suppliers 5 4

GM Toluca (engines and engine parts)

FCA Group Toluca (vehicle assembly)

Daimler - Freightliner Santiago Tianguistenco (truck assembly)

4 Isuzu (truck assembly) 1

5 3

Ford Cuautitlán (vehicle assembly and stamped components)

6 Volvo Bus Tultepec (bus assembly)

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

185

| VIEW FROM THE TOP

INCOMING CHALLENGES DEMAND COLLABORATION ELISA CRESPO Executive President and Adviser of the Automotive Cluster of the State of Mexico

186

Q: How is the cluster supporting the development of

Q: What are the main gaps in the State of Mexico’s supply

appropriate talent to address the 4.0 revolution in the

chain and how is the cluster helping to bridge these?

automotive industry?

A: The cluster is working to find the best financing strategies

A: Dassault Systèmes, one of our company members, just

to support companies that are certified but lack the capital to

donated 30 3DEXPERIENCE software licenses for 3D design

respond to clients’ demands. In terms of gaps, labor is still one

and simulation valued at US$15 million to the Autonomous

of our main issues, including employability, staff turnover and

University of the State of Mexico. The reason behind this

finding people with the right expertise. In today’s environment,

was for the academic community to master the Industry

inclusiveness has also become a factor to consider.

4.0 language, which is now commonplace. The State of Mexico has a large population that can be channeled toward

Q: What opportunities does the arrival of new OEMs create

engineering and this is a perfect way to start incorporating

for the State of Mexico?

them into manufacturing activities.

A: These investments speak of the continuous development of the Mexican supply chain and its effort to transform according

This was one of our flagship projects and today it is done.

to current needs. This also means we need to generate more

Coming from the private sector, this level of investment is

suppliers and reinforce those already here. Producing a

quite extraordinary. We want to make the automotive industry

vehicle with an internal combustion engine is not the same

a trademark in the State of Mexico and become the leading

as providing components for electric vehicles that deal with

developer of human capital in terms of innovation and

completely different materials. The challenges are countless

Industry 4.0.

for the Mexican automotive industry.

Q: What are the main challenges and opportunities USMCA

We are doing our best to help our suppliers move forward in

will bring to the automotive industry in the State of Mexico?

this transformation without losing their competitiveness or

A: First, we must understand the changes to the current

resources. Certification schemes are the same but training is

regulations. The human factor will play a key role in this

essential to learn about these new trends. We collaborate with

process, as we have staff turnover of people who understood

companies like Ford, allowing us to better serve our company

NAFTA and now, we have new generations trying to

members. We also follow a transversal agenda with more than

understand USMCA. We need to reach an understanding of

eight work sessions per month with our different committees,

what these changes will bring and whose responsibility it will

as well as quarterly meetings with company chairmen and

be to implement them.

CEOs to bridge the communication gap.

The State of Mexico and its automotive cluster have been

Q: What will be the role of the Automotive Cluster of the State

working to help companies understand the new trade

of Mexico within the National Automotive Cluster Network?

environment. We have a workshop on foreign trade, where

A: Each cluster’s role is to collaborate without losing the

we go from general terms to the specifics of USMCA and

autonomy and strength of its own region. We welcome an

its new operating regulations in the automotive industry. No

organization that provides transparency to our operations.

other state in the country is doing this.

The National Automotive Cluster Network will provide visibility to all our members from the State of Mexico, Puebla, Tlaxcala, San Luis Potosi, Queretaro, Guanajuato, Nuevo Leon,

The Automotive Cluster of the State of Mexico has the goal

Coahuila and Chihuahua, while promoting the industry at a

to potentiate the development of the national automotive

national level. The network will also help us to put on the table

sector through the targeting and linking of companies with

projects that have been success stories in certain regions to

the objective of promoting innovative, high-impact projects

increase their impact.

VIEW FROM THE TOP |

INDUSTRIAL TRANSFORMATION FROM THE GROUND UP JUAN JOSÉ ZARAGOZA Mexico Business and Country Leader of DuPont Transportation and Industrial

Q: What are the main trends impacting DuPont’s

We see a promising future for the sector even though

technology development processes?

the production goal of 5 million units has been delayed

A: Lightweighting, sustainability and comfort remain

to 2022. Opportunities remain, investments keep coming

macro trends for combustion, hybrid and electric cars.

and as new OEMs arrive to the country, so do their

We have a special program called AHEAD (Accelerating

suppliers.

Hybrid-Electric Autonomous Driving) to address these challenges. Today, 30 percent of our global profit comes

The entire industry needs to adapt. Ford stopped

from AHEAD’s technology developments. This rate is

operations at its Cuautitlan plant for renovations to

similar in Mexico, since every vehicle in the US carries at

produce around 100,000 EVs in the next few years.

least one auto part produced in Mexico. Regarding EVs,

This opens an opportunity for our specialized solutions

battery cooling is one of the biggest challenges. We are

to improve resource management. The industry needs

tackling it through advanced polymers for cooling battery

to reduce total production costs, which requires

lines and specialty adhesives to improve connectivity and

improvements in processes, manufacturing and logistics.

battery performance.

We are working with our clients to find those savings.

For both combustion and electric vehicles, temperature,

Q: How can Mexico contribute to DuPont’s technology

lightweighting and safety are important. Gasoline cars

development process?

rely on four-cylinder or even three-cylinder engines

A: Mexico has moved from manufacturing to engineering

that require adequate temperature management and

and technology development. OEMs have engineering

companies need materials to handle that. Regarding

centers in Toluca, Mexico City and Puebla where they

weight, an average car today weighs around 1.5 to 1.7

design auto parts, systems or subsystems. Global

tons, of which 500kg are plastic.

OEMs and suppliers are starting to develop technology locally, as well. For example, we design engine air ducts

Companies are increasingly looking at plastic and

for US OEMs.

depending on its composition and how it is bonded with the car’s structure, plastic can be even more resistant

The results of Mexico’s transformation are reflected in

to impact and tension than metal. Safety, meanwhile, is

government data, which shows that 110,000 engineers

embedded in DuPont’s core values. Our materials help to

graduate ever year, more than in Japan, Germany or

mitigate the consequences of car accidents and increase

Italy. We have young and well-prepared people for R&D.

passenger safety.

It is true that traditional engineering centers remain in Japan, Germany and the US, but Mexico has the definite

Q: What will be Mexico’s role in increasing DuPont’s

makings of a design country and for DuPont, this is

profit margins and how will your automotive operations

very promising. We have R&D teams all over the world.

contribute to further growth?

In Mexico, we have teams in Toluca and Mexico City

A: Mexico has 26 OEM plants, 11 of them built in the

working on a joint US-Mexico-Italy venture to develop

last five years. This has a multiplier effect for the local

powertrain components.

industry despite the global 5 percent contraction in manufacturing operations. Due to its supplier base and location, Mexico’s automotive industry remains steady.

DuPont is a science and engineering company that participates

The country keeps production levels at around 4 million

in different industries with foodstuffs and personal care products,

units and the auto parts business grew 6 percent in June

industrial biotechnology, fibers, polymers, high-performance

2019 compared to 2018.

materials and safety equipment

187

| VIEW FROM THE TOP

BOSCH: CONFIDENCE IN THE POST-COVID-19 ERA RENÉ SCHLEGEL President of Robert Bosch México

Q: How has COVID-19 impacted Robert Bosch México’s

achieve our zero-contagions goal. This is already familiar to

operations?

us given the zero-accidents principles we have implemented

A: During the first chapter of the pandemic, like many other

for many years now.

players in the industry we were short of supplies from China. 188

We work under lean inventories and we need to remain

Q: How have Robert Bosch’s midterm strategies changed

very competitive to diminish the effects of the pandemic,

after COVID-19?

especially in the automotive industry where we have several

A: There are two main elements in this regard. The first

tier layers. We have overcome the effects of this first impact,

relates to mobility. The changes we have seen in mobility are

using our experience to continue serving our clients well. The

related to how people are moving around and how goods are

second chapter came when the pandemic hit Europe and the

being transported directly to the user. These trends may be

Americas where we concentrate 95 percent of our automotive

interrupted by external factors such as COVID-19 or oil prices

suppliers. The North American automotive industry ceased

affecting electrification, for instance. However, the strategic

operations at different times, even within the US. This really

framework remains the same. Robert Bosch lives off innovation.

hit us since we had costs and zero income, like many others

We are one of the greatest players in the automotive industry

in the sector. This is the situation that we are currently facing

in this regard. We register the most patents in the industry,

but companies that adapt faster will emerge stronger.

at one every half an hour. That is our strength. We have been preparing for many years and we continue to do so to face the

Q: How is Robert Bosch México preparing to resume

shift in mobility paradigms to serve the end consumer, private

operations at its 14 facilities in the country?

or corporate, with sustainability and safety. Regarding the

A: We have operations in many countries across the globe.

latter, we are ensuring that goods and people are transported

Based on our global footprint, we are taking into account

safely. We see great opportunity for us to participate in the

best practices implemented at other plants, such as those

latest technological trends.

in China. This will allow us to replicate successful strategies while avoiding contagions. For our operations in Mexico,

Q: What have been the results of Robert Bosch’s innovation

this knowledge represents a unique opportunity to make

hub in Guadalajara?

fewer mistakes.

A: This is one of our great success stories. A few years ago, we had around 50 developers here. We also identified that we

We implemented the appropriate measures soon after the first

received little local added value from our suppliers. In 2014,

COVID-19 case was reported in the country on February 27.

we started our project to open an R&D facility and engage

We feel very well-prepared to resume operations as soon as

in engineering processes at three of our plants. Today, we

possible. We are enthusiastic to resume production but we are

have 800 local engineers working on these processes. We

aware that it is one thing to implement measures and another

have 600 in Guadalajara, mostly focused on the automotive

to assure we are doing it well. It will take time for people to get

industry. This has also been a success thanks to the national

used to new norms and our focus will be on always getting

human capital, both in hardware and software developments.

things right. We will also have motivational elements for our 16,000 collaborators to embrace these measures so we can

Q: How have you prepared for the enforcement of USMCA? A: We are working to raise our LCV levels. The new requirements differ according to the product segment

The Bosch Group is a leading global supplier of technology

and considering the competitive environment we are in. In

and services. Its operations are divided into four business

segments where there is higher LCV, the pressure for local

sectors: Mobility Solutions, Industrial Technology, Consumer

players is higher than in other segments where there are a

Goods and Energy and Building Technology

lot of imports, for instance in electronic components. Robert

Bosch México, along with its customers, is going to facilitate

medals. The bronze medal goes to the country’s good luck.

strategies to reach a higher LCV. Thanks not only to our

The country is lucky to have access to both the Pacific and

manufacturing and aftermarket footprint, but also to our

the Atlantic Oceans, as well as being next to the largest

engineering operations, we are confident we will be successful

private consumer market in the world. However, luck must

in this regard given the times established in the treaty.

be used accordingly. Silver goes to the demographic bonus. Not so many countries in the region have such a large,

Q: What should be the role of local governments and

young working generation. In Europe, most people were

automotive clusters in developing local suppliers?

born in the 1960s while in Mexico the largest demographic

A: Governments can help but administrations do not last

segment is from the 1990s. This segment’s participation in

as long as companies. They can help and promote, but the

professional activities will last until 2050. This is the moment

industry should take the initiative. The most successful scheme

for Mexico and Mexicans to become rich. It is also a moment

for a local medium supplier to thrive is to gain a first customer

when costs will be stable and predictable given the highly

like Robert Bosch or any of our competitors, which have

qualified personnel pool. The gold medal, which needs to be

high expectations regarding quality. This is often costly as

highlighted amid the political environment worldwide where

local suppliers need to invest in their processes and training.

protectionists policies are emerging, goes to Mexico’s free

However, once they find a customer like Robert Bosch, many

trade agreements (FTA). Mexico is the worldwide champion

doors open for them. Today, we purchase US$500 million from

in FTAs. USMCA will bring many benefits, but so will the new

local companies. This is significant given the spillover effect it

agreement with the EU. Mexico is the EU’s largest partner

has on jobs and national added value.

in Latin America, while Germany is Mexico’s largest trade partner in Europe. Trade has grown considerably over the

Q: What are your views on the future of the automotive

last few years, sometimes even at a double-digit rate. The

industry in Mexico?

new trade agreement the EU has with Mexico is one of the

A: The automotive industry is changing but that is a global

most complex, robust and broad agreements I have had

effect. The role of Mexico in the sector continues to be really

the pleasure to see. This is the gold medal Mexico needs to

advantageous for three main reasons that I will refer to as

embrace to exchange ideas, products and services.

ANALYSIS |

IS MEXICO CITY LOOKING AT A PROLONGED COVID-19 LOCKDOWN? Mexico City has become one of the epicenters of COVID-19 in the country. Against this backdrop, companies that operate in the region are thinking about how to keep their businesses running, while facing a prolonged drop in sales and operations Mexico City and most of the companies that operate there

channels,” said Eduardo Solís, Counselor of the Confederation

are going to face longer containment measures than other

of Industrial Chambers (CONCAMIN), said.

states and although the automotive sector was included in the list of essential activities after almost two months of

To reactivate all economic activities as soon as possible, the

being shut down, other key industries and customers will

Mexico City government wants to increase the number of tests

continue to be out of business, which translates to lower

to an average of 100,000 a month to trace contagion chains

demand. “It is of no use that we are operating at 100 percent

and locate the people who were in contact with an infected

of our capacity if there is no demand. Unfortunately, when the

person. Throughout Mexico City, an average of 2,000 tests are

confinement ends, we know that some of our clients will have

performed a day, of which 1,000 are intended for outpatients

already disappeared,” said Oscar Watty, General Director of

who are in health units because they presented mild

SIC Marking. “The supply chain is affected by this (decision

symptoms of COVID-19, said Director General of the Digital

to maintain lockdowns), not only in Mexico but also abroad

Agency for Public Innovation (ADIP) Eduardo Clark García

because there is much that is exported from this region to

at a press conference. This strategy has been criticized by

North America. It is not just Tier 1 suppliers that are located

international organizations since massive tests are considered

there but also producers of auto parts components. Hopefully,

essential to prevent “a local spark from turning into a fire,”

it will be resolved through dialogue and not through legal

said WHO Health Emergencies Adviser Jean-Marc Gabastou.

189

| VIEW FROM THE TOP

TECHNOLOGY DEVELOPMENT, CLEAR ROADMAP: CONSTANTS FOR GROWTH JOSÉ PIN Unit Business Manager of 3M Automotive and Aerospace Solutions Division

Q: How important will Automotive and Aerospace Solutions

forefront of these megatrends, be it the US, Germany, Japan

be in making Mexico one of 3M's Top 5 markets?

and even China. In Mexico, our goal is to tropicalize these

A: The automotive and aerospace industries are two of the

designs to the needs of our local customers.

most important drivers of the Mexican economy and therefore 190

crucial to 3M’s strategy in Mexico. We have a wide array of

Q: How has 3M’s role in the automotive industry changed as

engineered products from different portfolios and divisions

technology within the car evolves?

that are relevant for both industries. 3M Mexico’s strategy is

A: Our role as suppliers has not changed but we have

to grow our penetration in the market segments where we

become more active in clients’ decisions to adopt new

participate, regardless of the overall growth of these areas. As

technologies. Abrasives were among the first technologies

a result, we have secured a return on our investments and our

we developed over 100 years ago and the automotive

position as leading providers in various industries. We cannot

industry was one of our early clients. Masking tape was

afford to follow the market’s growth tendencies because that

also an early development for 3M that arose mainly from

would subject the company to constant fluctuations.

the need of OEMs to find a material that could help them paint cars in two different tones. We have always worked

Mexico is already in the Top 10 for 3M globally and the

closely with our clients to determine their global needs,

relevance of the automotive and aerospace markets to

thus anticipating any new technology trends.

the country’s economic development will only boost the Q: What would you consider 3M’s main innovation priority

importance of this subsidiary.

at the moment? Q: How much does Mexico participate in 3M’s global

A: Vehicle electrification has become a priority for the

innovation efforts and what is the role of the automotive

company, together with the gradual development of self-

industry in this process?

driving capabilities. Instead of waiting for these tendencies

A: The company has 37 R&D centers globally and has

to reach us, we are facing them head on. 3M is gathering

generated over 113,000 patents. In Mexico, we have one center

experts from its different divisions and technology

in San Luis Potosi and have contributed with approximately

platforms to create products suitable to participate in the

380 patents. Our main center in the US focuses mostly on

electrification trend. Two years ago, we created a new

technology generation, while our other 34 facilities use these

division called Automotive Electrification that now works

in the development of appropriate products for the market in

closely with several other divisions within the company to

which they are located.

approach the client and develop appropriate solutions to the latest industry problems.

Regarding automotive, although it is a priority for the San Luis Potosi center, it is important to note that it is a

Q: As an American company, what roles does 3M want to play

globalized industry and the megatrends impacting it are

in the development of the Mexican automotive industry?

not subject to regional conditions. Therefore, our corporate

A: Independently of any geopolitical condition, we must

strategy has been to focus our automotive-oriented

work together with our clients and the national government

innovations in centers located in countries that are at the

in favor of such an important industry. In turn, this will help us identify new market segments where we can participate and increase our participation as a supplier. Mexico is

3M is an American company with over 100 years of experience

already a consolidated market and even though there are

and operations in more than 200 countries. The company

new OEMs arriving, they are not necessarily new to 3M. Our

covers

priority is to identify new areas where we can support our

several

industries

with

its

products,

including

automotive, retail, healthcare, energy and construction

existing client base.

VIEW FROM THE TOP |

AUTOMOTIVE INNOVATIONS REPLICATED IN OTHER INDUSTRIES MARTIN TOSCANO President and General Manager of Evonik Industries de México

Q: What are Evonik’s solutions for the automotive industry?

concentrates the greatest amount of FDI in this sector,

A: We participate directly with OEMs and with Tier 1 and Tier

probably on global basis. The model developed by the

2 companies. We participate in different business segments

Mexican automotive industry has transformed the country into

related to the automotive industry, including coatings and

a global production hub. There is a greater appetite to attend

additives, as well as raw materials like silica used for tire

the needs of the market under a really strong export-oriented

production and that helps to improve fuel efficiency in

manufacturing sector. We have an interesting overview of

vehicles. We offer high-performance polymers, which are

what is happening in most sectors and I can confirm that

used in different stages of production and manufacturing,

most of them consider Mexico a global production hub just as

and also additives for polyurethane production employed

the automotive industry did a few years ago. More companies

in automotive production. Many of our projects are a

are bringing new production assets into the country or

collaborative effort with OEMs and Tier companies.

transferring their operations to Mexico.

The automotive industry in the country represents more

Q: Where is the automotive industry heading?

than 20 percent of our portfolio. Some of the projects we

A: Mexico is part of the global automotive industry agenda. The

have developed focus on material substitution in favor

electrification trend is coming to the country, as well as other

of environmentally-friendly materials, circular economy

technologies that can make vehicles more sustainable and

initiatives, technologies and materials to make vehicles more

efficient. In addition, the concept of mobility is fundamental

efficient. In Mexico, we have seen major manufacturing players

for the industry and it will keep all companies throughout the

starting to develop new innovations. Most companies in the

supply chain very busy. Evonik contributes to these trends

country are looking to create partnerships with companies

through its polymers’ division, among others. Alongside our

like ours since our collaboration goes beyond a commercial

customers, we can innovate by making vehicles structurally

transaction. We focus on applied technology and R&D

lighter and even more efficient.

activities in the country. Q: How does Evonik, as a chemicals company, ensure the Q: What has helped Evonik introduce R&D operations to

sustainability of its operations?

the country?

A: We mitigate our environmental footprint through two

A: We receive support from our offices around the world,

main mechanisms. First, we are constantly improving our

as well as our regional and global headquarters. Through

operations and analyzing how we can be more eco-friendly

these communications channels, we attempt to understand

in our production processes through the use of alternative raw

our role in Mexico, particularly in the automotive sector

materials, for instance. As a German chemicals company, we

through our technologies and products. Evonik’s goal is to

take sustainability very seriously and are mindful about our

establish a relationship with customers, regardless of their

environmental impact. Second, we analyze how our products

location. Notably, the role that the Mexican automotive and

make our customers’ operations more efficient and reduce

manufacturing sectors play at the global level is relevant and

their own environmental footprint. There are several examples

often sets the stage for the technologies that will arrive to

in each of our business lines of how our products reduce the

other sectors. Several technologies among our more than

environmental impact of our client’s production processes.

15 business segments began in the auto industry. It is a proven recipe. Evonik is one of the world’s top specialty chemicals companies.

Lightweighting, for example, is important for both the

The company focuses on improving the value of its 15 business

automotive and aerospace sectors. Aerospace is taking

segments from automotive to animal feeding. The automotive

a similar path as the automotive industry. Queretaro now

industry represents 20 percent of the company’s portfolio

191

| VIEW FROM THE TOP

GETTING READY FOR THE ELECTRIC FUTURE JESĂ&#x161;S GONZĂ LEZ Americas Mobility Division Manager of Schunk Group

192

Q: How has Schunk Group (Schunk) advanced with its goal

business as well. Furthermore, it is difficult to enter the

of selling 10 million carbon brushes by 2020?

Asian market because of the cultural barrier. We have not

A: The carbon brushes scenario is not as promising as

stopped our production of carbon brushes but we are

we expected years ago. Technology is changing really

focusing on new products and materials, learning from

quickly. There are new motor developments and many

what we are already experiencing at our plants in China

no longer use carbon brushes. We are working with new

and Europe. The Americas are a little bit behind, so we are

products and materials because we cannot be left behind.

anticipating a new scenario.

Competition has been fierce. Historically, our clients were market leaders like Bosch, but with the arrival of Koreans,

Q: How are you taking advantage of the electrification

Japanese and Chinese companies, our clients are losing

revolution? A: At the global level, Schunk has specific products for electric and hybrid cars, mainly related to materials. In Mexico, we are

The Schunk Group has manufacturing and sales locations

somewhat behind what is being done in Europe or China but

around the world in 29 countries. Its Schunk Mobility is focused

we are already approaching US OEMs with certain products.

on the development and production of carbon, ceramic and

We have made significant advances in our traction motor and

sintered metal solutions

in technologies to maintain the temperature of battery packs.

INSIGHT |

GLOBAL FOOTPRINT, LOCAL PRODUCTION AND A CLOSE CUSTOMER RELATIONSHIP WENEVIR MALDONADO Commercial Director Latin America North of Coats México

Three elements factor heavily on an OEM’s list of needs in

edge materials with increased performance, while at the

Mexico: lightweighting, fuel efficiency and regional content

same easily complying with higher rules of origin.

requirements. Working with a global company that has a local presence and R&D operations can be a major advantage

Addressing the industry’s demand for lightweighting, Coats is

when ticking those boxes, according to Wenevir Maldonado,

working on the development of carbon-fiber-based composite

Commercial Director Latin America North of Coats México.

materials like Synergex and Lattice, which can substitute metal and plastic in some vehicle components. “These composite

The 264-year-old British company is diversifying its Mexico

materials come in handy when striving to meet OEMs’ vehicle

operations toward new industrial sectors and plans to

weight objectives,” says Maldonado. Composite materials

take advantage of its innovation and local manufacturing

are lighter, more flexible and resistant than aluminum and

operations to further penetrate the Mexican automotive

can be woven through design software and thermoforming

industry. “Our core business is apparel and footwear but the

technology, thus reducing waste and weight.

presence of the world’s most important automotive OEMs in the country and the continuous arrival of FDI have made

Coats’ recent purchases have also strengthened the

this sector a key target for Coats México,” says Maldonado.

company’s offering for the automotive industry. In 2016, the company acquired Gotex, a Spanish manufacturer

The company navigated COVID-19 waters without losing

of composite materials and tapes with automotive

product orders for 2020 and 2021. “Before this situation,

applications. In 2017, it acquired Patrick Yarns, which

we expected to grow 50 percent annually. We will now adjust

focuses on high-performance, smart threads. “We are

our forecast on a quarterly basis. We will have to wait and

planning to use more conductive threads for heated seats

see where the industry is headed. In mid-April, we stopped

and steering wheels,” says Maldonado. “These threads can

delivering products to the automotive industry. We will have

replace components that have a metal structure to reduce

to readjust our numbers, but we will remain close to our

their weight and cost.”

clients,” says Maldonado. So far, no OEMs have withdrawn their production orders with Coats for 2020 and 2021.

Stricter demands regarding regional content percentages established in USMCA have also created an opportunity

The company projects its automotive manufacturing

for Coats’ factories in Orizaba and Tlaxcala. “Most of our

operations will increase by 25 percent in 2019 with sales

competitors use threads imported from Asia and Europe, so

increasing by 45 percent compared to 2018’s figures. Coats

Coats can offer an edge to companies wanting to increase

will reach these goals by developing new solutions that

their regional content for the North American market,” says

meet client needs, working together with OEMs and taking

Maldonado. The company already has close collaborations

advantage of its three innovation centers to understand

with all European OEMs with assembly operations in Mexico,

and remain ahead of automotive suppliers’ demands,

as well as with Ford, GM and FCA Group.

Maldonado says. Asian companies, on the other hand, have been a challenge, Automotive suppliers based in Mexico look for high-

according to Maldonado, but she expects Mexico’s free

performance materials to offer a quality guarantee and

trade-agreement network will be a great advantage

create value for OEMs and consumers. “For Coats, this

when approaching these companies. “Asian automotive

means improving our productive capacity through the local

companies tend to have agreements with thread suppliers

implementation of new technologies to offer top-notch,

in their home countries,” says Maldonado. “However, if they

made-in-Mexico products,” says Maldonado. This is a twofold

want their products to qualify as regional content, they

strategy; Coats' automotive clients gain access to cutting-

need to localize their product sourcing strategies.”

193

| SECTOR AT A GLANCE

SUPPLY CHAIN STARTING TO ELECTRIFY

“

The Industry will have to change as powertrains evolve” Gerardo Angulo, Director General of Timken de Mexico

194

MIXED OPINIONS Although global suppliers acknowledge the changes EVs are introducing, they are also skeptical of the role EVs will play in the future of the industry. “TI Fluid Systems understands EVs are the future, but these vehicles will not account for more than 15 percent of all cars assembled globally by 2024,” says Alejandro Veraza, Managing Country Director of TI Automotive. The company expects EVs to gain momentum

Though Tesla is the flagship for electrification, many other

in developed countries, while the rest of the world focuses

brands have presented their electric offering to the public.

on combustion-engine models and perhaps hybrids. “We

In the US, according to the New York Times, electric vehicles

will supply both markets since both powertrains will need

(EV) sales doubled in 2019 compared to 2018 while in Mexico,

fluid-powered braking systems until electromagnetic brakes

INEGI figures show EV sales will grow above 15 percent in 2019

replace them,” says Veraza. Research centers like CIMA

with a total of 231 units sold between January and October

at ITESM Toluca confirm that the biggest concern for EV

compared to the 201 sold in 2018. With a growing EV offering,

development in Latin America involves the driving cycle. “We

the supply chain is already adapting to face the challenge.

check whether a car with an electric powertrain meets the minimum mileage per battery charge using the Worldwide

EV construction considerably reduces the number of

Light-vehicles Test Cycle (WLTC),” says Alejandro Rojo,

components used in the powertrain. While some companies’

Director of CIMA ITESM.

business could be at risk, the rest will have to maximize quality and performance. “The industry will have to change

Mexican company Air Design is specialized in product

as powertrains evolve,” says Gerardo Angulo, Director General

development and equipment for customized and special-

of Timken de México. “We are working constantly with OEMs

edition vehicles. Having a subsidiary in the US, the electric

to develop the new bearings they require.”

revolution looks promising. “By 2020, we will be selling accessories for EVs, particularly for three Volkswagen models.

As EV manufacturers pursue efficiency, mitigating Noise,

Participating in this segment will allow us to conceptualize our

Vibration and Harshness (NVH) is absolutely necessary.

products while considering vehicle efficiency, aerodynamics

Vibracoustic, one of the biggest NVH solutions suppliers, is

and connectivity, which in EVs is highly advanced,” says Air

already exploring this scenario with a broader application of

Design’s Director General Miguel Ávalos.

air springs. “After removing the engine factor, tires hitting the pavement are the biggest source of noise in a vehicle.

EV INFRASTRUCTURE

Vehicles need space to transfer energy from the motor to

A major concern among both OEMs and consumers is the

the tires. Air springs allow for more space and also make the

lack of sufficient infrastructure to charge EVs. However, this

suspension smoother. As an additional feature, they allow the

problem is already being addressed. “Clients should know that

car’s height to be adjusted on the highway, lowering it up to

Mexico City has the largest number of electric vehicle chargers

5cm, or for each wheel to be adjusted individually to allow

per vehicle in the world. Furthermore, cars with 350km or

over or understeering on curves to improve vehicle efficiency,”

400km of autonomy can be fully charged overnight. These

says Dagoberto Sánchez, General Manager and SEO of the

vehicles also enjoy preferential parking and their use results

Lerma Plant at Vibracoustic Mexico.

in a lower energy consumption base tariff,” says Elias Massri, Director General of Giant Motors. In total, there are more than 1,161 charging points in Mexico,

Electric vehicles pose a major threat for the automotive supply chain as they eliminate several components from a combustion-engine powertrain. As new EVs arrive, global suppliers are already adapting a part of their portfolio toward this segment to survive the disruptive trend

which has two major charging networks for EVs. First, there is the ChargeNow network, a BMW Group global strategy to foster infrastructure for electric vehicles. In Mexico, BMW Group and Nissan have deployed a charging network in partnership with big Mexican companies and universities such as CFE, Walmart México y Centroamérica, UNAM and Anáhuac. The second player is Tesla. The company has a network of more than 500 charging stations and 16 superchargers, although these are used exclusively by Tesla models.

INSIGHT |

MOLDS, DIES THE PATH TO FEWER IMPORTS HEINZ ULB Director of Engineering and Sales at BIG KAISER México

Molds and dies are necessary to transform metal or

Ulb says the company’s ISO 9001:2015 certification helps

plastic into finished automotive components. Automotive

it assure clients that there is a quality management system

companies based in Mexico tend to procure these

in place backing the company’s products and services.

components from abroad and Heinz Ulb, Director of

Coupled with on-the-line tests at potential clients’ plants,

Engineering and Sales at BIG KAISER, says this hampers the

the company can guarantee the high performance of

development of Mexico’s tooling market. “Most companies

its tooling products. “Purchasing tooling equipment

tend to purchase tooling equipment in Portugal, China,

is a long-term investment and companies will not go

Spain, Germany and the US,” he says. “Mexico has the

for equipment that does not perform as promised,” he

capacity to produce more of these components but users

says. These tests help convince potential clients of the

based in the country need to trust local suppliers.”

advantages of adopting BIG KAISER’s equipment.

According to Ulb, the hope of finding a better price leads

BIG KAISER’s R&D operations and aftersales services help

companies away from local suppliers, which in some cases

BIG KAISER differentiate in the competitive industrial

means sacrificing local aftersales support and market

equipment market, where players usually stick to selling

development in the tooling area. “Aside from unfair

molds and dies.

competition and corporate corruption, imports are the largest obstacles harming the Mexican tooling equipment

“BIG KAISER constantly invests in innovation, promoting

sector,” he says.

the development of Industry 4.0 technology,” Ulb says. In terms of connectivity, BIG KAISER

As a Japanese-based supplier of highprecision tooling equipment with more than 70 years of experience, BIG KAISER designs, manufactures and repairs cutting-edge tooling equipment for various advanced-manufacturing sectors. “The automotive industry represents 30 percent of BIG KAISER’s

US$2 billion

Mexico's yearly tooling equipment imports, according to CLAUT

has added Bluetooth capabilities to its equipment and now uses auto-adjusting boring equipment, for instance. The company expects to reach growth of 5-10 percent in Mexico in 2019 after achieving double-digit growth in sales in 2018. “The arrival of Toyota

operations in Mexico. The rest is divided

to Guanajuato represents several

between the aerospace, construction,

opportunities for BIG KAISER to grow,

agribusiness, electronics and medical sectors,” says Ulb.

especially since many Japanese companies will set up shop

The company is present in the country’s main automotive

in the region to support these new operations,” says Ulb.

hubs, such as Nuevo Leon, Coahuila, the Bajio region and

“Japanese companies tend to support each other, so when

central Mexico, where SMEs account for 60 percent of its

new suppliers land to support Toyota, new opportunities

client portfolio.

will emerge.”

According to Ulb, the company’s main objective is solving

In the meantime, BIG KAISER is investing in strengthening

its clients’ machining issues with a strong focus on quality

its sales force by hiring new staff and partnering with

and precision. “Our products can increase our clients’

new distributors. The company’s expansion plans include

productivity while also reducing machine downtime,” he

opening a new office in either the State of Mexico or

says. “At the end of the day, companies pay attention to the

Queretaro to remain close to current and potential

cost of producing each part and constantly look for ways

clients. “BIG KAISER wants a compact, yet highly efficient

to become more productive and efficient.”

distribution network that delivers solid results,” Ulb says.

195

| SECTOR AT A GLANCE

CHANGING TIMES CALL FOR AFTERMARKET EVOLUTION

“

As vehicles become more technologically complex ... shops need increasingly specialized tools” Eduardo Tamer, Director General of Mikel's

196

informal workshop customers. “In Mexico, about 50 percent of all car shops are part of the informal economy. We offer a multi brand basic line of products for these players s,” says Simon Nossa, General Project Manager of MECtools, a Mexican company supplying paint shops for dealerships and small workshops. Companies like Mikel’s focus on providing solutions for the technology needs of newer models, but Calderón

Contracting vehicle sales, combined with a diverse vehicle

says Autopartes Calderón has found a significant niche in

park, are taking a toll on aftermarket companies and pushing

supporting the unique needs of older vehicles common to

them to evolve. This means adapting to a new landscape, even

Mexican roads. According to him, the company looks for

if that entails a change in strategy. “Companies can introduce

aftermarket manufacturers that offer original equipment

new products but they can also make significant adjustments

quality at a competitive cost, which means looking for parts

to better manage their stock and improve operations,” says

both in Mexico and abroad. Nossa agrees with Calderón in

Michael Gines, Managing Director of Dacomsa.

the opportunity older vehicles represent for the aftermarket. “The fact that people are sticking to their current car means

COPING WITH INDUSTRY’S DOWNTURN

they need more maintenance services.” According to ARIDRA,

The decline in sales has severe implications for all segments of

aftermarket in Mexico has a US$28 billion market value, which

the aftermarket. For example, lower production volumes per

makes room for opportunities.

vehicle model means fewer units sold, which makes it costlier for aftermarket players to support the country’s highly diverse

SPARE PART MANUFACTURERS

vehicle park. “Keeping stock of spare parts for all vehicles is

The challenge is not only for distributors. Specialized

an expensive and difficult feat that pushes distributors and

manufacturing companies such as Forjadora Mexicana de

importers to either specialize in a brand, segment or system

Tornillos, also face the difficulty of keeping prices and costs

or generalize their product offering and charge more,” says

at bay when considering the production volumes needed to

Alejandro Calderón, Director General of Autopartes Calderón.

sustain manufacturing operations. “We make screws based on the needs of our customers. Everything is on demand and

But while the current environment represents an obstacle for

we have no stock,” says Óscar Llamas, General Manager of

growth, Eduardo Tamer, Director General of Mikel’s, says it

Forjadora Mexicana de Tornillos.

also opens up the door for marketing new products. “Greater diversity means more players will compete to support these

An increasingly complex Mexican market has led to a higher

vehicles. However, aftermarket business opportunities will

degree of competition that is leading companies to look for

also become more complex. As vehicles become more

efficiencies within their internal processes. For companies like

technologically complex, it is harder for mechanics to fix

Autopartes Calderón, logistics has become a pivotal point for

them, so shops need increasingly specialized tools,” he

increasing efficiency. “We need to deliver components almost

says. Diversification remains key to assure healthy numbers,

overnight after receiving an order or clients will take their

even if that implies catering to difficult segments such as

business elsewhere,” says Calderón. Dacomsa has tackled the situation by switching from standard inventories to analyzing the lifespan of each product once it is sold to a distributor and adjusting production correspondingly.

Faltering sales can be a daunting challenge for

Long-standing players such as DAI and Haldex, agree that

aftermarket players so companies have implemented

logistics is a true differentiator, but it should never come at

diversification and specialization strategies to better

the expense of quality. “Product deliveries from abroad can

compete in the changing environment. Still, aftermarket

take as much as 60 days, which obviously is not the most

opportunities are up for grabs for companies with a

ideal when you want to have products ready on demand.

clear development strategy

Working with local suppliers presents an opportunity to cut product development costs and delivery times, but quality always comes first,” says Norma Elías, DAI’s Director General.

For Haldex, a break solutions supplier, supplying as soon as

Mexico has 120 million inhabitants and only about 40 million

possible makes a difference. “We can supply parts to our

vehicles registered, so there are huge areas of opportunity for

customers in less than a week. That has given us a great

the vehicle park and the aftermarket to grow.

advantage against parts imported from abroad that may not meet original equipment quality standards.”

EMBRACING TECHNOLOGICAL TRENDS Digitalization is a gamechanger for aftermarket companies,

UPCOMING TRADE OPPORTUNITIES

both manufacturers and retailers. Digital sales channels

Despite the challenges, the Mexican aftermarket industry

represent a unique opportunity not only to expand operations

stands to benefit from two international developments:

to other regions, but also to make operations more efficient.

USMCA’s implementation and the trade war between

MLD Mayoreo is an example of an aftermarket company that

the US and China. “USMCA will be really important for us.

by slowly trying to embrace digital sales, facing a substantial

We are exporting to the US thanks to the current trade

shift in operations. "Our platform became fully available in

environment and the stability of chemical raw materials,” says

December 2017. In just two years, 85 percent of our product

Acoginamientos Confortables’ COO Jacobo Jajati. For Llamas,

orders are now made online," says Antonio López, Director

these events offer the possibility to turn the market around

General of MLD Mayoreo and ARIDRA's president.

as the industry looks for national suppliers. Having said that, Llamas admits that there is a great challenge to overcome:

Technology allows for innovation to take place. DAI,

“Customers are shopping for Chinese prices and that cannot

for instance, decided to release tutorials for shops and

continue,” he says. Still, the opportunity is there. “Restrictions

mechanics to know how to place correctly the spare part

imposed by the US government on Chinese products will work

in the vehicle. “The products we provide have a fail rate

to Mikel’s’ advantage because Asian companies now see us

lower than 0.005 percent. In the vast majority of cases, if

as potential integration partners,” says Tamer.

the client has a problem, it is a result of faulty installation by an external mechanic. To deal with this problem, we

Looking ahead, Calderón expects Mexico to continue to offer

provide video instructional sessions to mechanics to show

many opportunities for growth in the automotive aftermarket.

them how to install our products,” says Elías.

INSIGHT |

CD TO AV AUDIO CONVERSION A SIGNIFICANT MARKET OPPORTUNITY MATSURU MANO President and Director General of Pioneer Electronics de México

The biggest short-term growth area in the car audio

audio reconversion in the future. “The Mexican vehicle park

aftermarket will come from the evolution of audio media

corresponds to over 45 million units. However, new car

systems, from CD to AV, says Matsuro Mano, President and

sales are only around 1.4 million. Since the average age of

Director General of Pioneer Electronics de México. “There

the vehicle park in the country is 13 years, there is a big

has been a significant change in car audio systems, going

demand to replace car audio systems,” says Mano.

from CD audio to AV in a short period of time. For us to take advantage of this trend we need to further promote

Although the characteristics inherent to the Mexican

the reconversion from AC to AV,” says Mano.

automotive sector suggest there are growth opportunities in the market, Mano says the car aftermarket segment

Pioneer Electronics, a Japanese manufacturer of car audio

has not benefited from them. “The segment is a little bit

and home theater entertainment products, has been

flat, but there is great potential.” Mano believes that the

in the Mexican market for several years and continues

Mexican sector could use a boost. “The market is kind of

to see opportunities to continue growing in the local

mature, but there are still a lot of older cars on the street.

arena, especially since most of the Mexican vehicle park

This means that people have the opportunity to upgrade

corresponds to older models that will have to make an

their older audio systems.”

197

| VIEW FROM THE TOP

SAFETY IS ALL ABOUT PREVENTION, NOT CORRECTION JOSÉ ÁLVAREZ Director General of Cofremex

Q: How is the implementation of NOM-012 impacting

our products. Still, the participation of these brands in the

demand for electric brakes?

Mexican market is minimal, so we are not overly concern

A: We have seen a positive change in demand due to

about not being able to target them.

normativity but also safety factors. The Mexican heavy198

vehicle industry is highly reactive and, unfortunately, it has

In terms of our relationship with fleets, our products are

taken several fatal highway accidents for people to realize

already used by the largest fleets in the country. Our

the need for these products. When we started operations

challenge is knowing how to approach the SME sector. These

in Mexico, to really penetrate the market we had to shift

players are still not investing in technology and safety, which

our focus to highlight the cost benefits of our units rather

should be a priority.

than the safety advantages they provide. Now, people are finally taking safety into consideration. We are present in

Q: What are the main advantages for clients using electric

5-6 percent of the Mexican vehicle park, which is hardly a

brakes as support for the engine brake system?

representative percentage. If electric brakes were installed

A: The problem with pneumatic or mechanical brakes is that

in 80 percent of the vehicle park as in Europe, the country’s

when they overheat, they stop working. That is not the case

rate for fatal accidents could be reduced by 80 percent.

with an electric system, which will continue working as long as there is battery life. Our clients have noticed extremely

Our strategy for raising awareness about our products has

good results from using our products. Autotanques Nieto, for

focused on service and training. Operator turnover is a

example, was recognized by PEMEX three years in a row as

critical issue in the Mexican market, making training essential

the most stable company in terms of sinistrality due to the

to ensure quality operations. We can sell the best products

use of electric brakes. Furthermore, regarding savings, the

in the market but without proper use, they can become

company now spends more on air conditioning maintenance

the worst.

than on brake component maintenance and replacement.

Q: How has your relationship with OEMs evolved and

Tires are another good example of the advantages of using

what do you see as the biggest challenge to penetrate

electric brakes as support. A Michelin retailer in Queretaro

this market?

told us that thanks to our components, its rethreading

A: We have already achieved homologation with several

business has improved and it is able to salvage 90 percent

OEMs, including Kenworth, Volvo, Navistar and Daimler.

of tires for reuse.

However, we do not seek to become part of their assembly lines due to the complexity of our components. All

Q: How has Cofremex’s technology evolved to adapt to

accessories such as electric brakes are integrated at the

client needs?

OEM plant but at a separate shop. Our main strategy in this

A: In 2017, we released a new system to prevent operators

segment has been to achieve homologation with the main

from neutralizing the engine while driving and letting it rev

players in the market. Other brands like Scania and MAN

free. Neutralizing the engine and then trying to lock a new

also represent an opportunity to grow but they already have

gear might not work in some cases, which could lead to

their own electric brakes, making it difficult to introduce

accidents. Our system locks the truck’s maximum speed, thus providing safety according to a company’s standards. In the short term, we want to go a step further and prioritize

Cofremex sells electric-brake systems for heavy vehicles. The

satellite control for our electric brakes. This will allow fleet

company also provides spare parts and maintenance for these

managers to map routes and remotely limit the trucks’

components and offers training for operators to know how to

maximum speed, not to a fixed standard but to the variable

work with these parts

speed limit of each highway segment.

VIEW FROM THE TOP |

PRICE-VALUE PROPOSITION AN INDUSTRY DISRUPTOR HECTOR BLANCO Country Manager and Commercial Director of Roberlo

Q: What role does the automotive industry play within

traditional retail model; having a synergy with the wholesalers

Roberlo’s operations?

while remaining close to our customers and providing product

A: The automotive aftermarket accounts for 80 to 85 percent

availability. We can develop our wholesalers from scratch, or

of our sales. We offer a broad portfolio of products under

collaborate with more experienced players. 199

our Disolac brand, which is an industrial color system with 27 bases and more than 30 binders. Applications include

Q: What factors have ensured Roberlo’s growth in a

pool painting and industrial tank painting. Our products help

contracting industry?

save costs and boost productivity. Our main differentiator is

A: Our value-price proposition makes us a disruptive force.

that we can provide more than 30,000 colors. We work with

When Korean OEMs arrived to the country, they came with a

Tier 1 and Tier 2 companies and although we are not in the

disruptive model, offering a high-quality vehicle, a warranty

original painting segment, we are getting ready to enter that

that broke paradigms and a very competitive price that offered

market. We are already making some progress in Europe and

additional features their competitors did not have. That is

eventually we will introduce it to Mexico.

what we are doing. For a car shop that provides refinishing work, working with our products implies high-quality and high

Q: What innovations have you made in terms of coating and

performance with a broad range of possibilities at a price that

other refinishing solutions?

will increase its profits.

A: Roberlo’s purpose is to be disruptive in our price-value proposition. We offer a broad product portfolio at an amazing

Q: What are Roberlo’s plans to strengthen its position in the

price. We are delivering a considerable added-value in terms

Mexican market?

of product properties and quality. Roberlo is constantly

A: For the automotive industry and the aftermarket segment

innovating. We have a research area dedicated solely to R&D

in particular, we are designing schemes for workshop

at our plant in Girona, Spain, which is where we developed our

management that includes Six Sigma and lean manufacturing

Disolac Tintometric System. For the aftermarket segment, we

characteristics. These will allow us to deliver more value to

are launching new products, such as our multi-filler express

our customers by providing guidance on reducing their

primer that does not require any additional material. This will

time cycles. In effect, our management tools can reduce the

provide the Mexican market with new capacities.

amount of time that the car spends in the refinishing shop. Most people who experience a minor accident can be without

Q: What is Roberlo’s relationship with aftermarket players?

a car for an entire month. Our tools can improve a shop’s

A: We have a shared network of around 130 dealerships and

management without any additional cost.

we have set a goal to expand into new channels, including opening wholesale outlets similar to Roberlo’s Color Centers in

We are also launching a pilot program with an insurance

Argentina. In seven months, we have opened one wholesaler

company to send their cars to shops that use our products.

per month. Mexico city’s Metropolitan Area was our main

In return, the shop can access our consultancy tools without

focus but we are now exploring other cities. We analyze

an additional cost. This helps the insurance company because

the size of the vehicle fleet in each state and the number of

it can send a higher volume of cars to shops since the latter

accidents to determine how many wholesalers we will need.

will be more productive.

Monterrey, Chiapas and Sinaloa will be next. We want to work with wholesalers who have a large

Roberlo is a multinational family-run Spanish company with

distribution capacity, an ability to provide technical service

more than 50 years in the market. It delivers coatings and

to the end-customer and strong logistics abilities to address

other repair solutions for the refinishing aftermarket and

other areas quickly. That is a main differentiator from the

industrial applications

| VIEW FROM THE TOP

CRITICAL SITE SELECTION FACTORS FOR THE AUTO INDUSTRY RAFAEL MCCADDEN SIOR, Industrial and Logistics Director Mexico City of Colliers International

200

Q: How is Colliers International (Colliers) supporting the

of Tier 1, 2 and 3 suppliers. The closer these companies

growth of the local automotive sector?

are to each other and to the OEMs, the more efficient

A: Colliers is not only a real estate broker; we are partners

and competitive the sector is. However, suppliers have

to our clients. Deciding where to set up a new plant

different preferences when choosing a site. Tier 1s need

represents a monumental investment and an extremely

t to be close to the OEM but Tier 2 and 3 companies can

important decision that will have a long-term impact

locate far away from them since they directly compete

on every aspect of the company. As a result, we strive

with Tier 1s and OEMs for qualified employees. Our

to provide much more than a plot of land. We provide

counseling services include solutions so our clients can

comprehensive consultancy services to help clients

have access to a qualified long-term workforce and learn

choose their manufacturing site by analyzing the local

how to retain it.

workforce, former strikes, availability of universities and technical schools, roads and railroads, types of soil and

Q: What role does Colliers International play in FDI

even potential natural disasters. Honda’s plant in Celaya,

attraction?

for example, flooded in mid-2018 after intense rains

A: We work closely with our offices in Detroit and in

caused a local river overflow, which costed the carmaker

Germany and other ones across the globe that are strong

millions in damaged property and interrupted operations.

in the automotive sector. Colliers has several specialized

This was caused by inadequate site selection planning

groups to attend the needs of every sector. We have one

that could have been avoided by selecting a better

for automotive and one for the supply chain, which have

location for the plant.

helped companies establish their operations in Mexico. A few years ago, when Mexico won a bid against China to

Q: What characteristics do automotive companies

manufacture the Chrysler Journey, Chrysler approached

prioritize when choosing a site and how does Colliers

us to assist their suppliers to establish close to their Toluca

help them?

complex. Chrysler requested an industrial park for Tier 1s

A: There are many different factors influencing the site

to ensure its supply chain was located within a 5km radius.

selection process and these have evolved over the past few years. Many years ago, the marketing or financial

Q: What are Colliers’ growth expectations for the Mexican

director made these decisions. Now, the decision is

automotive industry?

primarily made by the supply chain team, an area that has

A: The automotive sector is undergoing a commercial

gained importance as companies increasingly consider

transformation. While USMCA negotiations left new

supply chain, accessibility to their plants and the distance

projects on standby during 2019, companies began

to ports, railways and airports to facilitate the distribution

adapting existing plants. Ford’s plant in Cuautitlan for

process, especially for exports.

example, is retooling to start manufacturing EVs. The transition from combustion to EVs will be very slow and

Mexico has clearly outlined the strongest regions for

we expect it will take at least 20 years for these vehicles

automotive production: the Bajio and the northeast of

to become the new standard. However, Mexico is already

the country, both of which have a high concentration

incorporating these technologies in its manufacturing process. Investment will keep coming and the country will increasingly invest in the production of electric,

Colliers International is a real estate services company with

autonomous and hybrid vehicles. Mexico’s future in

operations in 68 countries. The company manages 2 billion

the automotive industry is in these markets. Colliers is

ft2 worth over US$26 billion and has over 17,000 employees

currently assisting a company that will soon assemble

across the globe

electric utility vehicles in Mexico.

INDUSTRY PERSPECTIVE |

SMOOTHING THE INVESTMENT ROAD INTO MEXCO Political uncertainty stemming from tariff threats

Q: What are the main benefits that BTS can offer

touted by the US President Donald Trump,

to clients?

the renegotiation of NAFTA and its posterior

A: We are a Mexican developer, which is important

transformation to USMCA and Mexico’s 2018

in a market where many foreign companies look

federal elections resulted in several investment

to establish new operations to take advantage

projects being put on hold. These decisions have

of the opportunities that the market offers. We

led to extensions in vehicle production programs

have local know-how and our focus is on four

and delays in investments and the introduction

regions of the country: Mexico City, State of

of new vehicle platforms to the Mexican market,

Mexico, the Bajio region and states at the border

according to Luis Viniegra, General Manager at

strip. These are historically destinations with a

Vinco Automotive.

manufacturing calling and a strong automotive tradition. We have the expertise to identify the

Vinco Automotive is an international professional

ideal location for a specific client, whether the

services company that helps auto parts

company is looking for a built-to-suit operation

manufacturers land in the country and become

or a speculative building.

part of the supply chain for new vehicle production projects. However, delays in new

We work in detail on the preliminary analysis of

platform implementations had a negative effect

these potential investments, defining financial,

on the company’s business in 2018.

legal, technical and environmental issues.

LUIS VINIEGRA

PABLO BARCOS

General Manager of Vinco Automotivet

CIO of BTS Development

“USMCA and its projected ratification have

We are not a construction company but a

reduced the political uncertainty lived in the

developer that seeks to work with well-known

region but OEMs have yet to start production

constructors. Working with these companies

of new vehicles using overhauled platforms,”

helps us materialize our projects with the best

says Viniegra.

quality and price for our tenants.

Still, the company sees good opportunities for

Q: Does BTS have a land bank or does it buy in

the Mexican automotive industry to grow under

line with demand?

new trade circumstances. Even though USMCA’s

A: Our investment strategy always ensures

rules of origin establish a minimum labor content

the development of small industrial clusters,

value of 40 percent for tariff-free exports — a

which allows us to offer speculative or built-

condition that only Canada and the US comply

to-suit buildings to clients. We will start

with so far — the deal has also made it more

development of more than 49,000 square meters

difficult for China-made components to enter the

speculative buildings focused on the Mexico City

North American market.

logistics sector.

This will mean production of several parts will be

O n e e l e m e n t t h a t i s i m p o r t a n t fo r t h e

shifted from Asia to Mexico, which is the region’s

development of the industrial sector is the

low-cost country, says Viniegra. “Eventually,

growing appetite for investment in the country

USMCA will have to be revised to raise Mexico’s

and the availability of companies interested in

export quotas.”

investing long-term capital in the sector.

201

Chevrolet Trax 2020

NORTHERN STATES

As most large automotive investments took place in Mexico's central area, the strong automotive tradition of Mexico’s northern states was eclipsed. However, the region’s importance cannot be overstated. Chihuahua alone holds 16.54 percent of total automotive FDI received in the country since 1999, followed by Coahuila with 9.92 percent and Nuevo Leon with 9.84 percent. The Ramos Arizpe-Monterrey corridor is home to nine OEM facilities, including South Korean newcomer Kia.

Due to its proximity to the US, Mexico’s northern states share a robust manufacturing legacy that is reflected in the strong presence of automotive OEMs and suppliers in the region. Coming challenges for companies and local governments alike include the development of a stronger local supplier footprint for the region to be prepared for the new rules of origin established in USMCA.

203

CHAPTER 9: NORTHERN STATES 206

ANALYSIS: Long-Standing Players Keep Up Their Game

208

STATE PROFILE: Northern States: Steady Automotive Region

210

VIEW FROM THE TOP: Roberto Russildi, Minister of Economy and Labor of Nuevo Leon

211

VIEW FROM THE TOP: Manuel Montoya, CLAUT

212

VIEW FROM THE TOP: Tarsicio Carreón, Chihuahua Automotive Cluster

213

ANALYSIS: Northern States Face COVID-19

215

VIEW FROM THE TOP: Felipe Villareal, Alian Plastics

216

ANALYSIS: The Lighter the Better

217

INSIGHT: Luis Gutiérrez, Meritor Commercial Vehicles Aftermarket Mexico

218

SECTOR AT A GLANCE: Local Know-How, Global Quality

219

VIEW FROM THE TOP: Mauricio Garza, Interpuerto Monterrey

220

VIEW FROM THE TOP: Cesar Stackpole, Acerall Energy Solutions

221

SECTOR AT A GLANCE: Fostering Specialized Solutions While Empowering Local Suppliers

205

| ANALYSIS

LONG-STANDING PLAYERS KEEP UP THEIR GAME Chihuahua, Coahuila and Nuevo Leon account for a third of the total automotive FDI received in Mexico since 1999. The region hosts OEMs, as well as big Tier 1 suppliers. Each state plays a particular role in the industry but their shared vision of developing a local footprint and research operations will secure their place in the years to come The northern part of Mexico has always enjoyed of a unique

manufacturing industry in the country, with 182,000 people

geographic advantage that Tier 1 companies have used

working in the manufacturing sector as of September 2019.

to establish their assembly plants. Combined, Chihuahua,

206

Coahuila and Nuevo Leon account for 36 percent of the total

Notably, Chihuahua was the only state in the country that

FDI received in the industry from 1999 to 3Q19, including nine

overcame the constraining trend in the industry, growing at

OEM assembly plants and 81 plants from Global Top 20 Tier

a 108.4 percent rate in FDI between January and September

1 suppliers, such as Mahle, Lear, Valeo, Adient, Continental

2019 compared to 2018. This figure was the result of

and Magna. As of September 2019, the transport equipment

Chihuahua Gov. Javier Corral’s meetings with AMIA to attract

manufacturing sector employed almost half a million people

more investment to the state. “We have a thriving environment

(439,150) across the three states.

for investments and we are ready to support the industry

“

under the current geopolitical situation,” said the governor

The state developed a strongly automotivefocused work culture after four decades of having a strong exports-oriented manufacturing industry” Tarsicio Carreón, President of Chihuahua Automotive Cluster

in an official statement.

COAHUILA Due to its location, this northern state has also enjoyed a considerable automotive presence, accounting for 9.92 percent of the national FDI in the sector from 1999 to 3Q19 – more than Nuevo Leon. Between 2015 and 2018, FDI in the state grew at an average of 54.9 percent. However, FDI decreased by 44.7 percent between January and September 2019 compared to 2018. There are five OEM plants in the state: GM, Daimler and three FCA facilities, as well as 26 plants from Global Top 20 Tier 1 suppliers such as Adient, Lear, Magna and Faurecia.

CHIHUAHUA The state has a long-standing auto parts manufacturing

In August 2019, INA President Oscar Albin in an interview

tradition, with Ciudad Juarez having the largest presence of

with El Economista said that at the national level, Coahuila

major OEM assembly plants, given its direct access to the

leads in auto parts production, accounting for 19.2 percent of

El Paso logistics corridor. “The state developed a strongly

the national volume. After Chihuahua, Coahuila has the most

automotive-focused work culture after four decades of having

employees in the transportation equipment manufacturing

a strong exports-oriented manufacturing industry. This work

sector, employing 177,195 people. “USMCA will strengthen the

culture is based on meeting quality standards and industry

arrival of FDI, leading to high-value specialized investments

requirements. Chihuahua’s strategic location in northern

and making employees the biggest winners in the industry,”

Mexico also offers logistics advantages. The state is part

said José Luis Hotema, President of Cluster Automotriz

of a natural automotive logistics corridor targeting the US,

Laguna, in an interview with El Economista.

with the border only a few hours away by car from the state capital,” says Tarsicio Carreón, President of the Chihuahua

NUEVO LEON

Automotive Cluster.

Kia’s arrival to the state revved Nuevo Leon’s automotive engine. During the 2015-2018 period, FDI in car and auto

Historically, the automotive industry has found in Chihuahua

parts manufacturing accounted for US$3.8 billion with an

a fertile area to flourish. Of the total automotive FDI received

average growth rate of 109 percent. From September 2014 to

in Mexico between 1999 and 3Q19, 16.54 percent has

September 2018, employment in the sector grew 36 percent.

been allocated in the state, making Chihuahua the largest

“Nuevo Leon hosts both Mexican and international automotive

automotive FDI attractor, even ahead of Guanajuato or Puebla.

companies. Kia is the main OEM, but there are many that

Moreover, the state concentrates the largest workforce for the

make components for cars. Some companies have reinvented

Kia Plant, Pesqueria, Nuevo Leon

their product portfolios to meet changing global demand,”

One of the first steps for local companies to participate in the

says Roberto Russildi, Minister of Economy and Labor of

supply chain is to anticipate potential customer needs. “Local

Nuevo Leon.

companies need to understand the necessities across different industries and how they can contribute to fill in the gap in

Collaboration has been key in Nuevo Leon’s recent success.

foreign companies’ supply chains. It is essential they are aware

The private sector, government and universities have come

of their capacities and what makes them a viable option,” says

together to strengthen the automotive supply chain. Clusters

Felipe Villareal, CEO of Alian Plastics, a Nuevo Leon plastic-

have also played an important role. “Besides connecting

injection company that is diversifying its operations across

local suppliers with multinational automotive companies and

different industries.

raising awareness about the competitiveness and capacities of Mexican players, clusters also are responsible for opening

Entrepreneurs can also have a say in this local-footprint

and easing commercial relations between businesses,” says

strategy. For young companies, clusters are a strategic ally.

Manuel Montoya, President of CLAUT.

“Clusters provide training and they open doors for local players to get into the big leagues,” says Sergio Santibañez,

Nuevo Leon’s industrial-oriented workforce has helped

Managing Partner of DOSE Solutions.

convince companies to bring advanced manufacturing processes to the state. “The state of Nuevo Leon has an

SPECIALIZATION AND RESEARCH

industrial heritage. In other regions, you will find people who

In addition to developing a local footprint, northern states

have never before seen a stamping press. Here, you have

have focused on developing capabilities of both workforce

generations with experience in the steel and metal-mechanics

and companies. According to state government data,

industry,” says Javier Gallegos, General Manager of Trans-

Chihuahua has 56 industrial parks across seven cities, five

Matic Precision Metal Forming.

research and advanced engineering centers, as well as three research and technology development parks. In Nuevo Leon,

Moreover, companies have expanded to keep up with

CLAUT’s DRIVEN innovation center has increased the state’s

conditions in the state. “In 2018, we invested around US$3

attractiveness as a design and engineering destination for

million to improve our foundry in Monterrey. About half of

over three years.

that went to automating the plant, particularly in the finishing area where components are deburred,” says Patricio Gil, CEO

“As part of the Autonomous University of Nuevo Leon,

of Blackhawk de México.

DRIVEN now trains high-quality talent in design and engineering areas and supports around 20 companies

DEVELOPING A LOCAL FOOTPRINT

with engineering services. Students educated at the center

Northern states are aware of the need to develop and

graduate with a master’s and over 2,000 hours of experience

integrate local suppliers to ensure sustained regional growth in

in design and advanced simulation oriented to automotive

the long term. “USMCA will force Asian and European OEMs to

processes,” says Montoya.

purchase more components in Mexico. This shift in operations offers a great area of opportunity for local governments and

“Four major universities in our state have modified their

Mexican automotive suppliers to collaborate. We need a

programs to include new skills and ideas related to Industry

comprehensive strategy to support Mexican companies that

4.0. We have invited global representatives of major

want to invest and expand into new regions of the country,

companies to the new Center for Advanced Manufacturing

with clusters working as intermediaries between the public

at the Park for Research and Technological Innovation (PITT)

and private sectors,” says Montoya.

to see what is possible here in Mexico,” says Russildi.

207

| STATE PROFILE

NORTHERN STATES: STEADY AUTOMOTIVE REGION Chihuahua, Coahuila and Nuevo Leon account for a third

in the manufacturing sector than any other state given

of the total automotive FDI received in Mexico since 1999.

that automotive suppliers are not the only manufacturing

Of that, Chihuahua holds the greatest share. US OEMs were

players. Nine of the 10 OEM facilities in the region are

the only players in the region until Kia started operations in

located in the Ramos-Arizpe - Monterrey corridor, except

Nuevo Leon in 2015. These three states employ more people

for Ford's engine plant in Chihuahua city.

208

NUEVO LEON

CHIHUAHUA

COAHUILA

Automotive FDI received 1999 - 3Q19 (US$ billion)

7.15

12.03

7.21

Vehicle production FDI (US$ billion)

2.27

0.91

1.92

Auto parts production FDI (US$ billion)

4.88

11.12

5.29

9.84%

16.54%

9.92%

Share of national automotive FDI received 1999 - 3Q19

HEAVY AND LIGHT-VEHICLE OEMs

Heavy-vehicle OEMs

Ford Chihuahua (engines)

Light-vehicle OEMs

Daimler - Freightliner Derramadero (truck assembly)

Top global Tier 1 suppliers

3 FCA Group Saltillo (truck assembly) 4 FCA Group Saltillo (van assembly) 5

GM Ramos Arizpe (engines, vehicle assembly and stamped parts)

6 FCA Group Ramos Arizpe (engines) 7 FCA Group Saltillo (engines) 8

Daimler - Mercedes-Benz Buses García (bus assembly)

Navistar - International Escobedo (truck assembly)

10 Kia Pesquería (vehicle assembly)

Sources: Mexico Automotive Review, INEGI, Automotive News, Ministry of Economy, INEGI, AMDA

Sep-13

Trucks

Motorcycles

Sep-14

Sep-15

Sep-16

Sep-17

468,141 435,620 232,118

1,406

84,288 25,784 23,051

500

182,000

Sep-18

Total sales of ‘green’ vehicles 2016 - Aug 2019

1,706,431 1,599,601 549,332

559

Nuevo Leon Chihuahua Coahuila

10,169 Buses 8,897 98,693 0

79,955

80,364

*NAICS Sector 336 includes Automotive, among others

Nuevo León Coahuila de Zaragoza VEHICLE PARK SIZE IN 2018 Chihuahua Cars

177,195

177,898

184,224 167,190 76,316

156,562 72,647

59,155

64,477

138,874

127,948 54,193

100

127,795

150

138,735

200

162,443

— Coahuila 161,309

— Chihuahua

151,141

— Nuevo Leon

190,625

PEOPLE EMPLOYED IN THE TRANSPORTATION EQUIPMENT MANUFACTURING SECTOR*

1,000

1,500

6 5 7 2

702

2,000

3 4

Sep-19

Countries with the highest contribution to total FDI 1999 3Q19 (US$ billion) US

25.19 US

22.33 US

12.49

209

| VIEW FROM THE TOP

BASING STRATEGY ON INDUSTRY NEEDS ROBERTO RUSSILDI Minister of Economy and Labor of Nuevo Leon

210

Q: How did you devise the strategy for the state’s economic

between what industries demand from human capital

development?

and what is taught at schools. Some trades and

A: Our strategy emerged from many consultations with

specializations have greater demand than others. Our

stakeholders across different industries and other economy-

educational institutes reacted by introducing new

related agents. We found that there were many issues that

programs or modifying current ones. At the same time,

were not being properly addressed. Regarding economic

we re-orientated scholarships to in-demand degrees to

development, the role of the federal government is to

stimulate enrollment in these areas.

establish bilateral treaties with other countries, establish tax policies and devise subsidiary plans to stimulate growth and

Our state has the highest average salary in the country,

employment. The state government has to come up with a

but there are still many people with very low wages. In

strategy that encourages growth of the local economy. We

response, we built a program to help people who are paid

acknowledged that entrepreneurs and not the government

very little to take training courses for different subjects,

are the main local employment generators. Universities and

such as a technicians, truck drivers or carpenters. These

technical schools and not the government are the institutions

training programs significantly increase wages and

best suited to impart education for the population. Therefore,

quality of life. Because their skills are in demand, many

we devised a three-dimensional model that brings together

come out with a salary higher than those trained at the

the private sector, academic institutions and the government.

best private schools. In some cases, people have not completed elementary or secondary school, but we have

We approached industry chambers, clusters, unions and

found a way around this by allowing them to sit through

representatives from educational institutions and established

a basic reading and comprehension test. If they pass,

a dialogue about important subjects. Together, we defined

then they become eligible for receiving training. I do not

10 factors for economic growth that could enhance the

see a problem with raising salaries, even though it may

economy’s performance. Taking care of these factors allows

push certain sectors, such as textiles, out of our region.

us to improve the economic environment week by week and

It shows that people in our state are getting a better life.

month by month. In collaboration with the Strategic Planning Council of Nuevo Leon (CONL), we came up with a plan that

Q: What is Nuevo Leon's vision regarding the

will stay in place even when the government administration

automotive sector?

changes. The first strategic plan was drawn up three years ago

A: Nuevo Leon hosts both Mexican and international

and goes as far as 15 years. Every three years it is updated.

automotive companies. KIA is the main OEM but there are

The plan is compiled with the contribution of economists

many companies that make components for cars. There

from various institutions, such as COPARMEX, Tecnológico

is a lot of communication not only within the automotive

de Monterrey and the University of Nuevo Leon.

cluster but also with parties such as Tecnológico de Monterrey. Some companies have reinvented their

Q: What role does the education system play in your strategy?

product portfolios to meet a changing global demand.

A: We have an excellent educational system in the state

We believe it is important to connect small and medium-

already, but we needed to improve the correlation

sized businesses to larger companies so they can learn and potentially receive funding for expansion. At the same time, we try to bring together universities, technical

Roberto Russildi has a Bachelor’s in chemical and systems

schools and automotive companies to cooperate toward

engineering and an MBA from Tecnológico de Monterrey. He

solving the market’s needs. Overall, the idea is to improve

became Minister of Economy and Labor of Nuevo Leon in 2018

the value chain offering and reach a higher percentage

after being Minister of Sustainable Development of the state

of nationally produced goods.

VIEW FROM THE TOP |

PLANT STABILIZATION, TRAINING, INNOVATION: THE PROMISES OF TOMORROW MANUEL MONTOYA Director of CLAUT

Q: What advances have Mexican companies made in entering

into new regions of the country, with clusters working as

Kia and Hyundai’s supply chain?

intermediaries between the public and private sectors.

A: There have not been many significant advances because OEMs are not yet open enough to integrating local suppliers

Q: What are the most significant milestones for the Nuevo

into their productive chains. Mexican suppliers are well-

Leon Tooling Cluster?

equipped to support global companies but South Korean

A: Mexico imports over US$2 billion in tooling components

automakers prioritized the stabilization of their production.

every year and only 5 percent of the tooling equipment the

However, the Hyundai-Kia assembly plant is now up and

country needs is produced locally. The tooling cluster project

running and so are its Tier 1 suppliers, so I expect greater

has advanced well; members of the cluster include users and

openness toward local companies.

buyers of tooling equipment and shops that produce and provide maintenance for these components. We have focused

Q: What is the role of regional clusters in strengthening

our efforts on creating infrastructure and acquiring tooling

Mexico’s supply chains?

equipment. With the support of the federal government and

A: Besides connecting local suppliers with multinational

some members of CLAUT, the Nuevo Leon Tooling Cluster

automotive companies and raising awareness about the

is creating a center at one of UANL’s technical high schools

competitiveness and capacities of Mexican players, clusters

where maintenance technicians are trained and companies

also are responsible for easing commercial relations between

can bring their molds and dies for maintenance. The center

both types of businesses. Mexico has a capable supplier base

will provide automotive OEMs and Tier 1 suppliers that have

but it is challenging for these companies to enter global

in-house tooling shops, as well as independent shops that

supply chains. Purchasing processes tend to be slow and

produce their own molds and dies, with a place to educate

complicated as a result of the permits and approvals that

their talent.

suppliers are required to have.. Q: How has CLAUT’s DRIVEN Innovation Center increased the Q: How is CLAUT working to help its member companies

attractiveness of Nuevo Leon as a design and engineering

adapt to the trade conditions established in USMCA?

destination?

A: The new treaty will force Asian and European OEMs to

A: In its first three years of operations, the DRIVEN Innovation

purchase more components in Mexico. However, we still need

Center has focused on establishing its position as a training

to fully understand the new rules of origin in the USMCA.

and technological development center. As part of the

CLAUT collaborates with expert legal and consulting firms

Autonomous University of Nuevo Leon, DRIVEN now trains

to help member companies become aware of and comply

high-quality talent in design and engineering areas and

with the new rules and all related implications. We are

supports around 20 companies with engineering services.

also waiting for automotive OEMs to outline their specific

Students educated at the center graduate with a Master’s

requirements under these new conditions so suppliers can

and over 2,000 hours of experience in design and advanced

adapt accordingly.

simulation oriented to automotive processes. The center also helps companies to engage in more engineering operations

Once all this is in place, CLAUT will have a much clearer view

locally and has stimulated the arrival of more R&D investment.

of the challenges and opportunities that lie ahead and will be able to more effectively connect Mexican suppliers and multinationals. This shift in operations offers a great area of

The Automotive Cluster of Nuevo Leon (CLAUT) is a civil

opportunity for local governments and Mexican automotive

association composed of automotive suppliers, academic

suppliers to collaborate. We need a comprehensive strategy

institutions and public dependencies tasked with boosting the

to support Mexican companies that want to invest and expand

competitiveness of the Nuevo Leon automotive sector

211

| VIEW FROM THE TOP

PREPARING FOR THE NEXT STEP TARSICIO CARREÓN President of the Chihuahua Automotive Cluster

212

Q: What are the main advantages that Chihuahua offers to

visibility on these needs so companies, government entities

potential automotive investors?

and academic institutions can make informed decisions

A: The state developed a strongly automotive-focused work

accordingly. Additionally, the Chihuahua Automotive Cluster

culture after four decades of having an exports-oriented

helps its members to take advantage of programs sponsored

manufacturing industry. This work culture is based on meeting

by the state government to develop the sector. This includes

quality standards and industry requirements. Chihuahua’s

support to earn certifications, training programs or the

strategic location in northern Mexico also offers logistics

development of new manufacturing processes. The cluster’s

advantages. The state is part of a natural automotive corridor

objective is to develop a medium- to long-term strategy for

targeting the US, with the border only a few hours away.

the state’s automotive industry.

Moreover, there are more than 10 academic institutions that are constantly aligning their study and training programs with

Q: What is the Chihuahua Automotive Cluster’s strategy to

the needs of the automotive industry, while students have the

develop the capacities of local companies?

possibility to do internships at automotive companies.

A: When a local supplier lacks a certain skill or capacity demanded by the industry, the cluster looks for agreements

Q: What is the cluster’s strategy to attract investments to

in which buyer companies that demand these processes help

produce components for the car of the future in Chihuahua?

develop the capacities of local players. No company can cover

A: A company will want to invest in a region when the proper

the whole value chain, so local suppliers should have the

conditions for investment are in place. Academic institutions

opportunity to offer services or supply products that are not

must be ready to support the industry’s demands, the local

the core business of the client. These supplier-development

government must understand what needs new technologies

strategies include having the buyer train or even invest in its

address to develop regulations accordingly and local

supplier so that new processes are available in the region.

companies need to ramp up their product and service offering. When these conditions are in place, investments

The cluster has found that local suppliers usually have

for the production of advanced components will arrive on

covered a substantial part of the process that the industry

their own. There is little point in promoting investments if the

demands, but they are not cost-competitive compared to

proper conditions in the state are not there.

similar suppliers in China. Local companies must analyze and understand what harms their cost-competitiveness and

Q: How is the cluster working to ease the transition to new

address that challenge.

technologies? A: The cluster works as a bridge between government

Q: What are the main gaps that you have identified in the

representatives, private companies and academic institutions

Mexican Tier 2 supplier base?

to identify the new needs of the industry and to build synergies

A: Mexico imports a huge volume of consumable products

between all players. When we detect a new need in the sector,

and manufacturing technology for the automotive industry,

we support our members by offering special training on how

such as sensors and robotic equipment. The Chihuahua

to fill that gap or bring in expert speakers to present the new

Automotive Cluster has identified several technology gaps

technologies. It is important to help automotive players gain

in Mexico related to products and services, such as quality forged components that meet client expectations, die and mold maintenance or strong metal sintering capacities. These

The Chihuahua Automotive Cluster is an association of

segments are huge areas of opportunity for local players to

automotive companies, government agencies and academic

develop their capacities. Areas such as the local production

institutions focused on fostering the growth of the automotive

of molds for plastic technologies are highly technologically-

industry in Chihuahua

challenging for Mexico, for instance.

ANALYSIS |

NORTHERN STATES FACE COVID-19 Due to the strong links between northern states and the US, the effects of lockdown measures were different than in the rest of the country. A closed border since March 21 only allowed essential travel and flow of goods between the two countries. In Nuevo Leon alone, the impact of restricted border crossings totaled US$55 million Due to the unique characteristics of Mexico’s northern border

lost MX$1.2 billion (US$55 million). The state government

states, the COVID-19 pandemic hit the region differently

supported people who lost their job and companies by

than the rest of the country. From March 21, the US and

providing credits and payroll tax exemptions, as well as

Mexico mutually agreed to close their border to allow only

support for export procedures.

“essential” travel between the two countries. This measure did not impact the free flow of goods. Chihuahua, Nuevo Leon

CHIHUAHUA

and Coahuila followed the health emergency measures set

According to INA, 70 percent of the vehicles manufactured

by the federal government on March 30, which led to the

in North America have a component manufactured in

suspension of all non-essential activities. After a month of

Chihuahua. The state attracted almost 17 percent of total FDI

suspended operations, which led to historic production lows

in the automotive sector from 1999 to 2019. As of June 9,

of just 3,722 new vehicles produced in April, industry leaders

the state had 2,461 COVID-19 confirmed cases, some of them

and associations urged the government to reconsider the

at manufacturing facilities. Reuters reported that employees

automotive industry’s classification as a non-essential activity.

were worried about returning to manufacturing facilities at

On May 12, the federal government announced mining,

the Rio Bravo industrial park, which faced one of the deadliest

construction and transport equipment manufacturing would

COVID-19 outbreaks, leading to the death of 20 factory

be considered essential and should resume operations upon

workers because of the virus. Like other manufacturing

the approval of their health and safety protocols by IMSS.

facilities in the country, companies underwent a validation and certification process for the health and safety protocols

NUEVO LEON

enabled at their plants. Plant managers have affirmed

Kia’s plant in Pesqueria, Nuevo Leon, was among its two

productivity could drop between 30 and 40 percent due to

manufacturing plants that were still operating in early April.

all the safety measures taken.

Following a government request, Kia suspended operations on April 6. The long industrial tradition in the state remained

Chihuahua Gov. Javier Corral presented his state’s reactivation

suspended for over a month, during which industry players

plan, based on the assumption that the “pandemic will last for

supported each other through the difficult times. “Local

many years,” according to his statement. Although transport

suppliers and smaller companies have the least resources.

equipment manufacturing was considered essential in mid-

There have been companies, as I can tell from the Nuevo Leon

May and companies would have been allowed to operate upon

Automotive Cluster’s experience, that have indeed taken care

the approval of their sanitary protocols, in Chihuahua most

of their supplier base. Some have advanced their payments,

transport equipment manufacturing companies waited until

while others have designed billing strategies to maintain

June 1 to resume operations at only 30 percent capacity.

cash flow. Tier 2 companies have also taken care of their own suppliers. Overcoming this situation is a joint effort,” says

COAHUILA

Manuel Montoya, President of CLAUT. As of June 9, the state

The state took a different approach toward the automotive

had 4,064 confirmed COVID-19 cases.

and aerospace sectors. Shortly after the classification of transport equipment manufacturing as essential, Gov. Miguel

As the industry was getting ready to resume operations, new

Riquelme announced that the state had already started actions

investments were needed to ensure the safety of employees

to reactivate these sectors. “The challenge for Coahuila is to

who were returning to work. “Companies have been willing to

dynamize the economy and bring the jobs back, while keeping

make investments related to social-distancing norms, physical

all preventive measures in place to prevent new COVID-19

barriers, entry protocols and temperature checks. We are

contagions,” said the governor on a statement. President of

talking about investments that range between MX$100,000

COPARMEX Coahuila Southeast Ricardo Sandoval highlighted

(US$4,606) and MXN$1 million (US$46,068),” Montoya

the close links between the state’s manufacturing footprint

told El Economista. CLAUT is integrated by more than 100

and US manufacturing operations. “We are aware that when

automotive-related manufacturing plants in the state that

the US is ready to reactivate its automotive sector, we must be

all sought to resume operations on June 1. The Nuevo Leon

ready to do so as well. Some companies are ready to resume

government reported that due to the pandemic, the state

operations,” he said in May.

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VIEW FROM THE TOP |

CERTIFICATIONS ARE WORTH IT FELIPE VILLAREAL CEO of Alian Plastics

Q: How has the arrival of new companies to Nuevo Leon

which resin it was and which supplier it came from. We

influenced Alian Plastics’ operations?

also are committed to society and the environment, so

A: At the beginning of the year our intention was to invest

we are ISO 14:001 certified. We also follow Alian Plastics’

in new machines, but we are looking for new projects to

ethics code, which emphasizes an ethical environment

begin this expansion. We have also started diversifying

to ensure solid ethical commercial relationships with

our operations across different industries. It is not easy,

customers and suppliers.

despite having high-tonnage presses that not everybody in Nuevo Leon has. It took us a year to close a project

Q: What opportunities have you identified among local

with the HVAC company Carrier, but after our success we

suppliers and what opportunities will USMCA bring?

will now explore aerospace and industrial plastic-injection

A: None of the resins we use are Mexican. This is a major

applications.

opportunity since we cover logistics costs to import materials from Italy and the US, which also requires

Q: What advices can you give to Mexican companies

having an elevated stock to keep up with just-in-time

wanting to participate in global supply chains?

expectations. USMCA will introduce new challenges for

A: Local companies need to understand the necessities

export procedures. We will still pay tariffs and due to all

across different industries and how they can contribute

the new procedures, wait times at customs may increase,

to fill in the gap in foreign companies’ supply chains. It

which will ultimately affect everyone’s operations.

is essential they are aware of their capacities and what makes them a viable option. Participating actively in

Q: What role does R&D play within Alian Plastics’

their cluster can also make a difference. CLAUT has been

operations and how has lightweighting impacted your

very supportive in helping companies in areas like sales,

operations?

quality and engineering. By taking advantage of these

A: The market where we play is really protective about

opportunities, companies can offer the competitive costs

its product development. We do not perform R&D from

that the industry demands.

scratch, but develop new projects together with our clients. Once we have the design of the component,

Alian Plastics has been really active in CLAUT’s events

our commercial partners in different countries, such as

and trainings. We have improved our sales department to

Portugal, China, Canada, the UK and the US, can develop

understand our clients’ needs better. Also, we are playing

the molds from scratch. We then release the molds and

an active role in regional and national events to present

develop the project to manufacture the new component.

Alian Plastics’ high-quality pieces and our installed capacity.

Since plastics are some of the lightest components in vehicles, there have been few innovations in terms of

Q: In a highly competitive segment such as plastic

lightweighting. The type of resin used will depend on

injection, what are Alian Plastics’ main differentiators?

the component. However, the biggest impact from this

A: Our certifications are our cover letter. Our quality

trend is on steel-made components that are now being

system is IATF-16949 certified. We are also certified by

manufactured in aluminum.

the UL, which backs up material traceability. For plastic injection processes it is very important to use the resin the client actually requires and with the UL certification

Alian Plastics is a Tier 2 company specialized in high-tonnage

we make sure we can track the material from the moment

plastic injection and services to optimize production capacities.

we receive it until the component is done. If there is a

In the automotive sector, the company has worked with Magna,

problem in the field or at the production line, we can track

Draexmaier, Commercial Vehicle Group and Continental

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| ANALYSIS

THE LIGHTER THE BETTER While regulations in Europe have led to a reduction in component weight in both heavy and light vehicles, global suppliers established in Mexico are already focusing on being better at getting lighter. The trend extends to the bottom of the supply chain as companies develop mixed materials to comply with new requirements A combination of political, industrial, technological and

rigidity and durability of the components. On the other

social elements has triggered a race to produce lighter

hand, design implies an overall optimization of the

vehicles. Environmental policies on both sides of the

vehicle’s geometry while retaining its functionality.

Atlantic have established deadlines for more fuel-efficient and less-polluting cars. The challenge has permeated the

According to CAR, an average vehicle in the US is made

entire supply chain including the companies present in

of 65 percent steel, 13 percent aluminum, 6 percent plastic

northern states.

and polymer composites and the rest is composed of other materials. In Europe, according to ALLIANCE, 60

216

The approach in the US is to bet on more efficient vehicles.

percent of a car is made of AHSS steel, while plastic

The Corporate Average Fuel Economy (CAFE) standards

components represent just 10 percent of the weight.

will require light vehicles to achieve a 54.5mpg (23.17km/l)

These figures show that mixed-material body structures

efficiency by 2025. The European Union, in contrast, has

of steel and aluminum combined with polymers and

a reduced-emissions approach. The Emission Ceilings

plastics are more likely to increase.

Directive established that by 2021, new cars in Europe should emit no more than 95g/km of CO2, a considerable

Global steel players are already developing new materials

reduction from the 130g/km limit established in 2015.

to address OEMs’ lighter needs. “We are developing new and more resistant products that could revolutionize the

Two working groups have been created to help both

market. Our second-generation steel products will be the

OEMs and suppliers to have sufficient information

most disruptive so far as we are approaching weights

to adapt to these new circumstances. In the US, the

similar to aluminum but with the same strength and cost

government created the US Driving Research and

of steel,” says Jorge Garduño, Special Steels Manager

Innovation for Vehicle Efficiency and Energy Sustainability

of SSAB Mexico. Today, SSAB offers DOCOL steel and

(DRIVE) initiative and the members of the Center for

STRENX steel for light and heavy vehicle manufacturers.

Automotive Research (CAR) have created the Coalition

“DOCOL is a cold-rolled material with a thickness of

for Automotive Light-weighting Materials (CALM).

around 0.7mm to 2mm for light vehicles. STRENX, which

Meanwhile, in Europe, under the auspices of different

is geared toward heavy vehicles, starts at a strength of

EU institutions, the Affordable Lightweight Automobile

100lb, providing three times the strength of commercial

Alliance (ALLIANCE) was created in 2016, bringing

steel,” Garduño says.

together six leading European carmakers, four major suppliers and eight research entities to reduce vehicle’s

The quest for lighter materials represents a potential

weight by 31-33 percent by 2025.

market for the entire supply chain. According to ALLIANCE, the automotive lightweight material market

Companies with a global-footprint and based in Mexico

was estimated to reach US$89.1 billion in 2019 and

are already producing lighter auto parts for OEMs.

will exceed US$157.7 billion in market value by 2027.

“Weight matters in the automotive industry. OEMs are

Approximately 90 percent of the market will be focused

eager for lighter parts to boost vehicle performance and

solely on the automotive sector.

fuel efficiency. Keeping up with the lightweighting trend can determine an automotive supplier’s success,” says

New production processes will be required to achieve

Rubén Lostal, Plant Manager at Mubea de México. Mubea,

lighter materials. “To enable the production of lightweight

a German supplier, has set a goal of delivering products

parts, the use of advanced manufacturing technologies

that are 5-10 percent lighter than its competition.

such as additive manufacturing, thin-wall casting, resin transfer molding and structural adhesives are all

LIGHTWEIGHTING MATERIALS

expected to increase,” says Shashank Modi & Abhay

Weight reduction in vehicles requires a multidisciplinary

Vadhavkar, author of CAR’s Technology Roadmap:

approach that can be focused either on materials or

Materials and Manufacturing. “The future of materials

design. According to ALLIANCE, the material approach

and manufacturing technologies will depend on multiple

requires lower density materials while retaining the

factors, such as the availability of enabling technologies

and the cost, consumer acceptance, recyclability and

aluminum. For instance, transmission gears, axles and some

supply chain and infrastructure required to support them.

suspension components undergo great stresses, so they

Design optimization is the key to balancing performance

must continue to be produced with steel. On the other hand,

and cost requirements,” the report states.

components like monoblocs and cylinder heads are more suitable for aluminum, which is where Nemak, for instance,

LIGHTWEIGHTING FOR HEAVY VEHICLES

has promoted migration to new materials,” says Patricio

The heavy segment is also being influenced by the

Gil, CEO of Blackhawk de México, a gray and ductile iron

lightweighting trend as fuel efficiency can help OEMs to

foundry part of Mexican industrial giant Grupo Quimmco that

cope with environmental standards. Heavy OEMs with

specializes in the production of casting components used

production operations in Mexico have already started to

in powertrains, hydraulic chassis and engines of commercial

introduce models that are lighter and more fuel-efficient.

and heavy vehicles and agricultural equipment.

Volvo FM is 75kg lighter than its predecessor and the company has bet both on design and materials. MAN

Some interesting game-changing innovations are coming

Truck, with a plant in Queretaro, presented its MAN TGX

to the heavy-vehicle segment due to lighter components.

model with a MAN D15 engine that complies with Euro

This trend is best seen at European OEMs. “We offer

VI standards thanks to weight reduction in the engine.

hydraulic systems for the European market that are lighter and more compact, contrary to what we see in the

“Since the total weight of heavy vehicles is thoroughly

North American region, where bigger and heavier is best.

regulated, each kilogram removed from the truck’s body is

The trend is to become more efficient, lighter and faster in

added as cargo. This incentivizes OEMs to push for weight

operations and performance,” says Daniel Fetzner, Sales

reduction. In this environment, light metals like aluminum

Director of HYVA de Mexico, a Dutch company specialized

and magnesium compete against heavy metals such as steel

in tipping and dump systems. “The industry should not

and iron. Light metals weigh less but are also less robust,

look to the US only. Companies should look at global

so not all heavy metal components can be substituted with

trends to compare different solutions,” says Fetzner.

INSIGHT |

MEETING EXPECTED CHALLENGES LUIS GUTIÉRREZ Managing Director of Meritor Commercial Vehicles Aftermarket Mexico

To adapt to a contracting market, companies need to set

us to reach our targets,” Gutiérrez says. The company has

clear priorities, says Luis Gutiérrez, Managing Director of

adapted its products to customer needs, providing the

Meritor Commercial Vehicles Aftermarket Mexico. “We hired

quality they look for according to truck age. “Our solutions

experienced people and we are listening to our clients in

include Meritor Genuine, which is our OEM-quality line for

an effort to launch new and more competitive products at

0 to 5-year-old trucks; Meritor for trucks aged 5 to 10 years

a competitive price,” he says.

and Mach, our new spare parts brand directed at vehicles that are over 10 years old,” he says.

Meritor Mexico is a US-based company that provides drivetrain, mobility, braking and aftermarket solutions for

External factors, such as the US-Mexico trade environment,

commercial heavy vehicles. It works with OEMs such as

can add short-term challenges but can also provide long-

Mercedes-Benz, Freightliner, Volvo, Navistar and Kenworth

term benefits. “The challenge for the market from USMCA

Trucks. Having foreseen the contraction in the market,

will be the resulting higher wages. It was not fair for

Meritor Mexico has set new strategies in motion. “We have

Mexican workers to receive lower salaries. As soon as we

undergone a major restructuring for almost three years.

can increase our salaries to an international standard, the

Our goal is to increase our sales considerably and while

virtuous cycle of the economy can bring benefits for all,”

some clients have not grown, others have, which will help

Gutiérrez says.

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| SECTOR AT A GLANCE

LOCAL KNOW-HOW, GLOBAL QUALITY

“ 218

When globalization began, Mexico was worried. However, we have done extremely well so far ”

Dinamek, which is taking advantage of its more than 20 years

Juan Carlos García, Director General of DIGA

To ensure the workforce has the necessary skills and

of experience to produce the dip tanks on which panting cabins are mounted. According to Garza, production of these dip tanks requires a highly specific know-how that needs to be combined with cost-effectiveness.

expertise, successful companies have embraced extensive and constant certification and training programs. “Having

When NAFTA was enacted in 1994, Mexican companies

trainees is an investment. We started by replicating Trans-

recognized that if they wanted to be a key part of the global

Matic’s US apprenticeship model with local technical schools

automotive industry, they needed to boost the know-how and

and technological universities,” Gallegos says. When trainees

expertise of their workers. More than 25 years later, Mexican

complete the program, they visit the company’s Michigan

companies in the automotive supply chain remain competitive.

headquarters to gain real-life experience in the field.

“When globalization began, Mexico was worried. Industrial plants like us were in fear of competing with countries like the

Moreover, Gallegos says that specialized processes, such as

US and those in Europe. However, we have done extremely

deep draw stamping, require more than just experience. “Once

well so far.,” says Juan Carlos García, Director General of DIGA.

workers get to the plant, we need to train them to develop their capabilities,” Gallegos says. “We rely a great deal on

While the country’s proximity to the US has helped companies

people’s craftsmanship. We need a person who knows how to

participate in the automotive supply chain, Mexico’s know-

evaluate every single piece.” However, achieving this degree

how and labor force have played integral roles. “The

of specialization requires embracing international good

automotive industry is all about quality and service, both

practices, as well as constant communication with commercial

of which are supported by a highly skilled labor force. The

partners. “Companies like ours have to be as near as possible

Mexican workforce is excellent and we have focused on

to their clients, while embracing global best practices,” says

training and certifications to keep it like that,” says García.

Gustavo Rojas, Director General of Grupo Gersa Monterrey.

Mexican companies have invested heavily to maintain a trained workforce. However, states with an industrial tradition and a

Today’s industry, however, requires more than just know-

more active participation in global manufacturing processes

how and expertise. It requires flexibility, says de la Garza,

tend to be those where there is specialized expertise, says

who points out that companies that want to support OEM

Javier Gallegos, General Manager of Trans-Matic Precision

assembly operations with components, industrial equipment

Metal Forming de México. “The state of Nuevo Leon has an

or indirect materials must keep up with changing demands.

industrial heritage. Here, you have generations with experience

“OEMs are highly demanding customers in terms of both price

in the steel and metal-mechanics industry.”

and service, which reduces the number of companies that can supply them directly,” says de la Garza. “There are very

Gallegos adds that the Mexican market is ready for specialized

few suppliers of raw materials with the right specifications for

processes, with more companies willing to develop local

the automotive industry. For example, polyurethane foam is

suppliers and specialized labor. That can help companies play

focused not on automotive but on mattress manufacturing.”

to their strengths, says Jorge de la Garza, CEO of Industrias De la Garza says that Dinamek has chosen to also cater to the needs of suppliers, since they tend to be more open to collaboration than OEMs. “Suppliers generally offer less resistance for equipment suppliers to support them in the

Beyond technology, human capital is a key resource

engineering, installation and start-of-operations of a machine.”

for companies to grow and increase productivity and

This does not mean that Mexican companies cannot meet

efficiency. Mexico’s workforce availability has been a

production standards nor that they are unwilling to improve

great attractor for potential investors but that alone is

processes to become competitive participants in the industry.

no longer enough. Specialization is also necessary to

Trans-Matic’s willingness to develop local expertise as well as

remain competitive

local suppliers, has made the company an example of how specialized processes can be developed in Mexico in an easier and faster way than it usually takes, says Gallegos.

VIEW FROM THE TOP |

BETTING ON ADDED VALUE TO ATTRACT INVESTMENT MAURICIO GARZA Director General of Interpuerto Monterrey

Q: How has the customs office in Interpuerto Monterrey

water, among other services. There are also amenities like

worked to attract new investment?

the customs house, proximity to Kansas City Southern’s

A: We opened this customs house in January 2019. It has

Container Terminal and we are one of the few places in

been well-received by our clients because of the benefits

Mexico connected to two main railways, one of Kansas

it provides. Instead of having their exports and imports

City Southern and another of Ferromex. With the custom

processed at the border, companies can do it here quickly

house at Interpuerto Monterrey, our clients can enjoy great

and more efficiently. The customs house is ready to operate

advantages in import and export procedures as well as

under the Customs Technological Integration Project (PITA)

different customs regimes that can be used to make their

program, which is an initiative that proposes to automate,

operations more efficient, such as the Bonded Area or the

facilitate and expedite exports and imports by scanning

Free Trade Zone.

shipments with a radio frequency card to gather data immediately. When customs authorities make their final

We still have new investments coming. There is one company

decision about the program, we will start our digitalization

from the food and beverages industry that just started

process. Through PITA, 60 revision points will be modernized,

investing in a 42,000m2 industrial plant that is already in

including ours.

construction and will be finished in 2020. We also have a letter of intent from an automotive company that wants to

Q: What is Interpuerto Monterrey doing in terms of

lease a 20,000m2 industrial space, among other projects

environmental sustainability? A: We are in the final stretch of our study to have a

Q: What opportunities will USMCA bring to Interpuerto

cogeneration plant that can offer electricity, with the

Monterrey?

alternative of having thermal energy as well. Currently, we are

A: For companies, a central element for any investment is to

connected to CFE’s grid through a 115V line and a substation

have certainty and USMCA will bring that. We all know there

that supplies all companies. In the midterm, the idea is to

will be adjustments, winners and losers; I trust the authorities

produce our own energy and sell it to our clients at a more

negotiated this agreement in the best way possible and

competitive price, but backed by CFE. With the cogeneration

opened the opportunity to improve it under a win-win

plant we can guarantee the electricity supply to our clients

scheme. Mexico does not want to be a simple maquiladora,

due to the double redundancy of the energy system.

we want to become a country that not only manufactures but engineers products. We are very confident that the

We are also exploring alternatives in water management. We

trade relationship between Mexico, the US and Canada will

use treated water to reduce consumption costs and we are

improve even more and will maintain its position as the main

boosting our ecological practices. Although it is still difficult

trade region in the world.

to change the mindset of the industries, we do have tenants building their plants with environmental certifications and

The US continues to move the world and China is starting to

Industry 4.0 processes.

play a leading role. Chinese companies are coming to Mexico and, without doubt, they will have great participation in the

Q: Why should a company choose Interpuerto Monterrey

next few years.

over another industrial park? A: There are many elements to consider when investing in a new location, one of which is the park’s infrastructure.

Interpuerto Monterrey is an industrial park with infrastructure

We offer a strategic location with access to the Mexican

and services including a customs office and rail interconnection.

and US markets; all the services and infrastructure we offer

Its strategic location makes it a successful manufacturing and

include water, electricity, natural gas, optic fiber and treated

logistics hub. It is located in Salinas Victoria, Nuevo Leon

219

| VIEW FROM THE TOP

ENDING THE MYTHS SURROUNDING NATURAL GAS CESAR STACKPOLE CEO of Acerall Energy Solutions

220

Q: What is Acerall’s differentiating value and what

Q: What are the challenges when integrating this

advantages does natural gas provide to vehicle owners?

technology in fleets and what is your outlook?

A: Acerall provides technical consulting regarding issues

A: The first challenge is increasing awareness among

for the configuration of compressed natural gas (CNG) and

clients and final users that this is a mature and safe

vehicular natural gas (GNV). We have a design team and

technology. The other challenge is the slow pace of

an engineering area to tailor solutions for our clients that

regulatory implementation. Projections for the industry

maximize profit and provide solid returns. Above all, our

are encouraging because of Mexico’s privileged

goal is to ensure the safety of both our clients’ staff and

geographic position. One of the biggest producers in the

final users.

world is in southern US, which provides us with affordable prices. We are expecting exponential growth.

The first advantage of this technology is its economic benefit. There is a large gap between the low price of natural

Q: What success stories can you identify where GNV or

gas and the high costs of other fuels. Mexico’s geographic

CNG trumped other fuel alternatives?

proximity to the US, our main supplier of natural gas, also

A: We started offering the necessary equipment to

provides a positive cost difference. In some cases, ROI is

companies transporting natural gas such as Energex, Simsa

visible in less than a year or two at most.

and Neogas, all of which have reduced their fueling time by 40 percent. As for CNG, we worked with Scania on adapting

From an ecological viewpoint, natural gas is cleaner than

CNG tanks for its vehicles used in public transportation.

other fossil fuels, emitting less than 10 percent of pollutants

We have worked with other transportation companies in

compared to gasoline and diesel. Our equipment is strictly

different regions to develop their own stations.

regulated and in operation around the world without incident. Both our equipment and our staff are certified.

Q: What role will natural gas play in the automotive

In specific cases, such as Mexico City’s limits on vehicles

sector in the near future?

circulating in the city due to high levels of pollution, units

A: Once the final customer ditches the myths around it,

equipped with natural gas technology are exempted from

natural gas will become the industry’s new normal. Natural

restrictions. In addition, natural gas eliminates the possibility

gas will grow exponentially. Any fleet or transportation

of theft due to the need for sophisticated equipment.

company looking to reduce costs should turn to natural gas. Even though it can represent a considerable initial

Q: What are some hurdles for the wider adoption of GNV?

investment, return on investment can be achieved in a

A: Many people confuse natural gas with other kinds of

short time frame considering companies can save up to

fuel and worry about its impact on vehicular operations.

50 percent on fuel.

Natural gas works perfectly with combustion equipment. New technologies allow ideal performance because they

According to the US Energy Department’s projections,

operate with purely stoichiometric combustion and the

natural gas consumption is rising, whereas consumption

system’s maintenance is the same as in a normal car, the only

of oil and other fuels is declining considerably. In addition,

thing that needs to be checked periodically is the tank’s grip.

natural gas prices are unlikely to change since that would affect electricity costs and thus could have a spillover effect on the price of many other products. At the

Acerall Energy Solutions is a Mexican company that provides

moment, less than 1 percent of the available natural gas

technical consulting. It is specialized in equipment issues

is used in the automotive industry, with the remaining 99

for the configuration of compressed natural gas (CNG) and

percent used to produce electricity and in domestic and

vehicular natural gas (GNV)

industrial applications.

SECTOR AT A GLANCE |

FOSTERING SPECIALIZED SOLUTIONS WHILE EMPOWERING LOCAL SUPPLIERS

“

When the environment becomes complicated, opportunities emerge” Sergio Santibañez, Managing Partner and Commercial Director of DOSE Solutions

and clients,” says Javier Gallegos, General Manager of TransMatic Precision Metal Forming de México.

ROOM FOR LOCAL PLAYERS With a broad network of private and public universities and research institutions, the state is committed to developing an innovation-driven environment. “Our goal is to be the most advanced state in all of Latin America by 2020. We have

Nuevo Leon enjoys a long-standing tradition of entrepreneurial

great talent here in Nuevo Leon and we are moving in the

and industrial development and is an attractive destination

right direction. In addition, we have the benefit of a strong

for new companies arriving to the country. The openness

collaboration between our many economic stakeholders,” says

and flexibility of automotive players have allowed the state

Roberto Russildi, Minister of Economy and Labor of Nuevo

to welcome a series of businesses offerings specialized

Leon. According to Russildi, there is a strategic importance in

solutions to different stages of the supply chain, while creating

connecting SMEs to larger companies so they can learn and

a prosperous environment for young companies to thrive,

potentially receive funding for expansion.

particularly in lesser-known segments. Young companies in the state have taken advantage of Hydraulic systems are an example. When HYVA Global, one

both Nuevo Leon’s conditions and the constrains across

of the world’s leading providers of transport solutions and

the industry. “In a stable environment, it is business

front-end tipping cylinders for heavy-duty trucks, established

as usual for companies. But when the environment

its footprint in Nuevo Leon a decade ago, it had to challenge

becomes complicated, opportunities emerge,” says

the status quo in North America. “We offer hydraulic systems

Sergio Santibañez, Managing Partner and Commercial

for the European market that are lighter and more compact,

Director of DOSE Solutions. The young Tier 2 Mexican

contrary to what we see in North America where bigger and

company specializes in electrostatic painting. It has

heavier is best,” says Daniel Fetzner, Sales Director of Hyva de

been in the market for five years, collaborating with

Mexico. As trends force the need for lighter, faster and more

Navistar, Caterpillar and Polaris. CLAUT has also played

efficient components, “the industry should not look to the

an important role as a liaison between local companies

US only. Companies should look at global trends to compare

and global suppliers. “Besides connecting local suppliers

different solutions,” he says.

with multinational automotive companies and raising awareness about the competitiveness and capacities of

Big Ass Fans faced similar challenge. The US Energy

Mexican players, clusters also are responsible for opening

Information Administration (EIA) says commercial buildings

and easing commercial relationships between both types

use 15 percent of their electricity for cooling, while the EC’s

of businesses,” says Manuel Montoya, Director of CLAUT.

Joint Research Centre says that HVAC and ventilation systems

DOSE Solutions, is an example of these fruitful connections.

accounted for 4.1 percent of total electric consumption in

“Clusters are very supportive. They provide training and

Europe in 2007. Big Ass Fans is a US company interested

they open doors for local companies to connect with big

in achieving energy efficiency in the cooling and ventilation

companies,” says Santibañez.

segments, but not by replacing HVAC systems. “We are not interested in replacing HVAC systems in these companies’ facilities but to improve their performance. Once our fans are installed, air conditioning systems do not have to run as cold to satisfy cooling demands. Instead, our fans constantly mix air temperatures and humidity while also circulating air,” says

Specialized solutions, such as deep draw metal stamping, front-end tipping cylinders or cooling solutions, need

Edward Andria, Managing Director of Big Ass Fans.

fertile ground to prosper. Nuevo Leon, with its industrial

Deep draw metal stamping is another little-known segment

while empowering young local companies to participate

that is prospering in Nuevo Leon. “Many of our customers asked us to develop local facilities so we started to transfer our processes to the country as a commitment to our business

heritage, has become a mecca for specialized operations more actively in the automotive supply chain

221

VUHL 05

NATIONAL CHAMPIONS

Mexican companies have forged success stories throughout the different steps of the automotive supply chain. With increasing security concerns in the country, armoring and security companies face the challenge of satisfying the marketâ&#x20AC;&#x2122;s demands with quality and promptitude. At the same time, in the race for more efficient operations, energy distributors and producers have found in automotive companies a strong partner to thrive in the country.

It has been clear, time and time again, that SMEs are Mexico's economic engine. By taking advantage of the new trade environment, more national champions will emerge in the foreseeable future to cater to the automotive industry's needs. The National Champions chapter highlights some of the countryâ&#x20AC;&#x2122;s success stories in the automotive sector, along with their strategies for braving the changes in the industry and participating in a fiercely competitive market dominated by foreign players.

223

CHAPTER 10: NATIONAL CHAMPIONS 226

ANALYSIS: Technology, Investment: What Mexican Companies Need

227

VIEW FROM THE TOP: Antonio Tedejo, Grupo Traxión

228

VIEW FROM THE TOP: Elías Dana, Transportes LIPU

229

INSIGHT: Guillermo Jiménez, ProCrédito

230

ANALYSIS: Mexican Auto Companies See Opportunities, Challenges Ahead

232

VIEW FROM THE TOP: Javier Cano, Total Shield

233

VIEW FROM THE TOP: Esteban Hernández, AMBA

234

VIEW FROM THE TOP: Esteban Hernández, Auto Safe

235

SECTOR AT A GLANCE: Rising Security Concerns Democratize Armoring

236

ANALYSIS: COVID-19 Halts Local Automotive Industry but Recovery Is on the Way

238

VIEW FROM THE TOP: Armando Zúñiga, Grupo IPS

239

VIEW FROM THE TOP: Mario Salomón, Grupo Multisistemas de Seguridad Industrial

240

SECTOR AT A GLANCE: Stricter Safety Regulations Protect Workers, Foster Growth

241

VIEW FROM THE TOP: Juan Carlos Rangel, ERM

242

VIEW FROM THE TOP: Hans Kohlsdorf, E2M

243

INSIGHT: Juan Ríos, Grupo Energos

225

| ANALYSIS

TECHNOLOGY, INVESTMENT: WHAT MEXICAN COMPANIES NEED Years of record-breaking sales and continuous investment in manufacturing strengthened Mexico’s automotive arm. But that arm took a heavy blow in 2019 as the country’s economic deceleration slowed down domestic automotive sales, while international trade disputes hurt investment. The industry, however, has not lost hope

226

Mexico capitalized on numerous strengths to position

Moreover, most Mexican SMEs are unable or unwilling to

itself as an automotive powerhouse. Its young labor force,

use financing either to expand their business or to brave

numerous trade agreements, macroeconomic stability and

a slower demand of products or services. INEGI’s latest

optimal location turned the country into an attractive, low-

study on SMEs sheds light on the fact that four out every

cost manufacturing destination for OEMs across the globe.

five SMEs are unaware of the availability of promotion and

This, in turn, made the sector an attractive investment for

financing programs offered by the federal government.

Mexican companies of all sizes, which quickly swept in to fill

This study also revealed that two out of every three SMEs

gaps in service and supply chains. The industry saw many

would reject a bank loan. The main reasons cited for this

years of prosperity but now the tide has turned. According

rejection are distrust in banks and the belief that loans are

to INEGI, in 2019 the local automotive industry assembled

too expensive.

a total of 3.75 million vehicles, 4.1 percent less than in the previous year, and exported only 3.33 million, 3.4 percent

These hurdles have held Mexican companies back in

less than in 2018. These numbers mark the sharpest drop

the race to enter global value chains. INEGI states that

in automotive production since 2010.

only 2.2 percent of small companies and 5.6 percent of medium companies participate in international value

While the sector might have slowed down, the country has

chains. The main reason SMEs cite for not participating

lost none of its advantages as a low-cost production and

is the lack of available information, quoted 73.5 percent

investment destination. Local automotive companies are

of the time by small companies and 72.4 percent by

now in good position to take advantage of their strengths

medium companies. Access to larger supply chains can

and identify the key areas to tackle to continue growing.

provide significant opportunities to Mexican companies

This is an even greater necessity for SMEs because their

by guiding them in the implementation of best practices

small size exposes them to higher risks.

and standards and the adoption of technology. This will be of increasing importance as local manufacturers, especially

SMES: MEXICO’S ECONOMIC ENGINE

in the automotive industry, prepare to face USMCA’s new

SMEs represent 52 percent of Mexico’s GDP and generate

regulations.

72 percent of all jobs, according to CONDUSEF. Their small size grants them unparalleled flexibility in the sectors they

CHANGING THE RULES OF THE GAME

participate in. In its “SME and Entrepreneurship Outlook

A common concern across the automotive sector is the

2019” report, the OECD states that high-skilled SMEs are

changes that USMCA will introduce. USMCA’s revisions

able to outperform large firms, especially in information

include an increase in regional content from 62.5

and communication technologies. For that reason,

percent to 75 percent. Companies that fail to comply

strengthening SMEs can translate to benefits for Mexico

will be penalized with a 2.5 percent tariff. The treaty also

as a whole.

establishes that 40 percent of a vehicle’s content must be manufactured by employees making US$16 per hour,

However, the OECD report also points out that most SMEs

a sharp increase from the current US$3.73 per hour that

lag behind their larger counterparts in terms of technology

an average employee at an automotive company makes,

adoption, management, communication and problem-

according to INA.

solving skills. These companies also compete with big names for human capital, especially in the automotive

Not every company in the sector sees higher salaries as an

industry, which has more spots to fill than people to fill

unsurmountable challenge, however. “This is an excellent

them. “The biggest challenge (for the automotive industry)

opportunity for Mexico,” says Rodrigo Arciniegas, Director

at the moment is the heavy rotation of human capital as

of Catch Consulting. “The country cannot keep anchoring

there is a surplus of job offers,” says Luz María Lozano,

its competitiveness to low wages and companies will have

Director General of IS Company. The OECD also warns

to increase their salaries 10 percent or even 15 percent year-

that SMEs may be at risk during an economic recession.

on-year, instead of 5 percent as they have until now.”

VIEW FROM THE TOP |

CONSTANT INVESTMENT SUPPORTS TRANSPORTATION SECTOR ANTONIO TEDEJO Director of Financial Planning and Investors Relations at Grupo Traxión

Q: What is Traxión’s strategy to grow in the

A: The transportation industry is a pillar of the Mexican

transportation industry?

economy as all consumption products are transported

A: The two most important transportation segments we

by truck at some point. This means transportation is

cover are cargo and logistics and personnel and student

deeply intertwined with Mexico’s domestic consumption,

transportation services. Traxión takes advantage of new

disposable income and the country’s growing middle class

business opportunities in these and other segments

and demographic bonus. 227

covered by our seven subsidiaries to continue growing. In 2019, we plan to invest around MX$1.8 billion (US$94

Macroeconomic trends could pose the biggest challenges

million) and expand our revenue by 20 percent and

for growth. Although we cannot control exchange

our EBITDA by 25 percent. Around 75 percent of our

rates, interest rates or political risks, we need to have

capital expenditure will go to the personnel and school

contingency strategies for each of these macroeconomic

transportation segment and the remaining 25 percent will

trends to mitigate risks and maintain continuous and

focus on the renewal of our cargo and logistics fleet.

profitable growth.

Q: What segments do you expect will experience the most

Q: How is Traxión reducing operating costs to counter the

significant growth?

impact of rising diesel prices?

A: We project great demand for student and personnel

A: Grupo Traxión negotiates a wholesale price for diesel

transportation services in industrialized areas such as

with fuel importers from the US that deliver the fuel

northern Mexico, the Bajio region and Mexico City´s

at the company’s yards and terminals. We also apply

metropolitan area. Traxión plans to increase its share in

passthroughs of fuel price increases to our clients. The

these markets and create new opportunities as industrial

company also reduces operating costs by centralizing

regions develop a taste for competitive transportation

noncore, back-office areas of its seven subsidiaries and

services. Our size enables us to make strong investments

concentrating the regional operations of its companies

in the acquisition of new units and to close contracts

in fewer facilities.

for large clients in this specific transportation format. In 1Q19, we invested MX$350 million (US$18.3 million) to

These efficiency strategies have yielded positive results.

purchase 100 Hyundai CNG bus units to meet specific

In 2018, Traxión added 71,210m2 of storage to its installed

client requirements.

capacity and increased the efficiency and productivity of its cargo fleet. Despite having 1.7 percent fewer trucks

In the cargo and logistics segment, we expect reasonable

than in 2017, our fleet covered 16.5 million km more. In

growth in demand in the short term. Traxión plans to

other words, Traxión covered 9.5 percent more kilometers

adopt an asset-light business model to attack more

in 2018 with fewer trucks and increased its revenue per

logistics segments such as last-mile delivery, e-commerce

kilometer by 10 percent, while only increasing its costs

and freight-forwarding. To grow our logistics service

per kilometer by 5.3 percent in in that same year. This

umbrella and offer a one-stop solution to clients, Traxión

translates into more productivity, output and efficiency

is strengthening the management, fleet and infrastructure

across the entire operation.

of its Redpack subsidiary. By adopting an end-to-end, integrated logistics solution, clients will no longer need to hire four or five suppliers to cover different logistics needs.

Grupo Traxión is the only transportation company listed on the Mexican Stock Exchange. The group has seven subsidiary

Q: What factors could hamper Traxión’s growth in the

companies that target various segments of the transportation

transportation industry?

and logistics market in Mexico

| VIEW FROM THE TOP

TRANSPORTATION SERVICES PAVE WAY FOR TALENT RETENTION ELÍAS DANA Director General of Transportes LIPU

228

Q: What competitive advantages does Transportes LIPU

maintenance, train drivers, as well as investing in technology

get from being part of Grupo Traxión?

and guaranteeing fuel supply are key differentiators that

A: Our relationship with Grupo Traxión gives us solid

ensure passenger safety. Ensuring workers arrive on time

finances and strict financial discipline. Transportation of

is another important factor. Production line stoppages are

either goods or passengers is a capital-intensive industry.

extremely expensive for automotive companies, so late

Some companies may need between 40 and 100 buses to

arrivals of buses transporting 45 workers could have a

transport their personnel. Multiplying this by the cost of

huge impact on a plant’s productivity.

each bus results in an investment of several million pesos. Having the financial capacity to face these operational

Q: What role does technology play in increasing

costs is a great advantage for Transportes LIPU.

Transportes LIPU’s operational efficiency? A: Investment in technology has helped us discover

Grupo Traxión is the only transportation company listed

a whole new world in terms of transportation. In 2017,

on the BMV, which demands strict financial discipline that

we started implementing telematics and now it plays a

translates to a better service. Ever since we went public,

key role in our decision-making process. All our buses

Transportes LIPU has committed to growing its invoicing at

are connected to Traffilog’s telematics systems, which

a rate of 18 to 20 percent per year. This rate was reached in

helps us understand the driving habits of our operators

2018 and we expect to keep this momentum through 2019.

and identify opportunities for improvement. We can also detect bus malfunctions in real time and prevent

Q: What are the risks of not having a quality personnel

further damage to the units thanks to a preventive

transportation service in place?

maintenance strategy.

A: Not having this kind of service could lead to trouble when hiring and retaining people. There is fierce competition to

Technology has also made transportation operations

capture staff in automotive-intensive regions like the Bajio

easier by using data to design efficient routes. Our latest

and companies that do not offer these services may lose

implementations ensure efficiency in the assignation

talent to those who do. Without transportation services,

of operators, units and even the lot where each unit is

people are forced to pay a great deal of money to reach

parked. Now that these operations are digitally mapped,

their workplace, wasting time along the way. In addition,

Transportes LIPU can anticipate the most efficient scenario

evening and night shifts are usually not compatible with

and work toward it, which translates to greater fuel-

public transportation schedules. Public transport also

efficiency and much lower variable costs.

does not offer the same comfort and personalized service offered by private staff-transportation companies.

Q: How is Transportes LIPU embracing sustainability in its operations?

Q: What should clients look for in a personnel

A: Transportes LIPU started purchasing buses powered

transportation company?

by Euro V diesel engines in 2018. We expect the adoption

A: It is important to look for solid infrastructure that can

of more efficient engines will continue in Mexico as new

support both units and operators. The ability to provide

emissions regulations are enforced. In terms of CNG, we have explored various options to become the first company in the personnel transportation sector to use this

Transportes LIPU is a Mexican transportation company that

technology. In collaboration with Hyundai, Grupo Traxión

is part of logistics giant Grupo Traxión. The company helps

invested in the acquisition of its first gas-powered vehicles

automotive companies attract and retain staff through quality

at the beginning of 2019. These units will be used to cover

and safe personnel transportation services

part of the company’s operations in Tijuana.

INSIGHT |

COMPANIES MUST LEARN TO TRUST, USE CREDIT GUILLERMO JIMÉNEZ Director General of ProCrédito

Under the new conditions established by USMCA,

and Aguascalientes. As a result, ProCrédito has natural

more companies will have to participate in automotive

access to the growing potential of the region’s automotive

manufacturing activities for OEMs and Tier 1s to comply

sector. “We have made manufacturing companies a priority

with stringent rules of origin. Financing will be key for small

in our development strategy for the next four or five years,”

players to grow their operations enough but they must

says Jiménez. “We operate in an especially favorable area

find an adequate solution depending on their operations

for the automotive industry and we want to increase our

and payment capabilities, says Guillermo Jiménez, Director

penetration among small suppliers.”

General of ProCrédito. “Credit is not evil,” he says. “Credit is good, especially considering that the most expensive money

During the first half of 2018, the company faced some

is that of the company itself.”

challenges due to the uncertainty caused by the renegotiation of NAFTA and the presidential elections on

Although most companies not familiarized with financing

July 1. Increases in inflation and interest rates also made

solutions might think there is no such thing as flexible

companies hesitant to acquire new financial products.

credit, Jiménez says ProCrédito developed its product

However, after the election of Andrés Manuel López

portfolio with this idea as a cornerstone. The company

Obrador and the USMCA agreement, companies in the Bajio

analyzes its clients’ cash-flow cycles and based on that

gained economic certainty, leading to more opportunities

it determines the most efficient payment conditions for a

for growth. Furthermore, López Obrador’s commitments as

credit that can range between MX$200,000 (US$10,400)

the new president mention a focus on SME development,

and MX$6 million (US$310,000). The key, however, is for

particularly in key sectors such as automotive. “We see

companies to know how much to ask for.

a great opportunity in the new government’s goal to foster growth of SMEs in Mexico,” says Jiménez. “As an

“Companies must learn to not ask for more than what they

independent financing company, we have enough flexibility

can pay,” says Jiménez. “Businesses tend to suffer when

to target the semiformal economic segment.”

they owe more than their normal cashflows.” Jiménez has also found cases when companies are reluctant to ask

The storm may have passed in terms of uncertainty but

for a loan, especially when clients are comfortable with

Jiménez says there are still challenges ahead for ProCrédito,

their level of operations and are not overly used to credits.

mainly in terms of assessing clients correctly and being

That is when ProCrédito’s advisory services come into play,

sure they will be able to repay their loans. The lack of

allowing companies to understand which financing scheme

certified information on clients forces the company to

best suits them.

analyze businesses independently and to create a financial statement based on different factors to understand if the

Jiménez says ProCrédito wants to become the go-to financing

company is capable and willing to pay off a loan. According

company for Tier 3s, Tier 4s and service players that support

to Jiménez, in this sector payment formality is not the norm

the growth of the automotive industry, such as transportation

either. “There are clients that do not care if their due date

and logistics companies. This segment already represents 53

is today and they miss it,” he says. “We must remind them

percent of ProCrédito’s business and Jiménez sees even more

constantly of their obligations and we have created several

room for expansion. “There are many companies wanting or

mechanisms so our people are in constant communication

already participating in these market segments, which means

with clients either by phone or at their facilities.” For

there is great demand for our services,” he adds.

Jiménez, this is a cultural problem since many companies see financial entities as just another provider. “They must

The company currently has six branches located in the Bajio,

realize that when it comes to providing money, schemes

with a stronger presence in the cities of Leon, Queretaro

cannot follow a 90-day payment plan,” he says.

229

| ANALYSIS

MEXICAN AUTO COMPANIES SEE OPPORTUNITIES, CHALLENGES AHEAD Mexico has lured auto industry titans based on attractive factors that include location, a quality workforce and political stability. But its local expertise has also generated numerous success stories, with Mexican players rising to the top of their game and becoming integral elements of the global chain

230

An ideal location, a young and qualified workforce and

As a result, local and international automotive parts

a stable political environment are just some of the many

manufacturers have turned Mexico into an automotive

reasons that turned Mexico into an attractive destination

powerhouse. In 2019, the country exported US$70.5 billion

for the automotive industry. Thanks to favorable state

in auto parts and this number is expected to grow to

and federal policies and strong investment from the local

US$72.4 billion in 2020, according to INA. Mexico is now

industry, the country made great strides in attracting the

the fifth-largest exporter of automotive parts in the world

largest companies in the world to its shores, becoming a

and the top exporter to the US. The country’s exports now

manufacturing powerhouse for the industry. But not all

reach all five continents although the Americas are the main

of the industry’s successes came from abroad. Mexico

destinations, holding 31.8 percent of the pie.

has also developed local players that have positioned themselves among the largest and most innovative OEMs and suppliers for the automotive sector both in Mexico

MEXICO’S VEHICLE MANUFACTURING

and across the globe.

Year

Manufactured vehicles

2000

1,935,527

Mexico’s automotive industry grew year-on-year from

2001

1,841,008

2010 to 2017. During those years, the country built a

2002

1,804,670

reliable manufacturing arm that grew stronger every

2003

1,575,447

year, with automotive manufacturing peaking in 2017

2004

1,577,159

2005

1,684,238

2006

2,045,518

2007

2,095,245

2008

2,167,944

2009

1,561,052

2010

2,342,282

2011

2,681,050

Mercedes-Benz, Peugeot, Renault, Subaru and Volvo.

2012

3,001,814

Mexico’s capabilities have also expanded to include

2013

3,054,849

several OEMs of its own: VUHL, Zacua, Moldex, DINA

2014

3,365,306

and Beccar. However, local companies are still finding

2015

3,565,469

themselves having to change the world’s perspective

2016

3,597,462

of Mexican-made vehicles. “Mexican carmakers need

2017

4,068,415

to remain in the market and continue delivering quality

2018

3,908,139

2019

3,772,861

with 4.07 million vehicles produced, according to AMIA. Mexico now manufactures vehicles for major brands from all corners of the globe, including Audi, BMW, FCA, Ford, General Motors, Honda, JAC, KIA, Mazda, Nissan, Toyota and Volkswagen. However, Mexico’s manufacturing capabilities are much broader as the country manufactures components for a large range of vehicles, including those mentioned plus Hyundai, Isuzu,

products to promote change,” says Guillermo Echeverría, co-Founder of VUHL

Source: Expansión

The presence of major OEMs allowed the country to develop a strong supplier base that includes industry

GRUPO INDUSTRIAL SALTILLO

giants such as Bosch, Denso, Magna, Continental, BASF

With over 90 years of experience and its main offices in

and Lear. But it also allowed for the development and

Nuevo Leon, Grupo Industrial Saltillo (GIS) has positioned

incorporation of local companies into its supply chain,

itself as a leader in casting and machining. Headquartered

some of which have positioned themselves as key

in Saltillo, this is the only company in this list with its head

suppliers in the global automotive industry, chief among

offices outside of Nuevo Leon. Beyond Mexico, the company

them are Nemak, Metalsa, Rassini, Grupo Industrial

is present in China, the Czech Republic, Italy, Poland, Spain

Saltillo, Vitro and Grupo Quimmco.

and the US. GIS also operates in the construction and

appliances industries but its auto parts segment, Draxon,

says it is the world’s largest manufacturer of suspension

is by far its largest by revenue, representing MX$12.3 billion

components for light commercial vehicles and that its parts

(US$521 million) out of the company’s total MX$17.1 billion

are an integral part of over 8 million vehicles produced

(US$724 million) revenue in 2019. The company reported

each year in 10 countries. Its brakes and suspensions are

a positive 2019, with Draxon being awarded US$150 million

now used by 51 different commercial vehicles.

in contracts. GIS expects to continue growing in the three markets it operates in, according to its 4Q19 report.

VITRO Vitro is the largest glass manufacturer in Mexico. Supplier

MEXICO’S CAR EXPORTS BY REGION Region

Percentage

America

91.8

Europe

6.3

Asia

1.5

Africa

0.2

Oceania

0.2

Source: AMIA.

analytics firm Thomas Inc placed Vitro as the seventh-largest glass supplier in the world by revenue. Vitro manufactures and distributes a wide variety of glass products for a broad range of industries across the Americas, the EU and Asia. For the automotive industry, Vitro manufactures laminated, tempered and encapsulated glass for OEMS and provides glass repayment services through its Vitrocar unit.

CLOUDY SKIES AHEAD Despite its strong track record, Mexico’s automotive industry

NEMAK

is facing significant challenges brought about by international

Nemak has become a global supplier of engine blocks,

trade disputes and slower investment. After eight years of

cylinder heads and transmission components. The

unimpeded growth, Mexico’s automotive production shrank

company, which specializes in the development and

by 3.9 percent in 2018, which was followed by a further 3.5

production of lightweight aluminum components, now

percent drop in 2019. This situation is expected to continue.

counts among its clients major OEMs such as BMW,

AMIA estimates that the Mexican automotive industry will

Daimler-Benz, FCA, Ford, General Motors, Hyundai,

produce 6.7 percent fewer units in 2020 compared to the

Renault, Nissan and Volkswagen. Furthermore, it has won

previous year, for a total of 3.5 million units, while exports

General Motors’ Supplier of the Year award 15 times.

will shrink by 16 percent.

The company employed 23,000 people at its 38 facilities

Local companies are also finding an increasingly complex

distributed across the Americas, Asia and the EU and

environment in their foreign markets. “Overall, the global

reported US$4 billion in revenue in 2019. While the

automotive industry saw a year-on-year decline of 5

global automotive industry shrank in 2019, Nemak won

percent and 6 percent in light-vehicle sales and production,

contracts totaling over US$1 billion in annual revenue. The

respectively, due largely to a slowing Asian economy,” states

company is also increasingly betting on EVs as it finished

Nemak’s 2019 Annual Report. In the US, Mexico’s largest

the construction of a new facility for the production of

export destination, light-vehicle sales shrank by 1.3 percent

battery housings for full EVs and added series production

in 2019, according to automotive industry portal MarkLines.

of two new battery housings at a facility in North America and another in the EU.

Moreover, COVID-19 has thrown the proverbial wrench into the automotive industry’s manufacturing line. As manufacturing

METALSA

plants in the US closed down in March and April to prevent

Metalsa is now a leader in lightweight structures for light

contagion, demand for auto parts is also dropping. To curb

and heavy vehicles. Besides its six plants in Mexico, the

the spread of COVID-19, many economic sectors are grinding

company also has plants in the US, Argentina, Brazil, China,

to a halt, raising fears of a global recession that will lower

India, Japan and Thailand. Metalsa manufactures chassis,

demand for many non-essential products.

fuel tanks, and front and rear bumpers, among many other parts for pick-ups, side rails for trucks and chassis

While local companies will face many hurdles, there are still

for buses. Metalsa counts FCA, Toyota and Ford among

many opportunities ahead. GIS’ 4Q19 report states that due

its clients and has won many industry awards, including

to “USMCA’s greater regional content requirements, brake

Toyota’s Excellence in Quality award.

manufacturers will accelerate the transference of their operations from Asia or Europe into Mexico.” Nonetheless,

RASSINI

Mexico’s automotive industry finds itself with many

With five technological centers and over 6,500 employees,

challenges to overcome, requiring a joint effort among the

Rassini is another company from Nuevo Leon that has

industry, government and academia to remain strong during

positioned itself on the automotive map. The company

these trying times.

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| VIEW FROM THE TOP

TECHNOLOGY A FRIEND AND FOE FOR ARMORING COMPANIES JAVIER CANO Administrative Director of Total Shield

Q: How is Total Shieldâ&#x20AC;&#x2122;s client base divided between the

recourse to claim damages. Materials must also be certified

public and private sectors?

according to Mexican regulations. We often receive offers

A: In 2018, we armored almost 100 cars, of which 70 percent

from international suppliers, but the weapons used abroad

were for private clients and the rest for different government

are different from those used in Mexico, so in some cases we

offices. Sales in each sector vary year to year, depending

cannot use these materials.

on the number of government tenders. The largest, which 232

required around 70 armored vehicles, occurred under

Q: Which alliances has Total Shield developed with brands

the administration of former President Felipe Calderon.

and distributors to armor their vehicles?

Afterward, tenders were greatly reduced in size. In 2017,

A: Some vehicles can be armored from the first stages of the

we saw tenders for up to 25 cars but most were for state

assembly process and leave production lines fully equipped.

governments for three or four vehicles. At the moment, there

Others must be dismantled, armored and then assembled

is still uncertainty in the armoring industry due to the new

again. We have allied with different OEMs to armor their cars,

administrationâ&#x20AC;&#x2122;s austerity policies, which might increase

although it is also possible to deal directly with car vendors.

competition in the sector. The government works with the

In both cases, the warranty offered to the final client covering

largest armoring companies in the country and we expect

the quality and integrity of the vehicle is respected.

to participate. With few exceptions, most brands armor their cars after Our strategy for the private sector is to introduce more

production. We have agreements with many car distributors

specialized products. Our clients can be individuals or large

and we armor their cars after they are sold, according to

banks, as well as corporations that also operate through

client requests. Our most popular model to armor is the

tenders and can buy up to 20 vehicles at a time.

Grand Cherokee thanks to its structure, which easily adapts to armoring levels NJ-IIIA to NJ-III+. Most of the cars we

Q: What should customers look for when acquiring an

armor are SUVs, which are better suited for emergency

armored vehicle?

situations. But we also keep some armored sedans in stock,

A: Customers should only employ armorers registered with

including Volkswagen Passats, as they are more discreet.

state authorities because these use the best materials and

However, few individuals look for these types of cars.

have good assembly processes. About 70 percent of the armorers in Mexico are certified by local authorities; others

Q: How do you expect electrification to impact the armored

operate without any certification on the quality of the

vehicles industry in Mexico?

materials they use.

A: The main challenge armorers face in Mexico is adapting to the technology of new vehicles. Armoring goes against

Working with an uncertified company will not seem like a

many modernization trends, which focus on electrification

bad decision until it is too late. Moreover, the market changes

and using smaller engines. Armored cars need a powerful

quickly and many small companies appear one year and

powertrain because the process adds significant weight

disappear the next. If a vehicle faces an issue down the road

to the car. For instance, our level NJ-III+ adds 1.5tons of

and the armorer no longer exists, customers will have no

weight to the vehicle. Similarly, many OEMs are introducing cars with a high concentration of aluminum and plastic components, which armorers cannot fuse to steel. Armorers

Total Shield is a Mexican company with over 15 years of

continue to invest in innovation to adapt to modernization

experience in the vehicle armoring sector. The company

trends. We are now armoring hybrid vehicles, which has

became a member of AMBA in 2014 and works with several

proven to be a very complex process that requires us to

dealership groups

work with experts from OEMs.

VIEW FROM THE TOP |

BOOST STANDARDS TO BATTLE INSECURITY ESTEBAN HERNÁNDEZ President of AMBA

Q: What has been AMBA’s role in tackling security threats?

partly. We are working with ASIS’ armoring committee on

A: We are going to work alongside Mexico City’s Ministry

setting the minimal requirements for the different levels of

of Public Security (SSP). We are going to train some of the

armoring. Chiefs of security at large global companies in the

police corps because they are very interested in changing

country participate in this committee.

the way the public perceives its officers. SSP invited us to contribute with our perspectives on security issues.

Alongside these standards, we are creating a manual and training programs for security professionals and clients

We will provide information on the main advantages of

to know what to look for in an armored vehicle. It is really

armored vehicles, which can be as simple as the fact that

important for customers to check the ballistic integrity of the

these units do not require a special license, but do need to

vehicle rather than just the way it looks in the end.

be registered at the federal level. We also collaborate with different authorities when analyzing armored vehicles by

Q: What are AMBA’s plans to grow its membership?

evaluating the state of the armoring.

A: There are around 50 armoring companies in the country. There are some that I would like to invite and we will most

AMBA ensures that any customer acquiring an armored

likely have new members this year. However, AMBA’s

vehicle can rest assured that the vehicle is backed by an

standards are quite high.

industry that employs ethical standards. To be an AMBA member, companies must have armored at least 20,000

the country.

To become an AMBA member, companies have to armor at least 20,000 vehicles

Q: What have been AMBA’s biggest achievements in its 20

Q: How has the used armored-vehicles market evolved?

years of existence?

A: Some companies can purchase their car at market value,

A: Considering my experience in Colombia and Brazil, I

including the armoring costs. Customers change their

would say AMBA’s contribution to the armoring industry

vehicles every five years and ballistically speaking, the steel

in Mexico is a world-class armoring product with a made-

used in armoring does not decay with time. Fibers, however,

in-Mexico label. That is something that Colombia could not

might have a problem with water. At AMBA, we recommend

achieve. Interestingly, Mexican armoring companies learned

that clients consider changing their armoring maximum every

from the Colombian experience. Moreover, Mexico has been

10 years.

vehicles. All members are required to sign a written contract that includes the association’s standards. These steps have made AMBA a reference for the armoring industry in

a reference for OEMs on how to produce original armored versions of some of their models. BMW is producing some

In terms of used armored cars coming from the US, there

armored units in the country, as are Audi and Mercedes-Benz.

is not that much of a market because Mexico deals with higher quality in terms of the fine details of armored vehicles.

Q: What are your plans regarding certifications or industry

Aesthetics is our asset.

standards for armored vehicles? A: I am working with ASIS on a project. With armored vehicles, we need to show our customers that the products we install

The Mexican Association of Vehicle Armoring (AMBA) has over

in their vehicle are certified. There are companies in Mexico

20 years of experience grouping armoring companies according

trying to sell cheap armored vehicles by armoring only the

to high quality and ethical standards. AMBA’s members have 60

glass for example. Naturally, it protects passengers, but just

percent of the armoring market in the country

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| VIEW FROM THE TOP

ADVANCED TECHNOLOGY NEEDED TO FACE NEW WEAPONS ESTEBAN HERNÁNDEZ CEO of Auto Safe

234

Q: What is Auto Safe’s distinctive armoring offering?

A: Armoring is one of the greatest interventions you can

A: We are a mix between German armoring technology,

perform on a vehicle and aftersales service plays a key role

Colombian armoring experience and Mexican craftsmanship.

in maintaining its performance. We have service centers in

Colombia has a well-equipped armoring capacity but a very

Toluca, Puebla, Mexico City and Cancun and we also offer

unorthodox process. Germany, on the other hand, is very

remote support. In terms of warranty, we maintain the vehicle’s

skilled in working directly with OEMs such as Audi or BMWa.

original policy depending on the brand and model. There is

Armoring relies to a certain extent on craftsman, given the

also a used market of armored vehicles. Clients normally

industry’s low volumes. As a result, attention to detail is in the

change their car every five years. In our case, we promise our

hands of the person working on the vehicle, which is where we

customers that we will repurchase their car at market value,

find Mexico excels. The mix of these three elements is what

including the armoring costs and the warranty period.

has made us what we are. Q: What strategic partnerships has Auto Safe created We have three main business segments: OEMs, government

with OEMs?

and aftermarket, including heavy-vehicle armoring. Our

A: Our partnerships with OEMs have been in South America.

specialty is luxury vehicles both for OEMs and the aftermarket

We worked with Toyota in Colombia to produce 1,000

segment. We work across different segments of what is called

level III armored units of the Toyota Prado at the Toyota

nonmilitary armoring. We have a wide range of services,

SOFASA9 plant. This was a unique circumstance because

starting with Protect Me, our most recent brand that protects

armoring usually does not take place at the plant level. In

our customers from all projectiles used by common thieves in

Brazil, we also participated in a project for the armored

urban areas. We manage different levels of armoring to stop

Fiat Linea, but due to consumer preferences the project did

even fragmentation grenades and barret projectiles.

not go further. We also won the project for the Chevrolet Tahoe in Venezuela.

Protect Me was born from material developments for ballistic products, which opens new opportunities for us. We had

Q: What are Auto Safe’s plans for 2020?

many people interested in protecting themselves but faced

A: We are not betting solely on numbers. We are betting on

restrictions due to the kind of vehicle that can be armored.

the quality of our product and the launch of new solutions

Now, with armoring that weighs around 150kg and protects

such as Protect Me. With Protect Me we are targeting a

passengers from a 9mm gun, a 45mm automatic, a .380 gun,

population segment that was traditionally beyond our scope,

a .357 Magnum and even a submachine gun, the range of

meaning the children of senior managers. The trend in the

vehicles eligible for armoring widens. We can even armor

market is to lower costs to get as many clients as possible.

a medium-sized vehicle with a four-cylinder engine. Given

In our case, functionality and quality remain key. We offer an

the versatility of the armor, you can take it directly to the

integral armoring package with features such as reinforced

dealership for maintenance, so it becomes more user friendly.

bumpers, protection in the wheels and brake system and a special suspension system.

Q: What is the aftersales service scheme for an armored vehicle?

Our greatest competition are actually the criminals using new weapons. For example, there is a gun that can penetrate ballistic fibers used in bulletproof vests. Those fibers are used

Auto Safe is a Mexican company and part of WBA Security

in armored cars, so we had to develop a new kind of armoring

Group. The company was established in Mexico in 1999 and has

to combat these new weapons. In this case, we developed

integrated the armoring experience of Colombia, Germany and

an -AS 3 AP level armoring that can protect the vehicle from

Mexico into a broad product offering aimed at different segments

these weapons (five seven and P90).

SECTOR AT A GLANCE |

“

RISING SECURITY CONCERNS DEMOCRATIZE ARMORING

Criminals add more gunpowder to their bullets ... to increase their firepower, so we need to constantly invest in R&D” Daniel Echeverri, Commercial Director of Ballistic Group

people are interested in more discrete vehicles and will invest in an armoring worth three times the price of the car,” says Echeverri. “These clients prefer to go unnoticed during their commutes and are not interested in large, flamboyant SUVs.” As more clients look for an armoring solution, Echeverri suggests clients focus on quality instead of price, making sure armoring companies have quality certifications, invest in product development and are members of the Mexican Association of Vehicle-armoring Companies (AMBA). These companies are subjected to ballistic-certification processes

Around the world, there are many factors powering the rising

and are evaluated by a committee of experts. “AMBA seeks

demand for armored vehicles, but in Mexico, insecurity is the

quality and ethics in armoring. When a person buys an

main reason. “Security in Mexico has been a significant and

armored car, it is an act of faith. There are eight companies

deteriorating issue across the administrations of Vicente

in the association and we always ensure that the materials

Fox, Felipe Calderón and Enrique Peña Nieto. Demand for

we use are certified and that our installation practices are

our products increased considerably between 2006 and 2012

appropriate to preserve the integrity of the car.” says President

as a consequence of rising crime rates, and peaked in 2012

of Global Armor José Eduardo Llanos, who has been AMBA’s

with total demand for 3,300 units,” says Director General of

president for three consecutive periods.

TPS Armoring Rodolfo Amozurrutia. Most security-related incidents take place during commutes. In Mexico, armoring

CHALLENGES AHEAD

companies focus on protection against three kinds of

A major challenge armoring companies face is the trend

incidents: muggings, kidnappings and violent attacks. “A

in the automotive industry to reduce the weight of vehicle

person’s well-being during an incident is 90 percent about

components. “Cars are now very delicate and over the years

prevention and only 10 percent about knowing how to react.

the entire industry will reduce weight. However, we are

Depending on the level of risk our potential users face, we

already prepared. Previously, level III armor added 400kg

offer them appropriate solutions,” says Amozurrutia.

to the car while now it adds just 200kg,” says Llanos. Also, criminal groups are constantly innovating in their weapons

The market has grown at such a rate that armoring steel

and techniques, rendering bulletproofing materials like

suppliers have opened operations in Mexico. “Swedish steel

aramid fibers moot. To stay a step ahead, Ballistic Group

manufacturers are characterized by their cleanliness and

is constantly developing and improving materials to

low material-impurity levels. Our hardening and tempering

protect clients in case of a shooting. “Criminals add more

technology provides greater durability and hardness for

gunpowder to their bullets or elongate gun barrels to

steel that is actually lighter for higher armoring levels,” says

increase their firepower, so we need to constantly invest

Federico Forastieri, CEO of Swebor LATAM, one of the

in R&D,” says Echeverri. “Windows are usually a weak spot

companies that has set roots on the country.

in the car, so we fabricate our own bulletproof glass to enhance the armoring level of the vehicle.”

THE RIGHT FIT Rising crime rates have not only boosted demand for armored vehicles among C-level executives. “Over the past decade, the public sector accounted for approximately 20 percent of our sales but that has changed over time. By 2012, the government

Insecurity in the country has led to a higher demand

accounted for 40 percent of TPS Armoring’s vehicle sales,”

for armored vehicles in some sectors. However, the

says Amozurrutia. “Fifteen years ago, there were fewer

industry still faces challenges such as innovation

buyers of armored vehicles, mostly top government officials

in weapons and techniques used by criminals, as

and chairmen of large multinationals,” says Daniel Echeverri,

well as trends like lightweighting that affect the

Commercial Director of Ballistic Group. Midlevel executives

armoring process

now also have the need and opportunity to purchase an armored vehicle as a consequence of rising crime rates. “Some

235

| ANALYSIS

COVID-19 HALTS LOCAL AUTOMOTIVE INDUSTRY BUT RECOVERY IS ON THE WAY The COVID-19 outbreak put Mexico’s automotive industry on the ropes as the sector grappled with a sharp decline in new vehicles sales. Moreover, local socialdistancing policies further limited the production of auto parts and the operation of numerous plants across the country As the number of COVID-19 cases in Mexico started to

suppliers. Nissan provided vehicles for the transportation

ramp up, the federal government quickly implemented

of medical equipment and medical staff in Mexico City

a series of policies aimed at reducing the spread of the

and Oaxaca.

virus, chief among them the suspension of all non-essential

236

activities. This brought trouble to the local automotive

However, these efforts are not sustainable in the long term

industry, which did not receive the essential classification.

for the automotive industry and the pandemic exposed the

As an increasingly larger number of companies moved

need for the industry to reinvent itself, even as industry

toward home office practices, the automotive industry

associations lobbied for policy changes to classify the

found itself temporarily paralyzed until restrictions were

automotive industry as essential. “We are strengthening

lifted. Other companies voluntarily decided to close their

internal and external communication channels not only to

doors while a contingency plan to protect workers was

start new projects but also to address the daily requests

implemented.

we receive from our customers. These are part of the shortterm variables an organization should focus on to see

COVID-19 only made a bad situation worse, as the sector

immediate results,” says Alian Plastics’ CEO, Felipe Villareal.

had already been in trouble for a few years. “The poor

“We have learned that we cannot control everything but

performance of the Mexican economy has contributed to

a company does need to change its strategies as the

the Mexican automotive market being in recession since

pandemic is changing the direction where the world is

2017. In Mexico, GDP had a real contraction of 0.4 percent

heading to.”

in 4Q19 in relation to the same period in 2018, while the US economy grew by 2.3 percent in the same period,

Several states such as Jalisco, Queretaro, Guanajuato,

which is evidence of the internal origin of poor economic

Sonora, State of Mexico, Michoacan, Mexico City and

performance in our country. If things were complicated

Nuevo Leon announced economic strategies to support

under these circumstances, the onset of the COVID-19

several manufacturing sectors, including automotive, in

pandemic would increasingly aggravate the situation,”

an effort to curve COVID-19’s impact. AMDA also urged

said Guillermo Prieto Treviño, President of AMDA.

the federal government to set an agenda on how to help the sector to recover from the losses brought about by

SWITCH TOWARD HEALTH AND SAFETY

the COVID-19 outbreak. AMDA proposed different credit

To fight the outbreak, several vehicle manufacturers were

schemes to ensure liquidity, differentiated subsidies for

quick to take measures to prevent the spread of COVID-19,

vulnerable population segments and faster tax rebates,

with all automotive OEMs temporarily closing their plants

to name a few. Among the tax incentives, dealerships

in Mexico and abroad. While these measures answered the

proposed a waiver in payroll taxes, an extension to the

need to prevent contagion, they were also fueled by lower

annual tax declaration that usually takes place in April,

vehicle demand globally, as well as problems across the

as well as an immediate tax deduction for investments.

entire supply chain.

All tax waivers and exemptions, however, were denied by the federal government, which instead asked companies

Companies in Mexico were not the only ones to implement

to not layoff workers during the pandemic.

measures of this kind. Automakers stopped producing vehicles around the world, some for a short period and

Gradually, automotive plants across the globe began to

others until further notice. Other plants, like those at

return to operations. In the US, for instance, companies

General Motors and Ford, shifted their production to

began to welcome back their workers in May. However,

medical equipment and ventilators. In Mexico, several

in that short time the sector had already changed. To

OEMs implemented initiatives to help Mexico fight

operate safely, companies had to implement strict health

the pandemic. For instance, Audi México provided

and safety checkpoints, social-distancing measures and

medical equipment to four hospitals in Puebla, while

questionnaires to ensure there was no close contact with

also producing 40,000 reusable facemasks through its

any person infected with COVID-19.

ONLY ‘ESSENTIAL’ INDUSTRIES The federal government published a decree in May that would allow some industries to resume operations. The new decree classified the automotive, construction and mining industry as essential and allowed them to return to operations as soon as they complied with strict sanitary guidelines provided by IMSS. The government deems these to be highly technical industries that are expected to lead the restart of productive activities, in coordination with

“

If things were complicated under these circumstances, the onset of the COVID-19 pandemic would increasingly aggravate the situation”

companies from the US that are dependent on output

Guillermo Prieto Treviño, President of AMDA

from Mexico for their own production. Mexico uses highly mechanized factories and therefore the government sees lower risks. Aerospace, rail and shipbuilding plants were allowed to open their doors as well, as the decision applied

These measures are expected to cost local automotive

to all companies manufacturing transportation parts

companies a pretty penny. Enoch Castellanos, President

and equipment. Minister of Economy Graciela Marquez

of the National Chamber of the Transformation Industry

explained that the rest of the industry and social activity

(CANACINTRA), which includes all manufacturing

would restart via a “traffic light” system that will also be

companies, has pointed out that all sanitary measures will

used to determine which parts of the country are at lower

represent between 5 and 10 percent of the total investment

risks to start activities once again.

for companies over the year. “The industry has taken the necessary actions and cautions and we will continue to

Between May 18 and June 1, the newly labeled essential

do so as the law requires, so we can mitigate the effects

industries were urged to prepare the adequate health

of the pandemic. By doing this, we will continue to show

measures and submit them for approval, either to the

our commitment to the sector in adopting all necessary

Mexican Ministry of Labor, the Ministry of Economy,

measures,” said AMIA in a statement.

the Ministry of Health or IMSS. Safety, however, was paramount. “This is a goodwill agreement. However,

The sector has now restarted operations but the damage

if the aforementioned conditions are not met, the

to Mexico’s automotive industry was already done. AMIA

government will shut down companies or industries that

explained that cumulative exports between January and

put their workers’ health at risk,” stated the government

May faced a 42.4 percent contraction compared to 2019,

in its decree.

with 604,097 fewer units exported. Just in May, exports fell 95.1 percent compared to the same month in 2019.

Following its publication, industry representatives met

Light-vehicle production also showed a pronounced fall,

with the leader of the majority in the Mexican Senate,

with a negative 93.7 percent annual variation in May

Sen. Ricardo Monreal, and members of the economy and

and production in the January-May period falling by

tax committees. “We will act as goodwill lobbyists before

43.2 percent.

the National Health Council and the executive branch of the government,” said Monreal in a statement. “The Senate

Auto parts production also fell significantly. INA adjusted

has supported the automotive industry in other regards,

the association’s forecast for the yearly production value of

such as the elimination of the transitory regime for used-

this segment to US$66.56 billion at the end of 2020, a 32

car imports.” The presidents of the tax and economy

percent drop compared to 2019 levels of US$97.83 billion.

committees also acknowledged the role the sector plays

As for vehicle sales, Guillermo Rosales, Director General of

in the country. Guillermo Rosales, AMDA’s Director General,

AMDA, reported that sales for light vehicles in the country

highlighted that car sales were not labeled as essential and

during May dropped 60 percent compared to May 2019.

they are working to proceed in this regard.

RECOVERY AHEAD? Public institutions, industry associations and automotive

While the sector has suffered a heavy blow, it continues to

clusters have taken the lead on advising companies on

be a strong arm for the global automotive manufacturing

health protocols as they get ready to resume operations.

industry thanks to its low-cost operations and stable

IMSS has provided online trainings that detail the measures

political environment. It also remains an attractive

under which workers should return to their duties. Mexico’s

destination for FDI. But these troubling times have placed

Ministry of Labor has also indicated that protocols will at

the local automotive industry in a precarious position. It

least include entry filters, exclusive transportation and

is necessary for the industry to reinvent itself and adapt

regular checkpoints in common areas.

to the needs of “the new normal.”

237

| VIEW FROM THE TOP

TECHNOLOGY A KEY TOOL FOR ENHANCED SECURITY ARMANDO ZÚÑIGA Chief Executive Officer of Grupo IPS

238

Q: How is the private sector working with the government

Q: What innovative technologies will Grupo IPS introduce

to foster the growth of the Mexican industrial sectors?

into the Mexican market to ensure safety of products?

A: We are seeing progress in the effort to create synergies

A: Grupo IPS has three divisions. Among these, our IT

between the private sector and the public sector to

division focuses on developing new security technologies

promote the Mexican industry. Sales are down in a

to reduce theft on highways. What usually happens is that

number of industrial sectors in Mexico and we have had

thieves use signal inhibitors to block GPS tracking devices

some clients look to renegotiate contracts to get new

that use phone signals. This is how most cars are stolen. We

payment dates. We have also seen a drop in our internal

developed a new device that sends an alert to the driver

sales in comparison to 1H2018. We see optimism from

and company as soon as the signal from the GPS is blocked,

one side, but on the other side we see the reality of the

allowing them to take preventive actions instantly. We are

situation, which is lower sales. Our strategy to mitigate

still testing it but so far it has been working well.

this economic reality is to look for ways to decrease our costs without any cuts to our human capital. Whenever

Q: Why is it important to establish a working culture in a

there is a crisis, companies must reorganize their strategies

security company and how does it reflect on the services

and sometimes that means becoming more cautious when

Grupo IPS offers?

making investments. Our largest clients at the moment are

A: Our competitive advantage is our culture. IPS has a

banks: BBVA and Santander.

culture that focuses on the people and we are the only security company with a Great Place to Work certification.

Q: What role does Grupo IPS play within the automotive

A high rotation, especially at security companies, has a

industry in Mexico and what are the main concerns of

great impact on costs and generates operational problems

its clients?

for companies. If your team has a strong sense of belonging,

A: In automotive, most of our clients are Tier 1 suppliers.

then they are more motivated to stay and work, therefore

OEMs have automated almost 98 percent of their

generating trust with customers and lowering your costs

processes, but spare part manufacturers still require our

in training new people.

services. There are thousands of suppliers in the Mexican market. Insecurity is a large concern for the automotive

Q: What are Grupo IPS’ goals for the short term and what

industry and it is impacted greatly by the theft of

strategy will it implement to increase its market share?

products on highways and extortion of personnel. We

A: Our main focus is expanding our reach into other Latin

have been working with the local authorities and have

American countries. We are already present in Peru and

come together as an association of security providers,

we are entering the Costa Rican market. In five years, our

ASUME, to create strategies to keep companies safe.

goal is to be in at least 12 countries in Latin America. In

The good news is that the authorities are supporting the

Mexico, many children are scared of the police, who inspire

private sector and are making a variety of changes to

distrust rather than being seen as a protection figure. We

enhance security. Our portfolio is distributed among the

are striving to change this through the creation of our

automotive supply chain and includes companies such as

mascot, Vigiman, and by fostering a family environment

Bocar, Valeo and Bosch.

within our company. We also want to ensure the company’s financial sustainability by establishing proper corporate governance in the coming years. As a family company,

Grupo IPS is a private security firm that provides services to the

we want to create a board of directors to institutionalize

industrial sectors. The Mexican company offers alert systems,

our processes. We would also like to be listed on the

GPS tracking, armed and unarmed guard services to financial,

BMV in order to attract private investors to continue our

automotive, mining and manufacturing companies

expansion into Latin America.

VIEW FROM THE TOP |

SECURITY GENERATES ADDED VALUE FOR THE EMPLOYEEEMPLOYER RELATIONSHIP MARIO SALOMÓN Country Manager of Grupo Multisistemas de Seguridad Industrial

Q: How has Mexico’s insecurity impacted its industries and

A: In terms of security, prevention is primordial. We believe

what could be changed to enhance security within the

that security is 80 percent prevention, 15 percent deterrence

industrial sector?

and 5 percent response. We not only protect facilities from

A: Insecurity in Mexico has increased in all industries, which

external threats but also internal, such as petty theft, which

has forced us to strengthen our protocols. In addition, there

is very relevant in industrial facilities. We have also increased

is no evidence that this increase in insecurity can be reversed

our security activities in everything related to logistics and

despite all the efforts that are being made. One example is the

transport of materials.

appointment of the new National Guard. We are in favor of this strategy because we believe the military is the only institution

Video surveillance cameras with motion detectors and

with the capacity and discipline to combat organized crime

drones are some of our most popular services. The GPS that

in the country. We coordinate with this body for some of our

we include in logistics services to enhance control of goods

activities in certain sectors, including mining.

and transport units is also in demand. We are innovating in the sector and have developed our own facial recognition

We are proposing the creation of a General Private Security

software as well. Technology is significant for us. The use of

Law so that consistent criteria can be applied throughout

drones is common in our mining-related activities and we have

the country. There is confusion regarding the application of

the only private C5 system in the country. We offer products

regulations due to the overlap of federal, state and municipal

with state-of-the-art technology that differentiates us from

laws. Security in Mexico should be governed by a general

the competition.

law, which would also provide certainty to those involved in the industry.

Q: What is GMSI’s strategy to attract and retain human capital and what are the main challenges it encounters?

Q: What role does the automotive industry play in your

A: It is not just about attracting talent but using those human

service portfolio?

resources well. Due to the characteristics of the industry, we

A: We work with some plants and suppliers in the automotive

also have to be more demanding. For example, in the mining

industry. It is one of Mexico’s booming industries and for

industry we only hire one of every 20 candidates; in other

that reason we would like to increase our participation in

industries, one in 10 is hired, on average. We are much more

the sector. We have extensive experience in increasing the

careful with our testing procedures and hire people who are

efficiency of rail services.

not from the area where the activity takes place in order to avoid possible conflicts of interest.

Q: What are the main demands that you have identified in the automotive industry?

When hiring personnel, we have 22 internal filters, such as

A: As in mining and other industries, we focus mainly

socioeconomic studies, criminal record checks, psychological

on intramural protection. Another service for which we

exams and polygraphs. Most of our workforce is armed, so

have identified significant demand is the protection of

our protocols are scrupulous. We are very clear about the

employees leaving the plant after work for the nearest public

situations in which one of our employees can use a weapon

transportation stop. The areas where the plants are located

and how to use it.

can sometimes be dangerous. This service generates an added value for the employee-employer relationship. Grupo Multisistemas de Seguridad Industrial is a leading

Q: What are Grupo Multisistemas de Seguridad Industrial’s

company in the private security area. It has over 35 years in

(GMSI) most in-demand products and services in the Mexican

the Mexican market, over 30 branches and more than 14,000

industrial sector?

security elements

239

| SECTOR AT A GLANCE

STRICTER SAFETY REGULATIONS PROTECT WORKERS, FOSTER GROWTH

“

If companies do not provide the proper equipment to workers and they are injured, the company is liable” Juan Vargas, Director General of Guantes Vargas

In the automotive industry, in particular, there is the latent threat of fires, which can have catastrophic consequences for a company that might be less obvious than operational downtime and damage to company property, according to Luis González, Director General of Fire Service Plus México (FSPM). “An uncontrolled fire does not only destroy products and harm cash flow. It also skyrockets a company’s insurance premium and leads to environmental fines.” FSPM is a supplier of firefighting equipment to OEMs, as well as for Tier 1 suppliers. In Mexico, the company

240

As companies and workers grow their awareness regarding

specializes in marketing the FireAde 2000 agent, which

industrial safety standards, new regulations are implemented

creates a firefighting foam that can extinguish everything

to protect industry collaborators. As an example, OHSAS

from simple wood or paper fires to more complex reactions,

18001, a standard for occupational health and safety, will now

including fuels, combustible metals, fats and electrical

be substituted by the new ISO 45001, which Juan Vargas,

fires. The company has even designed firefighting robots

Director General of Guantes Vargas, says is bound to change

to attack the fire exactly where it starts so sprinkler

safety policies across several industrial sectors. “This is the

installations do not soak the entire facility. “Our robots are

first truly global standard for occupational health and safety

capable of detecting the flame from a pocket lighter and

management systems,” says Vargas.

shooting firefighting agents at it from a distance of 50m,” González says.

The cost of treating work-related injuries and diseases has led governments to raise the bar regarding occupational

ROOM FOR GROWTH

safety standards to prevent these issues. One of the main

Despite the sophistication of the automotive industry, micro

differences between OHSAS 18001 and its successor is

and SMEs also participate in the supply chain, provided

that a company will be responsible for managing the

they comply with standards. Laura Rodríguez, Founder

safety of workers. “If companies do not provide the

and Director General of LR Soluciones Industriales, says

proper equipment to workers and they are injured or

participation is a matter of tenacity, willingness and

suffer a chronic disease as a consequence, the company

formality. “Many small companies do not want to take the

is liable,” says Vargas. ISO 45001 will force companies to

risk and invest to comply with all that the industry demands.

provide Mexican workers with the same safety equipment

But doing so is the best strategy to become competitive,”

used in countries, just as quality management systems

she says. By focusing on automotive companies, safety

like ISO and IATF ensure automotive companies have the

equipment supplier LR Soluciones Industriales has assured

same product quality at all their plants. However, each

sustained growth and continuous improvement in its

company will have specific needs in terms of industrial

capabilities. “We cover other industries but automotive is

safety equipment that will depend on the manufacturing

one of the most competitive and the most dynamic to learn

processes that they carry out.

from,” Rodriguez says. One of the key elements for small companies to grow in the industry is to focus on timely deliveries. “When choosing a

Besides productivity, companies must also pay attention to industrial safety standards to ensure the continuous success of their business. Although stricter safety standards may represent an added investment in terms of training or equipment, they will also protect the company’s investment and the well-being of its workers

supplier, you need someone who is as committed to you as you are to your customers,” Rodríguez adds. Ramping up operations while maintaining the same quality and customer service can also be a difficult challenge to overcome. “Growth in the Bajio has been very rapid. Our role as suppliers of protection and safety equipment has led to major growth for LR Soluciones Industriales as well. We need to provide our solutions as fast as possible,” she says.

VIEW FROM THE TOP |

SAFETY, SUSTAINABILITY GO HAND IN HAND JUAN CARLOS RANGEL Partner at ERM

Q: ERM supports several industries with services focused on

equipment units that consume the most energy and ask us

sustainability. Where does the automotive sector fit in your

to perform the audit and compare against the expectations

portfolio?

of the equipment manufacturer. However, the biggest

A: In Mexico, the automotive sector has been very important

impact comes from how people operate the equipment.

throughout our history and it continues to grow. However,

On occasion, we see equipment that requires controlled

the Energy Reform helped boost other sectors to the point

temperature conditions but are in facilities with open

that automotive growth has been slower compared to oil and

windows. When it comes to safety, some companies focus

gas. Currently, the automotive industry represents around

on implementing training sessions or procedures that are

20 percent of our activities, but this is more related to the

long and complex, meaning that their employees are less

accelerated growth of oil and gas.

likely to follow them.

Q: How does ERM help automotive clients improve their

Q: What is ERM’s strategy to raise awareness regarding

performance through its safety services?

savings and productivity efficiencies that result from

A: When talking to clients, we have found that they are

adopting safety and sustainability practices?

generally spending an important part of their budget on safety

A: Regarding safety, companies need to do more with less,

without reducing incidents. At the same time, they remain

given cost pressures. Our focus is on helping them to do less

under budgetary pressure as they invest money in training.

with less and obtain better results. This generates savings. We

ERM looks for alternatives for them to obtain better results

often see that companies have robust programs regarding

with fewer resources. We generally present case studies

safety, with a great deal of training; yet, they still experience

and examples related to the savings that other clients have

incidents and downtimes because they do not achieve the

enjoyed after implementing a particular training program or

final objective, which is to keep people safe. We also see that

conducting other evaluations. We help clients over the entire

rather than focusing on removing a risk, the risk is mitigated

life cycle of their projects, from the feasibility to the closing of

by providing personal safety equipment. This is a temporary

a determined facility. For instance, we developed a strategy

solution; the risk must be removed so people do not require

to close a site that allowed the client to return a part of the

personal protection equipment as it takes a big portion of a

property to the owner without having to pay rent.

company’s safety budget.

Q: What gaps has ERM identified in Mexico-based automotive

Q: What is the best strategy for automotive companies to

companies regarding safety and sustainability?

increase their operational safety and sustainability standards?

A: We believe that safety and sustainability go hand in hand.

A: They can have standardized approaches to detect what the

For a company to be sustainable, it must consider not only the

opportunities for improvement are. We usually do this in three

environment, buy the safety of its workers, how its operations

stages. First, we analyze the company’s context to identify

impact local communities, its business ethics and innovation,

what it could stop doing without impacting the final result. In

because a company that is not innovating or does not behave

this step, we also analyze client and legislative requirements.

ethically will not be in the market for long. These are the

The next steps focus on how the company’s operation can

elements that we believe establish sustainability.

become leaner and how to streamline processes.

Many companies tend to focus on specific elements of their operations rather than analyzing them holistically.

Environmental Resources Management (ERM) is a global

For instance, we sometimes receive energy audit requests

provider of environmental, health, safety and social consulting

wherein the client wants us to analyze how a particular

services. With more than 160 offices in over 40 countries and

equipment unit is performing. The client identifies the

territories, ERM supports companies in various industry segments

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| VIEW FROM THE TOP

CHEAPER, MORE EFFICIENT ENERGY SOLUTIONS HANS KOHLSDORF Founding Partner of E2M

Q: What power market trends have yet to permeate the

worried about energy quality and brownouts or blackouts,

Mexican industry and how does this challenge Mexican

then OSG can provide a solution.

automotive companies?

242

A: Large-scale renewable generation is changing the energy

Q: What are the most significant demands made by

mix in a significant way while reducing the cost of electricity.

automotive companies, including both OEMs and suppliers,

Another major trend at the global level is distributed

to qualified suppliers such as E2M?

generation (DG) or on-site generation (OSG). Electricity

A: In Mexico, the major concerns are energy availability and the

should be generated closer to where it is consumed. In Mexico,

cost of electricity. Often, the challenge for most international

this trend toward DG is well underway. Having said that, there

companies with limited know-how of the Mexican electric

are already many very good examples where the best source

market is how to organize an effective energy purchasing

of energy for a manufacturing plant is either on-site or nearby.

tender. As an independent supplier, E2M has been chosen by

DG also solves the problem of an electric grid that is already

many companies to organize their energy purchase tenders.

stressed and has limited capacity for new loads.

Experienced industrial companies know quite well the concept of demand control, which in many cases, together with energy

Many technological developments in the energy sector are

efficiency programs, can have a bigger impact on savings than

impressive. Mexico is taking advantage of its abundance

the tender process itself. E2M supports customers in defining

of natural gas as the pipeline network is expanding rapidly.

the best energy strategy and accompanies them during the

Some automotive processes require heat and combined

whole implementation process of energy efficiency measures,

heat and power (CHP) solutions are being built at a fast

demand control and energy tenders.

pace. Solar power as OSG is growing strongly and relatively small applications of 2MW, 5MW or 10MW become the new

In the energy sector, the new economy is moving away from

standard. Battery applications for commercial and industrial

vertically integrated companies where the one generating the

users are being explored and deployed to replace diesel

energy is the one delivering it to the final user, which is the

engines or other power sources, to stabilize the energy quality

business model of state-owned utilities. Independent brokers

at a required level or for peak shaving applications.

like E2M operate a similar model as the insurance broker. We help our customers to choose the best available option. In

Exploring the advantages of nearby generation plants and

contrast, the traditional, vertically integrated utility is happy

OSG represents a great area of opportunity for automotive

if customers consume more energy.

companies. For the Mexican automotive sector in particular, there are several advantages. One is the high radiation levels

Q: What is E2Mâ&#x20AC;&#x2122;s strategy to help manufacturing companies

that make solar power even more competitive in the country.

control their energy costs as they integrate Industry 4.0

Second, is the availability of natural gas and biogas. All

practices?

new engines and turbines work perfectly with a mixture of

A: Industry 4.0 helps to drive energy efficiency measures that

natural gas and biogas. Thus, many industries close to water

significantly reduce energy consumption. Our energy market

treatment plants or waste centers have a big opportunity

data platform, MEM on Cloud, can interact with AI-driven

for generating energy from biogas. Finally, if a company is

Industry 4.0 solutions and create an even greater positive impact. In addition to the antiquated energy options offered by vertically integrated utilities, there are new interesting

Energy to Market, E2M is a pioneer service provider and

business models to explore. In our experience, clients that are

consulting company in the wholesale electricity market. The

already implementing Industry 4.0 tend to be early adopters

company has two divisions, one is a qualified supplier under

of more efficient energy purchase tenders or Big Data-based

CRE permits and the other a generator under CENACE

energy control measures.

Major improvements supporting OSG are the smart grid

business environment gives companies more flexibility than

solutions and the Internet of Things that comes with these.

some European countries do or even the US. Although there

With OSG, companies are perfectly able to integrate their

are some negative aspects, we enjoy an environment that

operations because they manage their own energy. If

allows companies to implement all necessary measures to

the company controls its processes, it controls its energy

work more efficiently in the energy sector. Mexico has a long

consumption and decreases energy costs. If the company also

history of private energy generation. The mining industry

requires a grid connection to cover peak loads, it becomes an

generates its own energy, as it operates in remote locations,

energy prosumer (producer and consumer). E2M is present

as does the paper industry, which requires large amounts of

in both segments, energy purchases and energy sales. This is

steam. The great relevance of DG, bringing energy closer

how we can help companies to optimize their energy portfolio

to the consumer, will eventually reduce the overload of the

and adapt it to their production and delivery obligations.

distribution and transmission grids.

E2M does not own any generation assets, which is why it is Q: What steps must be taken to reduce the carbon footprint

considered fully independent.

of Mexico’s automotive industry? The energy cost and the efficient use of energy are two major

A: There is a major advantage in the automotive industry. All

concerns for automotive companies. Our focus is to reduce

companies take the reduction of their carbon footprint very

the total energy costs for companies by helping them to

seriously. All of these companies are concerned about the

manage their energy portfolio and their generation plants,

environment because the consumer values environmentally

leveraging in that way potential efficiency gains.

conscious companies. Therefore, reducing carbon and water footprints is a cornerstone of social responsibility for many

Q: What regulatory changes must take place for smaller

companies. At E2M, we act as a balancing agent, adapting

automotive companies to adopt green energies?

the intermittent renewable energy generation to the specific

A: I believe businesspeople are responsible for their own

consumption needs of our customers. A strong commitment

business. A company waiting for the government to take

to social and environmental issues is a major characteristic

action will never succeed. Having said that, today’s Mexican

across the automotive industry.

INSIGHT |

BABY STEPS TOWARD ENERGY EFFICIENCY JUAN RÍOS Director General of Grupo Energos

The quest for sustainability and cost-efficiency has changed

2 companies in the automotive industry, which currently

how companies approach manufacturing operations.

represents 70 percent of Grupo Energos’ business.

However, before looking for new ways and equipment to improve operations, Juan Ríos, Director General of Grupo

The company addresses issues in energy quality arising

Energos, recommends that companies fix whatever problems

from deficient electrical, electronics and robotic systems

exist in their infrastructure and installations. “Measure

that cause current variations, peaks in voltage and other

consumption, then manage it properly and later implement

failures that lead to unscheduled downtime and electronic

further controls,” says Ríos. “This is the basis for an effective

malfunctions. Ríos says a plant’s operation is always more

energy management strategy.”

expensive than its initial investment, which makes these analyses critical to minimize costs. “Clients must realize that

After working with companies such as American Axle,

even though components might be similar, their energy

DENSO and Lear Corporation, Grupo Energos has cultivated

consumption demands might be different,” explains Ríos.

expertise in analyzing energy demands to develop installation

“They must adapt their prices to these differences and work

and maintenance engineering focused on efficiency and

on their processes to make them more efficient depending

energy quality. The company targets mainly Tier 1 and Tier

on the variations in energy consumption.”

243

Audi Plant, San Jose Chiapa, Puebla

THE 4.0 REVOLUTION

Driven by cost efficiency and tight deadlines, companies â&#x20AC;&#x201D; Â large or small â&#x20AC;&#x201D; are betting on improving processes with the most advanced technological solutions. In the race for fully automated production lines, automation companies agree the first step should be an assessment on the purpose and the level of the automation that an OEM or a supplier requires. Technology companies have made it clear that rather than taking jobs away, automation empowers employees to take a more active role in the production line albeit through training and constant skill updates.

From robot suppliers to machining companies, players in the 4.0 Industry are starting to talk about more cost-efficient manufacturing options, such as collaborative robots and team-key projects. More experienced technology integrators are stressing the need for adaptability as CASE vehicles are just around the corner.

245

CHAPTER 11: THE 4.0 REVOLUTION 248

ANALYSIS: There are Only Two Options: Evolve or Perish

249

VIEW FROM THE TOP: Víctor Fuentes, Mitsubishi Electric Automation Mexico and Latin America

250

VIEW FROM THE TOP: Antonio Mendoza, Balluff

251

VIEW FROM THE TOP: Alejandro Preinfalk, Siemens Mexico, Central America and the Caribbean

252

ANALYSIS: COVID-19 Pushes Companies Toward Digital Transformation

254

VIEW FROM THE TOP: Javier Campos, FANUC

255

VIEW FROM THE TOP: Manuel Sordo, Universal Robots

256

VIEW FROM THE TOP: Mauricio Blanc, OMRON Automation Americas

257

SECTOR AT A GLANCE: Local Engineering, World‑Class Technology a

Winning Mix for Solid Automation 258

VIEW FROM THE TOP: José Figueroa, Marposs México

259

SECTOR AT A GLANCE: The Next Step Toward Innovation: Getting Rid of Metrology Labs

260

INSIGHT: Eric Palencia, Integra Automation

261

VIEW FROM THE TOP: Peter Kroll, everis Mexico

261

VIEW FROM THE TOP: Vicente Cepeda, Cinko Group

262

SECTOR AT A GLANCE: Digital Transformation: a Step by Step Process

263

INSIGHT: Salvador Icazbalceta, Heller Machine Tools de México

264

SECTOR AT A GLANCE: Machining Companies Foresee A Bright Trading Environment

265

VIEW FROM THE TOP: Marcos Sepúlveda, SCHUNK

266

VIEW FROM THE TOP: Julia Gómez, CERATIZIT Group

267

INSIGHT: Rafael López, DISMA

247

| ANALYSIS

THERE ARE ONLY TWO OPTIONS: EVOLVE OR PERISH The Industry 4.0 market is expected to total US$156.6 billion by 2024. Faced with this scenario and a downturn in overall production, automotive companies, whether they want it or not, will have to embrace new trends to remain competitive in a changing industry There are only two roads when it comes to Industry 4.0:

disrupted could well find themselves with unmarketable

embrace new technologies to remain relevant or perish against

assets and skillsets,” according to the Deloitte report.

new players. Companies are investing heavily in innovation but When incorporating 4.0 processes or machines into

costs of this revolution. According to a study conducted by

manufacturing operations, quality is key. Thus, the role of

Markets and Markets, Industry 4.0 products and services will

quality engineering companies has become more relevant.

reach a value of US$156.6 billion by 2024, growing at a CAGR

“Tier 1 and 2 customers have found the possibility of

of 16.9 percent from 2019 to 2024. For this reason, and for fear

increasing the value of their product through inspection

of falling behind, some companies have already made great

systems. They notify their own clients that all components

strides to incorporate Industry 4.0 principles. The reward is

have been checked, assuring them of their quality. That

faster and more agile production processes. “If Tier 2 and 3

gives SMEs added value,” says Miguel Salamando, CEO of

companies do not adapt to these technologies, they will be

Técnica Test.

unable to continue working with major players,” says CEO of Integra Automation Eric Palencia.

In the midst of a slowdown in the industry and new trends such as CASE vehicles, alternative for companies include

According to a report from Deloitte, over the past 50 years,

entering into strategic partnerships or targeted mergers

the automotive sector has invested billions of dollars in ERPs,

and acquisitions. Some are looking to competitors for

automation solutions and advanced product technologies.

opportunities to bridge the gaps in their technological

“Nonetheless, in some aspects, automotive companies

development. Among the M&A that took place this year was

remain a slow follower to data and technology companies

the FCA and PSA merger that formed the world’s fourth-

that are defining the competitive landscape of the Fourth

largest OEM by volume and third-largest by revenue with

Industrial Revolution,” the report states. Even though robots,

annual sales of 8.7 million units. Toyota and Subaru also

automation and IT can help companies reduce production

expanded their partnership to invest more efficiently in new

costs and increase productivity, most Mexican players are still

technologies suitable for CASE vehicles. German companies

reluctant to try new technologies, according to Commercial

also made moves, with Daimler announcing a 50-50 joint

Development Officer of Keyland César Chávez. Suppliers face

venture with Chinese company Geely, Volvo's parent group to

a difficult situation, however, as they take on more and more

offer e-mobility services. These collaborations are intended to

of the responsibility to innovate. “Companies with product

share technology and manufacturing platforms to streamline

portfolios tied to traditional technologies currently being

processes and reduce operational costs.

AVERAGE ANNUAL INVESTMENTS AVEREGE ANNUAL INVESTMENTS IN INDUSTRY 4.0 APPLICATIONS

GROWTH IN REVENUE DEPENDING GROWTH IN REVENUE DEPENDEING ON THE LEVEL OF DIGITIZATION

IN INDUSTRY 4.0 APPLICATIONS

ON THE LEVEL OF DIGITIZATION

(Annual growth the lastyears 3 years) Annual growth in thein last three Percentage of companies surveyed

248

they have also opted for mergers and acquisitions to face the

>10

6-10

0-5

Level of product portfolio digitization High (4,5)

Medium (3)

6 3 0-1

2-3

4-6

7-10

Low (1,2)

>10

Amount of investments in % of annual revenues

Source: PwC

Growth in revenues >10

6-10

0-5

VIEW FROM THE TOP |

TECH INTEGRATION DEMANDS QUALIFIED TALENT VĂ?CTOR FUENTES Director of Mitsubishi Electric Automation Mexico and Latin America

Q: What is your assessment on the adoption of Industry

to support academic institutions in Aguascalientes,

4.0 practices in the Mexican automotive industry?

Coahuila, Queretaro and Guanajuato, supplying them

A: Industry 4.0 is a concept launched by the German

with the latest technology. We plan to do the same with

government about a decade ago and adopted by

either IPN or UNAM.

companies. IIoT referred to the same concept, only under a different name preferred in the US. For Mitsubishi

Q: How has Mitsubishi Electricâ&#x20AC;&#x2122;s strategy of reducing

Electric, our goal is to turn what we call e-F@ctory into

ownership costs through expense amortization boosted

a reality: an integration of systems and technologies that

the adoption of automation technology?

allows the industry to produce more with less, knowing

A: Through this strategy, Mitsubishi Electric has

how much processes cost and how to improve them. We

maintained a technology standard among clients

believe the Mexican industry offers good conditions for

and helped companies migrate toward newer control

technology adoption, whatever its name.

equipment. Furthermore, it has secured our position among Japanese players and made it more difficult

OEMs are already built around these concepts and the

for our competitors to enter the market. When clients

Mexican industry is working to embrace them, supported

spend years without an equipment-related failure with

by the authorities. The state governments of Nuevo Leon

our solutions, they become interested in adopting our

and Aguascalientes put high importance on training

latest technologies and the more technology clients have

qualified engineers to understand and work with these

installed at their plants, the lower ppm rates they will face

trends. Technology will make local companies more

and the greater processing speeds their programmable

competitive but they must be willing to invest in it.

logic controllers (PLC) will achieve.

It is necessary to be at the forefront of technological development to produce components.

Q: How has political uncertainty affected investment from Mitsubishi Electricâ&#x20AC;&#x2122;s clients in Mexico?

Q: What challenges do high staff turnover rates present

A: Many investments remain on stand-by but this

to automotive companies?

situation has little to do with USMCA and the 2018

A: Staff turnover is a huge problem in the sector,

Mexican elections and more with a significant drop in

especially in the Bajio region where companies can lose

car sales in the US. Consumers in that market are not

up to 25 collaborators per week and must bear huge

purchasing as many new vehicles and trends in this

related costs. We need to shift the mindset from just

market are changing. Older generations demanded large,

needing labor to demanding qualified workers who can

eight-cylinder muscle cars several decades ago and this

operate equipment differently. To that end, Mitsubishi

demand eventually shifted toward compact vehicles and

Electric not only focuses on marketing automation

later minivans. Hybrids are in demand right now but they

technology but also on training the people who will use it.

may go out of style in a few years as OEMs accelerate the development of EVs, which will have a great impact

Many processes can be automated within the industry but

on the automotive industry as suppliers change and new

companies still think most of these should be managed

manufacturing demands arise.

through human labor. I am in favor of adopting more robots inasmuch as people are trained to program and operate these robots simultaneously. We need to provide

Mitsubishi Electric is a global company with over 40 years in

Mexican engineering students with the tools they will

Mexico. It develops and manufactures electric products and

use when they enter the labor market, which is why

systems, including industrial robots, motion control systems,

Mitsubishi Electric invests around US$200,000 annually

operator interfaces and computer numerical controls

249

| VIEW FROM THE TOP

OPEN PROTOCOL UNLOCK’S INDUSTRY 4.0 POTENTIAL ANTONIO MENDOZA General Manager of Balluff

250

Q: How relevant has the mobility segment become for

clients might use, IO-Link maintains effective industrial

Balluff in Mexico?

communication and customers can enjoy improved data

A: Our focus for 2019 is on the tire sector. This market will

management, installation and cost reduction benefits.

continue to grow, regardless if it is the electric, internal

Gradually, more clients and even our competitors are

combustion or hybrid vehicle market. We are developing

embracing IO-Link and our expectation is that this

technology specifically designed for tire manufacturers,

subnetwork will soon become the most important

integrating our IO-Link network solutions, vision and

industrial protocol globally.

inspection equipment, as well as radiofrequency solutions to track tires at the production line and when they are

Efficient data collection is the key to unlocking Industry

delivered to the OEM client or the end user.

4.0’s potential, considering this concept relies on realtime data management for decision-making. Balluff works

Q: What strategies has Balluff implemented to grow the

as a facilitator of data for Industry 4.0 and IO-Link has

adoption of IO-Link among Mexican players?

simplified our role substantially.

A: IO-Link’s presence is growing in Mexico. This industrial subnetwork uses an open protocol that has allowed

Japan’s Nissan has become one of our main clients in

equipment manufacturers to release new IO-Link-

the automotive sector. The company used the CC-Link

compatible products. Even companies using the AS-i

network at its facility but after a refurbishing process,

protocol are now opting for Balluff's IO-Link to develop

we presented IO-Link as an alternative solution. The

their latest solutions. Regardless of the industrial network

automaker realized that the level of data management, together with the ease of installation and the consequent increase in productivity, made IO-Link the best option

Balluff is a German company with 98 years of experience in the

for its manufacturing operations. In 2018, we migrated

automation market. The company has over 60 global locations

Nissan’s operations for three production lines to IO-

and nine manufacturing sites that offer support for clients in

Link, which represented an investment for the OEM of

Europe, Asia, North and South America

approximately US$500,000.

VIEW FROM THE TOP |

INDUSTRY 4.0: THE ADOPTION CURVE IS GROWING ALEJANDRO PREINFALK President and CEO of Siemens Mexico, Central America and the Caribbean

Q: How advanced do you think Industry 4.0 is in the

Next, we move into the digital enterprise stage, a

Mexican industry?

comprehensive concept that starts with product design.

A: I am quite optimistic about the reception that Industry

We design the product digitally then move on to Phase 2,

4.0 has had. We started promoting this concept and these

which is digital design and simulation of the production line

solutions seven years ago and today we are observing that

to manufacture the product that we have already designed

the adoption curve is growing. We are seeing the results of

virtually. Before the real implementation, we work on a digital

promoting the concept and explaining what its benefits are,

twin, which is to design the product and the production

as well as the impact of digitalization in different industries

line virtually. This digital-reality combination is the basis for

and even at a personal level. At the industrial level, we

implementing a successful digital transformation.

have also seen that there are very concrete efforts for the implementation of Industry 4.0. Siemens is an important

Q: What is Siemens’ role in analyzing data coming from

voice for the Industry 4.0 concept. We start with advice and

the production line?

consultancy. We identify our clients’ needs and design the

A: We capture production information through sensors

technologies that help them achieve their objectives.

on the production line and we analyze that data in the cloud with our IoT platform called MindSphere. It connects

The technologies we implement include artificial intelligence,

products, plants, systems and machines, enabling companies

cloud edge computing, 5G, autonomous management

to harness the wealth of their data with advanced analytics.

systems, blockchain, additive manufacturing and preventive

In addition, it gives them access to a growing number of

maintenance. Fortunately, we have seen that the adoption

apps and a dynamic development ecosystem. This tool

curve of Industry 4.0 in the country and in the automotive

generates tangible benefits for the client, such as predictive

industry is growing, which makes us optimistic.

maintenance to avoid production downtime, having the possibility of predicting when elements will fail depending

Q: How does Siemens develop long-term partnerships with

on certain parameters and being able to improve the client’s

customers that choose its platforms and digital tools?

satisfaction index.

A: We begin by consulting with our clients to identify the main needs of their businesses. We focus on KPIs, not technology,

We are now launching the concept of edge computing. With

because when we talk about digital transformation, it means

this tool, the analysis of AI information and algorithms can

a transformation of the company. Technology is simply a

be done at the customer’s plant. This is especially useful for

tool to reach that goal. In this initial session with the client,

applications that require very low latency. We can have a

we talk about the needs of their business. For example, we

combination of some applications with very low latency in

talk about how to improve operational KPIs, how to be more

the plant and others that are not as critical in terms of time,

efficient, how to improve quality indexes and supply chain and

in the cloud. This gives the client a very clear picture of their

how to improve cybersecurity systems, among many other

production and how to achieve their objectives. It is an open

things. After identifying these needs, we prioritize each and

system and the client can generate their own apps to view

decide which technologies are appropriate to achieve the

the information. We also have many existing partners that

company’s objectives. We then develop a schedule for the

develop information visualization applications.

implementation of different technologies depending on the client’s priorities. It is also important that all solutions have a justifiable return on investment. Together with the client, we

Siemens is a company focused on electrification, automation and

develop the calculation of how long it will take to improve KPIs

digitalization. It is one of the largest producers of energy-efficient,

through technology to justify the client’s investment. Typically,

resource-saving technologies, a supplier of power generation and

investments in digitalization see a return in one to five years.

transmission systems, as well as medical diagnosis

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| ANALYSIS

COVID-19 PUSHES COMPANIES TOWARD DIGITAL TRANSFORMATION COVID-19 made it clear that Mexican companies need to go digital and embrace Industry 4.0. Some had to accelerate their digital transformation processes or be left behind. The question now is how technification will advance once the crisis is over The phrase “adapt or perish” has never been as relevant

employees in virtual expression and documentation so when

as during the COVID-19 pandemic. The ensuing crisis has

stay-at-home orders are lifted, our team is well-prepared

forced companies that did not want to or were resistant

for the new normal,” said its General Director Oscar Watty.

to digitalizing and automating their processes, to do it in

“The new normal is increasingly accepted, understanding

very short periods of time. Now, there is no going back and

with it that social behavior will be modified by COVID-19

all companies know that the digital transformation is no

and that we will not carry out our daily activities as we did

longer optional.

before the arrival of the pandemic,” said Guillermo Prieto, President of AMDA.

“Businesses around the world have adapted their work 252

dynamics during the pandemic and have embraced the use

As of May, 93 percent of sales at ZF Services, a German

of technology to provide data and network access, conduct

manufacturer of drivetrain and chassis components for

video conferencing, use collaboration tools and cloud

light and heavy vehicles and motorcycles, were done

services,” said Tony Anscombe, Global Security Evangelist

through traditional channels, such as a dealer network,

and Industry Ambassador from ESET.

while the rest came from its website, Mercado Libre and Amazon. According to the company, however, sales through

According to a study carried out in May by online

e-commerce increased 74 percent in April and May. ZF

educational platform Udemy, 75 percent of Mexican

Director General Gerardo Varela knows all is not rosy but

employees are considering working from home more often

change is there, nonetheless. “This is not sustainable over

after lockdowns are lifted. The main concern is possible

the long term because once we return to the new normal,

COVID-19 contagion. The millennial segment is more inclined

the growth of e-commerce is going to slow down. It is not

to this end, with 77 percent of respondents favoring home

going to fall into negative levels, however, because people

office strategies, while the least likely to do so are baby

have already realized that they can order their auto parts

boomers, at 59 percent.

through digital channels,” he said.

While the transition has been smooth for some, for others

However, Latin America still has serious challenges in the

it has been a complicated journey that involves, among

integration of digital tools, said Martín Tanco, Director

other things, migrating from local systems to hybrid clouds,

of the Center for Innovation in Industrial Organization

modernizing financial and operational software, improving

(CINOI) of the University of Montevideo during the webinar

customer experience when using technology and creating a

“Strengthening digital transformation during Covid-19,” from

more dynamic and flexible working environment. Companies

the MIT Center for Transportation & Logistics (MIT CTL).

also need to protect themselves from many types of risks,

“Changes in the supply chain, distribution and logistics

such as theft and data interference.

have become relevant due to the pandemic. Issues such as resilience, teleworking and digitalization made a huge leap

“The reality is that decisions made as a consequence of

out of necessity and survival,” he explained.

the pandemic have allowed companies around the world to advance in the processes of digital transformation. Instead

During his participation in the webinar, Tanco listed the

of returning to the previous status quo, perhaps they

challenges facing this region for the implementation of

should consider adopting the changes they have allowed

technological tools: lack of investment due to the coming

to continue providing their services to clients and maintain

economic crisis, excess capacity due to global forecasts

the flexibility of their workforce,” explains Anscombe.

of a decrease in logistics activity and a price war between companies stemming from this impact on demand. All of

An example is SIC Marking, a global company specialized in

this will widen the digitalization gap, he predicts. “Some

marking and traceability solutions, which has dedicated itself

companies are going to take advantage of this opportunity

to training its personnel in the wake of the pandemic. “Now

and not only are they going to survive, but they are going

that we are all in confinement, we are working on training our

to take a competitive advantage over others. This is

going to make the digital gap bigger, since it opens an

average annual growth rate of 14 percent between 2018

opportunity for many and will be a reason of death for

and 2020. Likewise, the Future of Jobs report notes that

others,” Tanco said.

machines and algorithms will contribute 42 percent of total task hours in 2022.

TO INVEST OR NOT TO INVEST? An underlying reason for the lack of appetite to invest in

In 2017, a US government report on the possible economic

technology is that many decision-makers do not have a

impact of artificial intelligence and automation said that

really strong understanding of what technology can offer

“whether AI leads to unemployment and increases in

and they may be missing the in-house technical expertise

inequality over the long run depends not only on technology

to grasp these concepts. There are companies that consider

itself but on the institutions and policies that are in place.”

themselves in an advanced position in terms of digital

According to the report, the percentage of jobs affected by

transformation because all their employees have access to

automation over the next 10-20 years will be somewhere

laptops and can work from home. This, of course, is a limited

between 9 and 47 percent.

perspective. A global study published by Dell Technologies in 2018 demonstrated that Mexican companies on average

Given this, Renata Barros, Consultant Specialist in Automation

feel more confident about their digital readiness than their

and Industry 4.0, said in a blog for Cluster Industrial that it

Japanese counterparts, despite being behind in digital

is “sad to think that a situation like this had to happen for

infrastructure. To provide an entryway to technologies,

robots to gain the credibility they deserve. Robots should

consultancies can scan a company and its objectives and

never be the main reason behind layoffs. On the contrary,

come up with a detailed proposal that provides benefits for

robots create an opportunity to help people develop greater

particular needs.

skills on the job.”

Another barrier that is often mentioned is fear over security

When the pandemic is over, ISDI forecasts the generation

and data privacy. As companies become more reliant on

of up to 133 million new digital jobs as the adaptation

digital channels, their systems may also become accessible

to automation grows. “Automation and digitalization

to malicious players. "You can look at cybersecurity like Swiss

of businesses is not a displacement of workers but an

cheese: there are many holes where an attacker can get in,”

opportunity to take on new activities. The creation of digital

says Adan Samano, Director of Tec Pluss in an interview with

jobs and training will give us the opportunity for technology

Mexico Business Review 2020. But companies have a variety

not to replace humans, but to work in sync in a new human-

of tools at their disposal to protect their operations, and it

digital environment,” said Miguel Alegre, CEO of ISDI Mexico

is precisely the threat from cyberattacks that Samano says

in a statement.

has raised awareness and driven companies to invest in new and more resilient infrastructure.

The Association for Advancing Automation (A3) also believes that automation is playing a critical role in helping

The fear of personal data exposure is also abundant among

to protect people and processes during the COVID-19 crisis.

Mexican consumers, who still mistrust digital transactions.

“Automation technologies keep people safe, help develop

The consensus among industry experts is that the benefits

new drugs and treatments, produce key products that

of e-commerce will eventually drown out these concerns, as

people need today and fulfill other essential functions,” said

demonstrated in more advanced markets such as the US. In

Jeff Burnstein, President of A3.

addition, technologies such as tokenization can safely secure digital exchanges.

The benefits of digitalization are already clear to some. According to the IT Transformation Maturity Study, conducted

TOO MUCH?

in 2018 and applied in 17 countries, companies with the

The global industrial robotics market hit a record US$16.5

highest digital maturity are 22 percent more likely to market

billion in sales in 2018, according to the World Robotics

new products and services before their competition. Also,

Report from the International Federation of Robotics (IFR).

81 percent of companies admitted that by not embracing IT

IFR noted that 422,000 industrial robots were shipped

transformation, they would no longer be competitive in the

worldwide in 2018, an increase of 6 percent from the previous

market. For some, it might already be too late.

year, which hit a record of 381,000. “When governments decide to end their containment Asia has seen the largest growth in the robotics industry, led

measures, will these companies accept the opportunity and

by China as the No. 1 market in the world. It is estimated that

continue the process of digital transformation or will they

by the end of 2020, the global stock of operational industrial

go back to the old way of doing business?” asks Anscombe.

robots will reach more than 3 million units, representing an

Time will tell.

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| VIEW FROM THE TOP

ADVANCING INDUSTRY 4.0 JAVIER CAMPOS Director General of FANUC

254

Q: What is FANUC’s strategy to participate in OEM and Tier

Although they have their advantages, there are some

1 supplier manufacturing operations in Mexico?

limitations to collaborative robots. By definition, these

A: Our strategy is based on three pillars: product

robots have to be slow. In automotive operations, robots

performance, quality and aftersales support, all of which

need to move faster and last longer than many of the

are applied to our core business of innovation in motion

products in the market. At FANUC, the minimum lifetime

control. FANUC’s design philosophy is to deliver a product

of a robot is 10 years, even in collaborative models, and

that never fails, which means lower maintenance costs

some of our robots have been successfully operating for

for the client. We had one client who came back to us

15 to 20 years. We are working on both collaborative and

after working with other suppliers and told us that he was

non-collaborative products.

spending five times more than he was supposed to be spending at the time.

FANUC also released a product called Zero Down Time (ZDT) embedded in the software running in our equipment,

FANUC is usually perceived as an expensive brand when

which communicates with users’ or FANUC’s own servers.

investing but when considering the total investment over

ZDT provides an analysis of the equipment’s status and

time, our products are significantly cheaper. However, this

creates a track record to diagnose itself and predict if it is

is usually hard to explain when negotiating because clients

going to fail or if there is any risk that could stop production.

only focus on the initial investment. Q: How is the implementation of Industry 4.0 technology Q: Which strategy do you use to communicate FANUC’s

advancing in Mexico?

advantages?

A: In Mexico, there is still no robot base that I would consider

A: We have a close relationship with our clients and we

relevant. We have about 1,500 to 2,000 robots with that

engage in a process of continuous improvement. That

technology, but most of them are at OEM’s and suppliers’

gives us shared experiences and invites other clients to

plants. Even though the product is mature enough and has

join us. Being close to an OEM automatically puts us in an

demonstrated its effectiveness in real life, there is more

advantageous position with its supply chain and that is one

exploration and work to be done. Industry 4.0 is in its infancy

of the most effective mechanisms we have.

compared to what we can get from it. We expect to have 5,000 to 6,000 robots in Mexico in the near future while

We use marketing strategies to promote innovation and to

including other sectors of the industry. At this time, it is not

compete on new technologies such as the phenomenon

a product for everyone since we sell only by subscription.

of collaborative robots, which we see as a positive step. The way this business segment has been positioning in

When talking about Industry 4.0 adoption, the main problem

the market is by targeting a niche where robots have to

we have found is profitability. Benefits are intangible and it

collaborate with humans. That is a segment that was not

is hard for companies to invest because no matter the price

a priority for us before. Universal Robots is recognized for

you give, it will always be expensive. Clients need to start

creating this momentum and today many robot users are

exploring the benefits.

curious about collaborative robots. Another big barrier for technology adoption is that everyone is afraid of connecting their production lines to the cloud FANUC established in 1956, is the world’s leading manufacturer

because of security concerns. Even though technology is

of factory automation. It has more than 4 million CNC controls

now capable of offering adequate protection, it is still a risk.

and 550,000 robots installed worldwide. The company's

In most cases, clients prefer to buy a local server but this

corporate offices in Mexico are located in Aguascalientes

leads to other difficulties.

VIEW FROM THE TOP |

MOVING ON TO THE FIFTH INDUSTRIAL REVOLUTION MANUEL SORDO General Manager for Latin America of Universal Robots

Q: What were Universal Robotsâ&#x20AC;&#x2122;s main achievements in 2019?

where an operator can change the process in a matter of

A: Our high expectations were surpassed. Latin America was

minutes. The most important element for a company thinking

one of the regions where we grew 50 percent, particularly

about collaborative robots is to determine what they really

in Mexico. Last year, we launched a new 100 percent

need to automate to ensure a fast return. Among SMEs, ROI

collaborative robot with no sensors and a greater 16kg load

is key. We can also help companies to identify key areas of

capacity, which opens the door to new market applications.

improvement. This opens up cash flow that can later be used

Besides lifting more weight, the robot offers more torque and

to automate other areas. 255

screwing capacity. Q: What role does the automotive industry play within Conversations about collaborative robots have grown as

Universal Robotsâ&#x20AC;&#x2122; operations?

well. An MIT study about these robots talked about a fifth

A: The automotive industry represents almost 60 percent of

industrial revolution, which refers to an environment where

our sales in Mexico. Given its characteristics, it is the industry

a collaborative robot works side by side with an operator

that embraces new technologies the fastest. The industry

toward 80 percent more productivity when compared to

saw the potential in collaborative robots and we have grown

a single robot or a single operator. We are driving this fifth

accordingly.

industrial revolution. We have created a platform for our robots that is focused Q: How do you see a fifth industrial revolution helping

on adaptability, allowing for big and small companies to

companies?

implement robotics more quickly. Depending on the model,

A: The industrial revolution was driven by technology, but it

clients can download the necessary software from the

should be about technology focused on the customer and the

manufacturer to their UR+ platform. Most of the programming

market. Industry 4.0 is about IoT, high quality and maximum

is practically done beforehand. Our goal for 2020 is to

productivity through automation, interconnected machines

integrate this into the different areas of the manufacturing

and with little participation of humans. However, to this day,

process so robots can interact with other machines. Our

100 percent-automated companies are scarce. The trend

innovations will not be physical, but more practical solutions

is still to produce more and more economically, but there

inspired by the needs of the automotive industry.

has also been a shift toward customization. This represents a major challenge in terms of automating a production line

Q: What would you say to companies still on the fence

that needs to remain flexible to accommodate new products.

regarding collaborative robotics?

This is where the human element comes into play. However,

A: Companies should not to be afraid of new technologies.

this introduces a risk of inconsistencies and issues regarding

These are not necessarily expensive or complex. In reality, it

quality. Therefore, by joining forces between humans and

is quite the opposite. New trends are more user-friendly and

robots, companies can increase productivity considerably.

more affordable for companies. This technology also will play a key role in the development of Mexico as a manufacturing

Q: How accessible are collaborative robots for SMEs?

country. In the end, everyone wants to reduce costs while

A: This technology is not expensive. If a company wants to

maintaining high levels of productivity.

level up its game, this is the best and most affordable way to do so. Cost is one of the main obstacles that prevents SMEs from automating their operations, given their production

Universal Robots is a Danish company that aims to integrate

volumes. When a company fully automates a process, it is

collaborative robotic technology into all types of manufacturing

difficult to modify it. However, when you have a collaborative

companies, regardless of their size. It is the market leader in

robot scheme, you have a more flexible level of automation

collaborative robots

| VIEW FROM THE TOP

INDUSTRY 4.0 DEMANDS DATA MANAGEMENT MAURICIO BLANC Executive Director for Latin America of OMRON Automation Americas

Q: How important is the automotive industry for

robots when a user approaches, which makes them safer

OMRON’s Mexico operations?

for potential interaction.

A: OMRON’s automation division targets several verticals

256

with automotive being the most important. Our goal is

Q: What is the role that OMRON wants to play in the

to maintain a well-balanced client portfolio in this sector,

adoption of Industry 4.0 technologies and practices

including carmakers and their direct and indirect suppliers.

in Mexico?

OMRON aims to influence the automation equipment

A: OMRON is looking for strategic partnerships with

specifications of OEMs because those companies require

systems integrators specialized in the Industry 4.0 trend.

their suppliers to meet such specifications. This helps us

In many cases, Industry 4.0 requires uploading data to the

market OMRON’s automation solutions among Tier 1 and

cloud, so it is important to implement cybersecurity, data

Tier 2 suppliers.

routing and analytics solutions. OMRON can handle all the information that is generated within a factory but when that

Q: How do OMRON’s robots complement the other

data goes to the cloud, we need the support of network

industrial automation equipment in its product offering?

integrators. Our Innovative Automation solution will help

A: Our product portfolio includes industrial standalone,

OMRON’s clients enter the Industry 4.0 revolution by

mobile, industrial and collaborative robots (cobots)

making their factories smarter. While most solutions require

as well as sensors, automation systems, and safety

the adoption of hardware and software and homologating

equipment and services, which helps us differentiate in

all equipment, Innovative Automation solution only

the industrial robots’ market. Additionally, our engineers

requires the mounting of one piece of equipment to bring

are certified in safety TÜV, which enables OMRON to

the whole system online and start doing data analytics.

validate the safety of operating robots within factories.

Our customers implemented this solution in two to three

We offer clients a variety of alternatives depending on the

weeks very easily with minimum investment.

needs of clients and offer them counselling depending on the robot’s process and application.

Q: What does OMRON prioritize in terms of growth and expansion for the automotive industry?

Q: How has the Mexican market reacted to OMRON

A: There is a lot of uncertainty in the market, so it is hard to

Automation’s product offering?

know how much the industry will expand. However, OMRON

A: In Mexico, our cobots have been well-received by

believes in Mexico and thus is developing a support center

the automotive industry thanks to their solid load and

in Guadalajara for its customers in the Americas. We are

reach capacities and the use of OMRON vision systems.

also creating proof of concept centers in the country with

OMRON’s cobots are designed to operate both on their

the goal of showcasing the advantages that our automation

own and with humans, but the latter may not always

solutions can offer to clients. We already have a showroom

be the best option. Processes that require high speeds,

in Leon and plan to open another in Mexico City in 2020.

precision and load capacities are more suitable for

These centers include a full robotic cell, with a cobot, an

industrial caged robots. However, we have developed

industrial robot, motion controllers, laser marking machines,

a safety solution that reduces the speed of standalone

safety systems and automation solutions, which enables potential clients to test how their processes could be improved through the adoption of OMRON technologies.

OMRON is a Japanese manufacturer and supplier of industrial

These proofs of concept centers offer our clients peace

automation equipment and medical devices. The company

of mind before purchasing our equipment because they

offers an extensive variety of automation equipment including

can see their automation solution working before being

industrial and collaborative robots, sensors and CNC machines

implemented in their factories.

SECTOR AT A GLANCE |

LOCAL ENGINEERING, WORLD‑CLASS TECHNOLOGY A WINNING MIX FOR SOLID AUTOMATION

“

There is demand for local players that design, engineer and put to work the equipment that companies need” Luis González, CEO of Kesek Automation

“SMEs can approach us and present their production projects and the companies they are targeting so we can support their operations through training, design tools or financial support,” says Ramírez.

BUSTING MYTHS Although technology helps enterprises participate in global supply chains, there are companies in the aerospace and automotive industries working with machines from the 1950s. Yet, most of the time, companies are not willing to substitute

When OEMs set up shop in Mexico, they generally bring

their old machines and not necessarily because of economic

robots and automation solutions from their home countries.

reasons, says Robles. “Sometimes they do not want to

While this is a sound strategy when starting operations, having

increase production or let go of their labor force because they

a local technology supplier goes a long way to reducing

still believe automation is meant to replace human workers.

related costs and unscheduled production downtime. “There

Although we work with robots, we do not subscribe to that

is demand for local players that design, engineer and put to

belief. Often, it is not necessary to robotize or automate an

work the equipment that these companies need,” says CEO

entire process,” he explains.

of Kesek Automation Luis González. Mexico still has little demand for industrial automation When industrial activities started to thrive in Mexico,

solutions compared to the US, where technology integrators

automation companies saw the opportunity to target

provide these solutions year-round, according to González.

potential clients with technology-integration solutions and

However, clients are reducing the available slots for operators

robot-oriented professional services. That trend has lingered

on production lines, which could potentially shift the

in recent years as companies seek greater productivity.

balance. Lines are transforming into manufacturing cells that

“We experienced significant growth in 2018 triggered by

communicate with each other through conveyor belts and

the adoption of new, energy-efficient industrial automation

require fewer workers.

solutions,” says Commercial Director of Grupo Kopar Alfonso Ramírez. “We believe that OEMs will eventually look for local

This is not necessarily a bad development. “Robots may be

suppliers of these solutions,” says González.

taking jobs away from workers in Mexico but it is important that companies not robotize all processes immediately,” says

NEW CHALLENGES

González. Gradually robotizing operations allows for local

According to Sales Manager of ASEC Solutions Omar Robles,

workers to advance alongside the process and learn how to

USMCA will introduce many opportunity areas, “so we need

operate more advanced equipment, which prevents job losses.

to change our mindset and see it as a challenge. Some things

“We collaborate to develop human talent so that employees

will have a negative impact on the industry, but there are

learn how to work with more advanced machinery.”

many areas that we can work on and adapt. The day-to-day of the industry is still the manufacturing of internal combustion vehicles,” he points out. However, SMEs’ lack of background in the adoption and use of new manufacturing technologies

Automation can help automotive companies improve

can prove an obstacle for automation companies. “We have

their productivity and reduce costs. Regardless of the

worked with several Mexican SMEs to develop the industrial

benefits, some companies still believe automation

solutions they need to become registered automotive

is meant to replace human workers and are weary

suppliers. We offer our clients a series of tools that help

of embracing new technologies. Equipment

them achieve ROIs on their industrial equipment investments

manufacturers and distributors seek to bust this myth

by helping them sell their projects to potential automotive

to boost technology penetration

clients,” says Ramírez. Companies like Grupo Kopar also offer credit to their clients to help them purchase the equipment.

257

| VIEW FROM THE TOP

BROAD OFFERING THROUGH INHOUSE TALENT, ACQUISITIONS JOSÉ FIGUEROA Director General of Marposs México

Q: How will USMCA impact growth in Mexico’s advanced-

support companies like Marposs. On the aerospace side,

manufacturing sectors?

we have also hired some graduates from the Autonomous

A: Considering that a high percentage of Mexico’s exports

University of Queretaro who have experience working

target the US market, having USMCA in place will have a

at aerospace companies, which means they have

positive impact on those industries even if some sections

solid training.

were modified compared to NAFTA. This treaty will offer 258

OEMs the opportunity to continue producing in Mexico

Q: How has Marposs strengthened its offering for the

and exporting to the US, which will enable Marposs to

automotive market?

continue marketing its measurement equipment for

A: Marposs Group has acquired companies such as Aeroel

those clients.

and Tecna to add more products to its portfolio. Our main goal for the automotive industry in the short term

Q: How will Marposs’s new Queretaro offices help the

is to seize the opportunities that these new products

company grow in the Mexican market?

will provide. We will put in place several strategies to

A: The bulk of our Queretaro operations will target the

develop new equipment to measure glass, measure wires

aerospace industry and the rest will cater to the measuring

using lasers and perform leak tests for fluids and air. The

needs of local automotive companies. We expect to reach

purchase of Aeroel will enable us to supply manufacturers

new customers in the aerospace industry as that sector

of electric harnesses with measuring equipment designed

develops locally. The company still has a long way to go

specifically for this application.

in the aerospace industry but Marposs is gaining a solid presence thanks to its investments in Queretaro. On the

Q: How has the production of EV components in Mexico

automotive side, the Bajio region has become one of the

changed demand for measuring equipment?

most dynamic areas in Mexico thanks to the arrival of

A: There is a growing demand for measuring solutions for

OEMs like Honda, Mazda and Volkswagen to Guanajuato.

EV components as electrified vehicles are more commonly

Marposs’ new offices in Queretaro will help the company

adopted. OEMs are also investing in the development

remain close to these automotive clients and offer quality

of EVs for their line-ups and some will be produced in

customer service.

Mexico. This shift brings new opportunities for Marposs to develop new equipment that cater to the specific needs

Q: What are the main opportunities for improvement that

of these components.

Marposs has identified in Mexican talent? A: We look for well-trained professionals with a solid

Q: What gaps does Marposs’s Total Thermal Vision

education that can help us develop the capabilities of

product line fill?

our company. Marposs sells technology, so having a strong

A: The production of die-cast components such as

engineering staff is important for our business. This is

monoblocks and other engine parts entails the injection

one reason why graduates from academic institutions

of molten metal into molds. However, for components

like IPN are common among our personnel. Engineers

to meet quality standards the temperature of the mold

graduated from Mexican schools have the quality level to

must be is homogeneous or the finished component will present pores and cracks. Marposs’ Total Thermal Vision (TTV) equipment enables companies to monitor

Marposs México is part of Italy-based Marposs Group. The

the temperature of mold plates to ensure temperature

company offers measuring solutions and supplies services

homogeneity and prevent that issue. Marposs developed

and products that improve manufacturing efficiency and

this capacity after acquiring Baraldi, which is an Italian

effectiveness in ensuring product quality

company that supplies lubricants for molds.

SECTOR AT A GLANCE |

THE NEXT STEP TOWARD INNOVATION: GETTING RID OF METROLOGY LABS

“

The fact that a company produces a part does not necessarily mean that it knows how to measure it”

but the growing adoption of smartphones has prompted companies to create apps to keep track of production. However, companies in Mexico tend to prefer larger and more robust measuring equipment that is hard to misplace and can withstand harsh conditions, so adoption of mobile solutions has faced some resistance, according to Romero.

Jorge Escárcega, General Manager of Mahr Another factor that could increase operational efficiency is system homogenization to boost Industry 4.0 metrology

An emerging trend in the automotive industry is to test

practices and eliminate the need for a metrology lab,

components directly on the production floor, thus avoiding

while improving production times, according to Marta

wasted time transporting sample parts to and from metrology

Cantabrana, Director General of metrology software

labs. Companies have developed a taste for optic equipment,

developer 3C Metrology. “Using a single software solution

which has spurred high demand for these solutions.

enables all machines in a production line to deliver homogeneous information and helps companies reduce

“Knowing whether parts meet customers’ specifications

training costs for technicians using several metrology

and the ability to adjust machines accordingly in real time

software suites,” she says.

makes operations much more efficient,” says Mahr General Manager Jorge Escárcega. To address this demand, one

The company offers companies the possibility to both

of Mahr’s divisions focuses on engineering customized,

retrofit their existing equipment, as well as linking

turn-key metrology solutions for the specific needs of

new machines so all equipment works under the same

clients’ production lines. “Users of metrology equipment

platform. “Our software reduces the time needed to

are interested in constantly collecting and studying data

measure and process information,” says Cantabrana. “By

from the manufacturing floor. However, operators working

retrofitting older equipment and using state-of-the-art

directly on the production line often measure incorrectly or

software, companies gain competitiveness in terms of

altogether forget to measure components or to register their

speed and efficiency.”

measurements,” he says. The company, however, still faces resistance to market Wireless transmitters prevent human error when measuring

its solutions among Mexican companies. “(Companies)

parts or capturing data. The data these devices generate is

usually want to see new technologies being implemented

exported directly to the company’s quality system, which

in the US or European countries before giving them a

eliminates a company’s dependence on operators. “The fact

shot,” says Cantabrana. To counter this, 3C Metrology

that a company produces a part does not necessarily mean

focuses on offering competitive financing schemes to

that it knows how to measure it,” says Escárcega.

clients and on raising awareness about the long-term advantages of using innovative and faster metrology

Other companies like Helmut Fischer are also automating

solutions to increase process efficiency.

testing processes right on the production floor. “We provide the metrology technology and our partners automate the process using collaborative robots or measuring cells. Helmut Fischer’s headquarters has worked to launch instruments that are friendlier to automation equipment and can be easily implemented. As an example, we want to replace wirebased probes with wireless sensors,” says Country Business

Metrology is a critical technology for the delivery of quality automotive products. As productivity and cost-cutting requirements increase, metrology

Manager of Helmut Fischer Leonardo Romero.

companies are betting on innovation to improve

DIGITALIZATION, SYSTEM MOBILITY

operations

A few years ago, software solutions for metrology applications were largely focused on desktop applications

testing processes and reduce scrap in manufacturing

259

| INSIGHT

LOCAL PLAYERS: BEST OPTION FOR AUTOMATION PROCESSES ERIC PALENCIA CEO of Integra Automation

Led by major multinationals, the automotive industry has

offers fully integrated solutions that include software,

made great strides incorporating Industry 4.0 principles.

hardware, maintenance and spare parts. The company

These changes are making production processes faster

also offers automation and control solutions from other

and more agile but they are also forcing suppliers to

brands it represents.

adapt or perish, explains Eric Palencia, CEO of Integra

260

Automation. “The Industry 4.0 ecosystem is being led by

To work with automotive companies, Integra Automation

OEMs and if Tier 2 and 3 companies do not adapt to these

first has to ensure its clients have fully automated

technologies, they will be unable to continue working with

equipment so that data can be collected and analyzed. This

major players,” he says.

information can be used to develop a series of products to increase efficiency or reduce unnecessary costs for the

Industry 4.0 has introduced many benefits to the

client. “With smaller companies, our first step is to identify

automotive industry, from predicting equipment

the current status of their technological infrastructure.

malfunctions to more efficient supply chains. While

From that point on, we can guide them through the entire

foreign manufacturers might introduce their solutions

process,” Palencia says.

from abroad, there are many advantages from acquiring a local developer, Palencia says. “Some companies only

Integra Automation has also worked to change the

consider the costs involved in buying equipment but

perception of local suppliers. “Traditionally, Mexican

they do not consider the costs involved if maintenance

companies acquired their software from foreign developers

is not provided immediately when a system breaks down.

because they did not believe that there were good local

Downtime costs automotive companies a significant

suppliers,” Palencia says. Cost also plays an important role

amount of money and if the supplier is located abroad,

when choosing a developer. Palencia explains that most of

the company may have a longer waiting period before

Integra Automation’s competitors are from Asia, the EU or

the equipment is repaired.”

the US, which can supply less expensive solutions. “Many of these foreign companies have specialized their technologies

Integra Automation is a Mexican company with over 20

to a degree that allows them to lower their manufacturing

years of experience. The company has developed solutions

costs. We have to develop specific technological solutions

for the pharmaceutical and food and beverage industries

for a wide variety of applications for different clients,

but the automotive sector is now its strongest. “About 60

industries and processes, which raises production costs.”

percent of our clients are from the automotive sector,” says Palencia. He adds that the company has always been close

Integra Automation and other local companies, however,

to the automotive industry, both through the good times

offer several advantages for local companies. Key among

and the bad. “When the 2008 crisis hit the automotive

them is the absence of a language barrier. “During

industry, we had to reduce our staff by almost 75 percent

the analysis and design step, one of our advantages is

but we were able to grow alongside the industry during

sharing the same language. Excellent communication

its better moments.”

is key when addressing technical issues. The power of good communication has also helped the company to

As Mexico’s automotive industry has grown steadily from

build a strong client base. “Integra Automation has a

that crisis, Integra Automation had to evolve its service

good relationship with its clients thanks to constant

offering to keep up. “Due to the industry’s accelerated

communication that allows us to properly identify their

growth, our business model evolved from a software

needs. Most of our clients come through word of mouth

company to incorporate electric solutions and then to

and many continue working with us for many subsequent

offer comprehensive solutions.” Now, Integra Automation

projects.”

VIEW FROM THE TOP |

BIG DATA TO BUILD DIGITAL FUTURE PETER KROLL CEO of everis Mexico

Q: What role does everis want to play in the evolution of the

The information we analyze comes from the equipment itself

technology implementation process in Mexico?

or the product once it goes through quality control and

A: everis has business and digital consulting experience but

that helps the system become a self-learning mechanism

we also have developed as system integrators and developers.

thus reducing unscheduled downtime. We can also help

Thanks to this duality, we can help clients to really understand

workers increase their productivity using smart glasses and

what Industry 4.0 is and how its different concepts and

other wearables to introduce augmented reality and reduce

technologies come together for a holistic operation. Robotics

errors related to customization in different vehicle units.

and automation are definitely part of the Industry 4.0 idea

We have even developed a software specifically oriented to

but it is also an integrated vision that includes manufacturing

maintenance called everis drizzle. 261

operations, back office, the supply chain and clients. At the same time, we can identify an area of opportunity

everis is a Spanish technology consulting and outsourcing

within a company and start piloting a new development. We

company that is now part of the NTT DATA Company. everis has

can use Big Data and analytics to understand patterns that

presence in 16 countries and participates in several industries,

allow us to predict when equipment will need maintenance.

including automotive

VIEW FROM THE TOP |

PROCESS OPTIMIZATION AT THE CORE OF DIGITAL TRANSFORMATION VICENTE CEPEDA LATAM Commercial Director of Cinko Group

Q: What is Cinkoâ&#x20AC;&#x2122;s group strategy to add value to the

Q: What challenges do you see for the adoption of Industry

national automotive supply chain?

4.0 in Mexico?

A: Our priority is to deploy our office and business

A: The first challenge is to correctly understand what are the

process optimization solutions to help clients develop

pillars of digital transformation and what elements are part

their technology base and embrace digital transformation

of industry 4.0, from digitalization processes to concepts like

practices. We help them understand the role that

virtual reality, artificial intelligence and machine learning. We

digitalization and automation play in their operations and

have found that many companies do not know how to face,

how they can make faster and better decisions. Our services

seize, adapt or set the starting point for this transformation. It

are based on proactive rather than reactive practices.

is here that we can help to meet the challenges of our clients.

Companies can have real-time data regarding their operation and establish critical paths for logistics, supply chain, sales and warehousing activities according to both

Cinko Group is a holding of technology integrators and

forecasted and unexpected variations. We are a company

process optimization solution providers. The company started

that makes changes happen, from the conception of digital

operations in 2011 and is certified in ISO-9001:2015, ESR,

transformation to achieving operational excellence.

Ecovadis, Cybervadis and NOMs related to health and safety

| SECTOR AT A GLANCE

DIGITAL TRANSFORMATION: A STEP BY STEP PROCESS

“

When companies realize that this (investing in technology is not profitable) is a mistake, the country will take a major step toward digitalization” César Chávez, Commercial Development Officer of Keyland

Keyland is a developer of ERP systems for industrial applications born from the need to develop IT solutions for the automotive industry. The company was created after Spanish auto parts giant Grupo Antolin ordered a software application for industrial optimization from Vector ITC Group. The solution was so successful that Grupo Antolin started using it at all its plants. The company eventually decided to create Keyland in partnership with Vector ITC Group to market industrial ERP systems. According to Chávez, companies tend to first adopt an ERP for their operations and then move on to implement automation and robotics when boarding the Industry 4.0

262

There is a prevailing misconception that investing in

train. To support clients during this transition, Keyland

technology is not profitable because software in itself

has developed algorithms to evaluate where a company

does not generate income, says César Chávez, Commercial

stands technology-wise, how much and how long it will

Development Officer of Keyland. “When companies in this

take for a company to reach its objectives through the

sector realize this is a mistake, the country will take a major

implementation of new systems and when the company will

step toward digitalization,” he says.

see a return on the investment. “These evaluations help us understand how we can help client companies get where

As Mexico adopts more IT, data-processing and industrial

they want to be,” says Chávez.

applications, new opportunities are opening for industrial software companies to expand in automotive-intensive

Director General of SVAM International de México

areas like Guanajuato, according to Robert Hart, Vice

Yesica Heredia says the company’s staffing solutions go

President of SVAM International de México. “After a

beyond providing talent advice or developing software

decade of supporting manufacturing customers in

for automotive companies. “Our engineers are aware of

Mexico’s border areas with the US from our site in Ciudad

the industry’s software requirements. They can support

Victoria, we are opening a new location in Guanajuato,”

clients in areas or processes that can be improved

says Hart.

through software and raise awareness regarding the latest technologies available,” she says.

MORE THAN SOFTWARE There is more to Industry 4.0 than implementing a piece

There are other companies like ATS Mexico that, in

of software, which is why companies are bringing in new

order to highlight anomalies, trends and perform a full

suppliers to complement their solutions. “Our platform

statistical analysis of production data, use tools to fill the

cannot meet all the requirements of clients on its own, so

gap between the virtual world of computer-aided design

Keyland works to develop its supplier base to offer a more

and the physical world of manufacturing. “Our solutions

complete platform and reach more clients,” says Chávez.

prevent defective products from leaving the plant and protect the brand’s reputation. All our platforms interact with each other and have alarms so immediate action can be taken when required. They are available via the web in real-time so the user can easily access data anywhere in the

Software can make a big difference in the production

world,” says Managing Director of ATS Mexico Pilly Pérez.

line of a vehicle, from faster processes to a significant reduction in costs. However, as an intangible,

“Each company has the challenge to define their

companies fail to see how software can improve their

transformation roadmap and that is where we collaborate,

business and often see this as a cost, rather than an

creating their vision for the coming years. We can say that

investment

the challenge is in the clarity each company has on what they want to achieve. Readiness depends on the maturity level of each operation,” says Pérez.

INSIGHT |

LONG-TERM VISION OPENS OPPORTUNITIES SALVADOR ICAZBALCETA General Manager of Heller Machine Tools de México

Price is a key factor for automotive suppliers when

costs to the number of operators necessary and the wear

investing in industrial equipment. According to Salvador

that tools will suffer,” says Icazbalceta. These calculations

Icazbalceta, General Manager of Heller Machine Tools

help Heller Machine Tools show that its equipment delivers

de México, many global automotive companies based in

a better cost-benefit ratio compared to self-integrated

Mexico will purchase from various tooling and machine suppliers and integrate these technologies on their own to reduce costs. “Many OEMs and automotive suppliers will look for short-term industrial solutions to fulfill contracts and tackle only one or two production projects,” he says. This shortsightedness has hampered the growth of industrial machine suppliers like Heller Machine Tools that specialize in delivering machines designed to remain productive and stable for much longer than a few production projects. “The industrial equipment we build and install is designed to be productive for 15 to 20 years,”

“ technologies.

Many automotive companies look for short-term industrial equipment solutions to fulfill contracts and tackle only one or two production projects”

he says. “Our ideal clients are companies with a long-term vision for their investments that are serious about their

The company also offers a variety of added-value services

role as automotive suppliers.” Among Heller Machine Tools’

around the machines it sells to ensure their productivity

clients, Icazbalceta highlights the world-class supplier

over long periods of time. “There is little point in selling a

American-Axle Manufacturing (AAM).

machine for the sake of selling it,” says Icazbalceta. “We focus on filling gaps in productivity and downtime and

Although Heller Machine Tools has positive expectations

delivering a strong customer service to respond swiftly to

for the automotive and aerospace industries, Icazbalceta

client needs, which helps us gain their trust and loyalty.”

also sees challenges ahead that will limit potential growth.

Heller Machine Tools has a department that develops

“Results in the industrial equipment sector will be stable

new features for the company’s machines and updates

in 2019 as some investment projects are consolidated

exiting equipment to adapt to new industry trends and

while others remain on standby due to crime rates and

needs, ensuring that machines remain productive over the

government policies,” he says. The US policy of attracting

long term.

investment to generate new jobs will create further challenges for the Mexican automotive industry, according

Heller Machine Tools’ long-term vision for its clients’

to Icazbalceta. As a result, Heller Machine Tools’ plan for

operation also entails a step-by-step approach to Industry

growth is rooted in supporting its current client portfolio.

4.0 practices and technologies. According to Icazbalceta,

“Our clients’ production increases will be our main driver

the company approaches clients to understand their

for growth in the short term,” he says.

operational need in terms of Industry 4.0 capabilities. “Being aware of what type of data each company requires

Still, the company has not given up on trying to reach

and how it will be used are key elements for us to propose

new clients and has created a sales engineering strategy

a solution that meets the client’s expectations,” he says.

to showcase the productivity and cost benefits of using

However, there is more to Industry 4.0 than just obtaining

a long-term turnkey industrial equipment solution. “We

information. “Clients need to have a clear view of how

calculate all variables that a company will deal with when

to process this information and take advantage of it,”

installing a production line, from lubricant and energy

Icazbalceta says.

263

| SECTOR AT A GLANCE

MACHINING COMPANIES FORESEE A BRIGHT TRADING ENVIRONMENT

“

With changes in rules of origin, opportunities are open to us (as) companies might want to increase their level of automation” Carlos Newton, Director of PRESOTEC

Newton, Director of PRESOTEC: “When working with SMEs, we apply our ‘team-key’ philosophy. This means an integration between the machine manufacturer, the customer and PRESOTEC. Rather than a turnkey project, by delivering a team-key project we lower costs while lifting up the level of training and customer satisfaction.”

KEY DIFFERENTIATORS Apart from quality and service, machining sales companies need to have a true differentiator to stand out from their vast number of competitors. Being just an intermediary is not enough as a project requires specific engineering capabilities.

264

As competition increases, added value becomes a

“We are in close communication with our customers before

differentiator. With USMCA’s new rules of origin right at their

we begin installing a machine to offer advice. After that, we

doorstep, machining companies need to be ready. Choosing

provide installation, training and aftersales service,” says Loria.

the right machining partner is the key to secure processes, contracts and long-standing relationships. “We worked with

Standing out includes thinking out of the box and innovating

an emerging manufacturing company in Queretaro. They were

in the machining segment. SIMSA, for example, is a company

able to ramp up operations thanks to our advice on tooling

focused on commercializing industrial machinery but also

and machining equipment,” says Esteban González, General

refurbishes old machines to serve today’s projects. “Our

Manager of Mex Machines.

offering now is to update our customers’ machines, providing them with the capacity to participate in more projects. In most

Buying a machine is a big investment for many companies.

cases, if customers do not update their machines, they might

Because of this, machining companies offer different financial

choose to replace them with cheaper equipment that can

schemes while adapting to customers’ needs. “We offer

later become a liability,” says Arturo Martínez, COO of SIMSA.

two financial schemes. We have an LLC branch located at

The cost of a new machine is above US$1 million whereas a

the border and an SA de CV, so we can support the client

refurbished machine goes for around US$300,000.

wherever it wants to be located,” says General Manager of Repstronics, José Ignacio López. Repstronics is a cross-

Another differentiator is coverage. While some companies

border Mexican company specialized in trading machinery

like Repstronics attend companies on both sides of Mexico’s

with a portfolio mostly focused on automotive manufacturers.

northern border, other companies play more locally. “Our

Metalworld Director General Luis Javier Loria agrees with

added value is our national coverage, including three training

López. “Today, almost any company can invest in this kind of

centers in Guadalajara, Monterrey and Ciudad Juarez,”

equipment thanks to our different financing options.”

says López. Companies should also take Industry 4.0 into consideration to build integrated solutions. “All our equipment

In addition to a good financing scheme, a close relationship

is ready to be integrated into monitoring systems that track

with the machining company could lead to cost and

production volumes and costs. Our equipment must be really

operational efficiency for the customer. According to Carlos

versatile to be integrated into production lines and used in different applications,” says Newton.

USMCA BRINGS NEW OPPORTUNITIES

Machining companies play a crucial role in manufacturing

As USMCA enters its final steps toward enforcement,

operations. Whether automated, operator-dependent,

manufacturing companies are already preparing for a more

interconnected or reconstructed, the right machine

certain scenario. “Once ratified, USMCA will create many

can make the difference in getting a purchase order

opportunities for us and for the sector as a whole as it

or not. For machining companies, 2019 and early 2020

increases FDI in the country,” says Esteban González. Newton

presented a unique scenario in which to grow, especially

agrees with González. “With the upcoming changes in rules

among SMEs, despite the contraction in sales.

of origin, opportunities are open to us since due to the new labor requirements, companies might want to increase their level of automation.”

VIEW FROM THE TOP |

HUMAN CAPITAL, PARTNERSHIPS AND COMPETITIVENESS EQUAL FORMULA FOR SUCCESS MARCOS SEPÚLVEDA Director General México and Latin America of SCHUNK

Q: What problem does SCHUNK help the automotive

support. We also have application engineers who listen to

industry to solve?

the customer’s needs and translate those into a functional

A: SCHUNK is a German family-owned company with five

design using our products. We also have a workshop

product lines: chuck jaws, lathe chucks, quick change and

facility to manufacture small components according to

stationary systems, high-precision pneumatic systems

our customer’s demands.

and automation components, including grippers, rotary modules, collision sensors and linear modules. SCHUNK’s

We build prototypes based on an idea from the client

product lines are completely focused on Industry 4.0. Our

and once they approve it, we send it to Germany to be

clamping technology can be interconnected devices with

manufactured. We have had cases where entire production

machines to prevent problems in the production line. For

lines arrive to the country facing issues that we have helped

instance, tool holders that detect vibrations in the machines

to correct. This is often due to contact, air quality and

can communicate this to reduce speed, making the tooling

some other elements that just need to be adjusted. If the

and the machine more efficient. The automotive industry

customer has a SCHUNK product, we make sure it works.

represents 70 percent of our portfolio here in Mexico, followed by 10 percent in the aerospace industry.

Q: Why did you choose Queretaro as a base for your operations in Mexico?

Our gripping division provides grippers used by collaborative

A: We arrived in 2000 and the Mexican market was not

robots. It is important to mention that robots are not here

quite ready for our products. After seven years of working

to replace humans. Technological advancements have led

in the Mexican market, we decide to move our operations

robots to collaborate with humans to help them become

from Mexico City to Queretaro due to the potential we

more productive. With collaborative technologies, operators

saw in the aerospace and automotive industries. Today,

can manipulate products with the strength of a robot.

we have a land of 10,000m 2 where we plan to build a technological center to offer customers an integral vision

Q: How does SCHUNK help companies choose the best

of how their project will look.

solution depending on their process? A: We create strategic partnerships in three segments. The

Q: What are the most urgent challenges the industry is

first is with end-users who will use the product in their daily

experiencing?

operations. Second, we have our own dealership to distribute

A: The industry is desperate to get to Industry 4.0, but

our clamping and gripping products. Third, we have

companies have not yet fully understood what this

technology integrators who design an entire production line

entails. They already have communications systems

while integrating our products. We participate at all stages

installed, even though they do not know how to process

of the installation to make processes more efficient. For

the data. Lack of knowledge can be a major obstacle for

instance, a company had a particular need to grip a small,

companies wanting to enter this revolution. They should

fragile and irregular piece to place it in another component.

be aware about why they need their processes to be

We have grippers to move these kinds of components,

improved and where they need it the most, including the

so integrators must know which gripping tools can be

necessary investments and ROI schemes.

integrated into the process to solve the client’s need. We do not have local production here. We import our

SCHUNK is a German family-owned company specialized

products from Germany and the US. If the client gets

in gripping and clamping solutions for the metal-mechanic

our products from an integrator or distributor, they can

industry. The company is based in Queretaro and has over 70

rest assured that they can count on us for any technical

percent of its portfolio in the automotive industry

265

| VIEW FROM THE TOP

INTELLIGENCE EVEN IN THE SMALLEST TOOL JULIA GÓMEZ Managing Director México of CERATIZIT Group

266

Q: How close is CERATIZIT Group to becoming the largest

that the instrument offers, some of our customers are

global provider of cutting tools by 2023?

already using this tool and have experienced significant

A: The strength of the CERATIZIT Group has been the main

improvements in savings and operations. Our customers can

trigger for our progress. Reaching the goal of being the

collect information from ToolScope and not base all their

largest global provider is not going to be easy, given the

assumptions on what other suppliers of business intelligence

varied and strong competition in the market. Furthermore,

can get. However, there is still room for development and

competitors become more specialized as we climb the

increased use of our technology.

ranks. Being among the Top 50 companies in the world was complicated but being among the Top 5 players demands

Q: What is CERATIZIT Group doing to promote Industry 4.0

high differentiation.

in the automotive industry? A: Our main priority is to preach about the benefits and

In the past, our efforts were aimed at promoting and

advantages that using technology can offer to automotive

strengthening our brand. Today, we seek to have a trained

companies. We host specialists from foreign subsidiaries

sales force that is strongly commitment to the customer. As

to talk to our clients about the technologies we use. Our

a group, we have the advantage of being able to help our

clients can be certain that well-recognized companies across

different companies from within. We provide the powder to

the world are using the same technology and that Mexican

make the carbide bars used to make the tool delivered to

clients can enjoy the same benefits. The best marketing for

the end customer.

CERATIZIT Group is clients seeing how our solutions help them to be more efficient and productive.

Q: How can CERATIZIT Group contribute to filling the gaps in the automotive tools market?

CERATIZIT Group’s approach is to foster a change in mindset.

A: We have the appropriate structure and needed expertise

We bring technology closer to clients so they can see how it

to assist our customers through most of their procedures.

can change processes. We also explain the long-term benefits.

We have local and international specialists who can address

For example, if our clients have a process that includes more

clients’ requirements. The industry’s primary demand is

than one tool, CERATIZIT Group can develop a tailor-made

improving shipping times and to do that we are optimizing

solution that suits this need. We work with technicians and

routes, establishing a strong supply chain, enhancing

engineers to ensure they all know how to use our products.

technology-based processes, analyzing demand patterns and developing a culture centered around customer satisfaction.

Q: How does CERATIZIT Group differentiate from its competitors?

Q: How important is ToolScope in CERATIZIT Group’s

A: Our portfolio has a wide range of products and services

development strategy?

that range from metal cutting and wear protection, to wood

A: With ToolScope, CERATIZIT Group is setting the course

and stone-working tools, as well as rods and preformed

for the digital future of machining. CERATIZIT Group is the

materials. We also offer many services, such as recycling

only toolmaker offering a real Industry 4.0 solution with

and logistics, our e-techstore and other technology-related

ToolScope, even for SMEs. Because of the direct control

solutions from our CERATIZIT innovation center. Each of our brands showcases its knowledge under the CERATIZIT Group umbrella to target particular client groups and cover a variety

CERATIZIT Group has developed hard material-cutting and

of product categories in the automotive industry. Our clients

wear-protection solutions for over 95 years. Its products

can also contact our personnel for any requests they may

include specialized cutting tools, indexable inserts, carbide

have and we make sure to always find the right person to

rods and new types of carbide and cermet grades

solve any situation as fast as possible.

INSIGHT |

MODERNIZATION CAN BOOST PRODUCTIVITY, LEAD TO BETTER DECISIONS RAFAEL LÓPEZ Technical Manager for Tooling at DISMA

Ancient industrial machines, difficult access to credit and a

financial cost that keeping inventories entails, having available

lack of well-trained operators are only a few of the issues that

equipment enables DISMA to swiftly respond to market

hamper the development of Mexico’s industrial sector, not to

needs. In terms of talent, the company covers the existing

mention the adoption of Industry 4.0 technologies. Rafael

gap in the country by training machine operators in areas

López, Technical Manager for Tooling at Mexican industrial

such as installation, maintenance and operation of a machine

equipment and tooling distributor DISMA, says it is not a

as an added-value service to its customers.

matter of Mexican companies not wanting to adopt new machines but that the country’s market conditions make it

Service and maintenance are also a big part of that and

hard for metal-mechanic companies to evolve.

DISMA makes an effort to send a service crew within 24 hours after a machine failure is reported, which helps clients

“The average age of Mexico’s industrial machines is between

resume production swiftly. “All machines fail at some point,”

20 and 25 years,” says López. “Mexican manufacturing

says López. “Companies need to know that there will be spare

companies remain in business with old, fully mechanical

parts and technicians who can troubleshoot any issue and

machines, so imagine what they could do with advanced,

get machines back in operation.” The company also offers

digitalized equipment.” López points to presses, benders and

systems that connect directly to its clients’ machines allowing

turret-punching machines as the main areas of opportunity

DISMA to monitor their performance remotely.

for Mexican metal-mechanic companies to acquire hightech industrial equipment. The main challenges these

As Industry 4.0 permeates the industry, Lopez points out

companies face to acquire new equipment is a lack of access

that industrial businesses are looking for digital features

to competitive credit to purchase new equipment. “Clients

like CNC capacity when replacing older machines. DISMA

may want the machine but lack the financing capacity to

focuses on promoting the adoption of Industry 4.0 practices

purchase it,” he says. “Government incentives could play a

and technologies by adding increasingly digitalized

key role in helping Mexican industrial businesses acquire the

technologies to its product portfolio. “We educate clients

new manufacturing technologies they need.”

on the advantages that Industry 4.0 can provide,” says López. “An increasingly digitalized industry can empower

To support potential customers in this conundrum, DISMA

decision-makers to make better calls in real time to improve

works with its machine suppliers to offer greater payment

their companies’ operations.” For instance, a multinational

flexibility and partners with financial institutions like BanRegio

company with manufacturing operations based in Mexico,

and Banorte to lease its industrial equipment at competitive

headquarters in London, a financial department in France

interest rates. “These strategies help metal-mechanic

and its design area in Italy can interconnect all these

companies to access the opportunities that technology

locations so data on all these areas is visible, allowing better

offers, create jobs and new opportunities for workers,”

decision-making.

López says. In terms of tooling, López says DISMA must import its equipment from Italy because the specialty steels

Sustainability is also a key element in the factory of the future

and processes needed to produce high-precision bending

and DISMA’s new machines offer several energy-saving

machines do not exist in the country yet. “For Mexico to

features through the use of electronic servomotors that do

develop a solid tooling equipment supplier base, the country

not require hydraulic oil. “This enables companies to only

needs to develop its own engineering metals,” he says.

operate the machine when needed rather than keeping it on for the 16 hours that two shifts last,” says López. This

DISMA bets on product availability, talent training and

translates to operational advantages, including more effective

technical service to stand out in the Mexican industrial

investments, reduced waste, greater productivity and greater

equipment market and support its customers. Despite the

quality in metallic products.

267

Tesla Supercharger

INNOVATION, DIGITALIZATION & TECHNOLOGY DISRUPTION

The automotive industry is at the forefront of technological innovation with potential industrial applications. Due to the large existing R&D network and highly capable human capital, the country is starting to attract engineering operations from global companies. There are 31 private design and engineering centers across the country and according to AMIA, the automotive industry is the largest user of CONACYT funds for R&D activities. Gradually, Mexico is moving away from manufacturing and increasingly delving into the concept of mindfacturing.

Software design developers, startups, ride-hailing apps, telecommunication companies, among many other players, are already paving the way to a connected, autonomous, shared and electrified future for the vehicles in Mexico. The future is already here and some of the biggest companies in the sector share their experiences across the following pages.

269

CHAPTER 12: INNOVATION, DIGITALIZATION & TECHNOLOGY DISRUPTION 272

INSIGHT: Adi Corrales, Engineering and Industrial Development Center (CIDESI)

273

VIEW FROM THE TOP: Julieta Torres, CIDETEQ

274

MAP: Automotive R&D and Design and Engineering Centers in Mexico

278

VIEW FROM THE TOP: Arturo Vargas, NI

279

VIEW FROM THE TOP: Gunther Barajas, Dassault Systèmes de México

280

INSIGHT: Miguel Arias, PolyWorks México

281

VIEW FROM THE TOP: Jorge de Jesús Olivares, AutoForm

282

VIEW FROM THE TOP: Arturo Medellin, Staufen Americas

283

SECTOR AT A GLANCE: Creating Business Intelligence That Boosts Performance

284

INSIGHT: Sebastián Romo, Tridi

285

VIEW FROM THE TOP: Daniel Kuchenbecker, Pfeiffer Vacuum

286

COMPANY SPOTLIGHT: Tachi-S: Competitiveness to Face Global Unrest

288

SECTOR AT A GLANCE: HR Management Key to Sustained Productivity

289

VIEW FROM THE TOP: MarIana Salazar, Rever,

290

VIEW FROM THE TOP: Ricardo Anaya, Qualcomm

292

ANALYSIS: Mobility After COVID-19

293

SECTOR AT A GLANCE: Ride-Hailing Strategies to Cope with COVID-19

294

VIEW FROM THE TOP: Rodrigo Centineo, E•DRIVE

271

Daniel López, E•DRIVE

Pedro Corral, E•DRIVE

296

SECTOR AT A GLANCE: Building the Car of the Future

297

VIEW FROM THE TOP: Anasofía Sánchez, Waze Mexico

298

PROJECT SPOTLIGHT: Introducing Ahead™ by DuPont

300

VIEW FROM THE TOP: Federico Ranero, Uber Mexico

301

VIEW FROM THE TOP: Juan Andrés Panamá, DiDi Mexico

302

ROUNDTABLE: How Can Digitalization Improve Fleet Management Operations?

| INSIGHT

TECHNOLOGIES FOR A SUSTAINABLE FUTURE ADI CORRALES Automation Systems Director of the Engineering and Industrial Development Center (CIDESI)

272

To truly have an impact on the industry’s development,

see CIDESI as a mere supplier but a strategic partner. “We

research centers must work to make innovations accessible

need to show we understand the rhythm of the industry,” he

and affordable. Adi Corrales, Automation Systems Director

says. The center is working on a computer system that can

of the Engineering and Industrial Development Center

make decisions in real time by analyzing a production line.

(CIDESI), says the future of the automotive industry is in

The goal is not just to gather data. “Businesses need to see

interconnectivity and sustainability, adding that his center

the advantages of this kind of technology and move away

should act as an apostle of Industry 4.0. “Local providers –

from their trusted model where a supervisor overlooks the

those in closest alliance with car assemblers – must see the

machines,” says Corrales.

benefits of these innovations,” he says. A second major priority for automotive companies, according CIDESI designs parts and components for both final products

to Corrales, is the adoption of renewable energy technologies

and manufacturing processes. Apart from a laboratory for

to make cars fully renewable and not just hybrid. Mexico is

additive manufacturing, the center has a microelectronics

falling behind other countries with more aggressive standards.

laboratory where researchers work on microsensors that

“Mexico has the advantage of experiencing rises in fuel prices

monitor systems and provide feedback when something is off.

but even this will not foster the necessary urgency to move

“

Mexico has the advantage of experiencing rises in fuel prices but even this will not foster the necessary urgency to move to more sustainable systems”

to more sustainable systems,” he says. Mexico has massive potential in solar energy but the government decided to focus on the Dos Bocas refinery project instead, which Corrales thinks is a mistake. “Ultimately, petroleum is going to run out. Research centers can help in coming up with new energy sourcing strategies,” he says. CONACYT has made significant efforts in several areas, defining 23 priority technologies that it deems important for the future. One of these is a proposed alliance between SENER and CONACYT to build a Mexican electric car, another focuses

The center has implemented different strategies to attract

on making Mexico’s public transport system fully electric.

potential clients to its solutions, with demonstrative projects

Corrales says technologies do not necessarily have to be

among them. The center has been constructing a showroom

fully Mexican because companies can take advantage of what

that will open in mid-2020, where clients will be able to see

already exists in the market. “The goal should be to create the

and understand new technologies. The hope is that clients

ecosystem and the infrastructure, so the country can be ready

will stop seeing these technologies as high-risk investments.

to meet the coming demand.”

As a public research center, CIDESI depends on a federal

Corrales sees 2020 as a crucial year in technological

budget and works following a bureaucratic process similar

development. “Despite the economic and political climate,

to that in government offices. However, hoping to gain the

there is a great deal of opportunity to bring added value

industry’s trust, the center has invested in alliances with

to the industry,” he says, adding that USMCA will have a

the private sector to develop new technologies. According

positive impact on the sector. “In fact, these will stimulate

to Corrales, some foreign companies are wary of sharing

the Mexican manufacturing industry to be more efficient

their technology. However, he hopes the industry does not

and focused.”

VIEW FROM THE TOP |

PUBLIC RESEARCH EXPERTISE TO EMPOWER AUTOMOTIVE PLAYERS JULIETA TORRES Director General of CIDETEQ

Q: What strategies has CIDETEQ implemented to grow its

there is a mechanism to certify we can collaborate with

position in the industrial market?

companies. There is no such thing in automotive. Many

A: We constantly innovate in our industrial and testing methods

companies want to start manufacturing pieces that have

and keep our accreditations from institutions such as EMA and

already been designed at their headquarters in their

ISO up to date. We focus on industrial processes for Tier 1 and 2

respective countries but there is no way of predicting which

businesses within the value chain, including industrial painting,

before a new assembly or subassembly is scheduled. This

water and residue treatment and detection and recuperation

causes delays in production that could be avoided. If we

of metals. In many cases, we help local plants that work with

knew which products companies are bringing and their

big international partners to implement these processes to

specifications, we could act faster to assist these companies

meet production specifications and environmental standards.

in their local manufacturing.

We are the first center that large multinationals approach to meet regulations for manufacturing here in Mexico.

Some companies are more closed than others. Japanese businesses, in particular, are very protective of their

Last year, we worked with 90 different automotive companies,

technology. We collaborate with a Japanese company called

such as BMW, Volkswagen, Honda, Nissan and Continental.

Suda, which has given us the opportunity to create an alliance

In one project we helped Nissan meet its goal to have a

to test its products. From a financial point of view, as a public

particular auto part processed with a special coating for a

institution with extensive research and training expertise,

galvanized blue finish. We were in charge of guiding a local

we could benefit greatly from a collaboration where we can

family business in setting up its industrial operations and

access resources from the private sector.

meeting all automotive specifications. We designed certain sections of the process, trained the client and now they have

Q: Where does Mexico stand in terms of its readiness to

been in production for six months.

become an automotive R&D hub? A: Mexico is moderately ready. We have strength in certain

Q: What particular role do you want to play in the

areas but we still need to improve national policies. We know

automotive industry?

the president is interested in having a Mexican electric car. We

A: We have developed extensive expertise in a diverse

need the economic, human and political resources to allow

range of industrial processes, many of which are used in

this. There are many groups in Mexico that could be working

the automotive industry. Our advanced nanotechnology

on such a project but we have not developed the proper

methods fit well with the high degree of specification that the

synergies. I see a great deal of potential if we have the right

automotive industry demands. We can help to refine certain

mechanisms for collaboration.

processes and also help to speed them up. We are essentially here to solve problems and work together with our clients. The

The government has announced that it will allow institutions

automotive industry is highly dynamic and fast-changing. This

to compete for resources. However, there should be a more

requires continuous development in industrial techniques and

elaborated strategy. It is easy to say you want an electric car

continuous scientific research. Battery technology is another

but we need a thought-out plan to use our economic and

example of an area where we have done extensive research.

human resources correctly.

We are building a strategy to focus strongly on this field. Q: What are the main barriers that prevent CIDETEQ from

The Electrochemistry Research and Technology Development

greater collaboration with the automotive industry?

Center (CIDETEQ) is a public R&D center that is part of the

A: The major issue is that there is no established mechanism

CONACYT network. It offers material characterization services

for this type of collaboration. In the aerospace industry,

and failure analysis, among other services

273

| AUTOMOTIVE R&D AND DESIGN AND ENGINEERING CENTERS IN MEXICO

CIATEC

CIATEQ

CITTA

CIDESI

CIO

CITLAX

CIDETEQ

INAOE

MTH

CIQA

IPICYT

CNyN UNAM

COMIMSA

INFOTEC

CIIDIT - UANL

CIMAV

CIMAT

CEPCE

CIEMC - UAQ

274 a

17 19 8 19

b 16 23

According to AMIA, the automotive industry is the largest user of CONACYT funds for R&D activities.

28 6-7

275

11 19 12 13 8 15

18 10

9 4

19 1

21 19

| AUTOMOTIVE R&D AND DESIGN AND ENGINEERING CENTERS IN MEXICO ID NUMBER

276

Private Design and Engineering Centers

Main Design and Engineering tLines

Nissan Technological Development Center (CDT Nistec) - Nissan

Product design and development, project engineering and environmental engineering

Chrysler Automotive Engineering Center FCA Group

Vehicle tests, emissions tests, materials physics and chemistry and environment and energy

Delphi Aptiv Mexico Tech Center - Delphi Aptiv

Component engineering and product design and development

Advanced-Manufacturing Research Center (CIMA) - ITESM

Advanced-manufacturing, human resources development, tooling development, product design and tropicalization

Technological Center for Vehicle Electronics (CTEV) - ITESO and Soluciones TecnolĂłgicas

Electronic software, software and statics control and hightechnology instrumentation

Center for Innovation and Development of Competitive Advantages (CIDeVeC) - Metalsa

Product design and manufacturing

KATCON Institute for Innovation and Technology (KIIT) - KATCON

Fine particles and fluids analysis, quick prototyping and validation tests

Center for the Development of the Mexican Automotive Industry (CeDIAM) - ITESM

Metrology and manufacturing, propotyping and suppliers training

GM Toluca Engineering Center - GM

Product development (vehicle interiors, electrical systems and thermal systems)

Continental R&D Center - Continental

Self-driving technologies and object-detection software

Harman Advanced Engineering Center - Harman Group

Product design (cards and electronic components), validation tests

Carso Center for Research and Development (CIDEC) - Condumex and Delphi

Technology development for superconductor cables, optic fiber, industrial design and metallurgy

TREMEC Center for Technology and Development - TREMEC

Product design (transmissions)

Ford Technological Research and Development Center for the Automotive Industry El Cristo Ford

product design and testing

Visteon Technical Center - Visteon

Software development, product design (components for intelligent passenger cabins)

Bosch Innovation Center Guadalajara - Robert Bosch

Hardware engineering, software development (augmented reality, mobilit and connectivity and engineering solutions)

Cummins Research and Development Center Cummins

Advanced-manufacturing processes, parts re-engineering and product development for the aftermarket

Yanfeng Technical Center for Product Design and Development - Yanfeng

Product design and advanced manufacturing processes

Valeo R&D Center - Valeo

Innovation design, development and prototyping

Faurecia Seating R&D Center - Faurecia

Product development (Cockpit of the Future systems)

Faurecia Interiors R&D Center - Faurecia

Product development (Cockpit of the Future systems)

Brose Research and Innovation Center - Brose and UPQ

Advanced manufacturing processes and talent training

OSRAM Continental R&D Center - OSRAM and Continental

Integration of lights, sensors and electronics

Sisamex Human and Technology Development Center - Sisamex

Mechanical endurance tests, metallurgy technlogies, automation and advanced manufacturing processes

Macimex i2DEAS Research Center - Macimex

Machining prototyping, mechanical and endurance tests, metallurgy dimensional and electronics tests

Pumex Nano-Cellular Laboratory - QuĂmica Pumex

Statics and mechanical tests, particle size analysis, ultrasound scattering, response to combustion and thermal insulation tests

Quimmco Technological Center - Grupo Quimmco

High-precision machining, tooling and cutting tool design, production and repair

DRIVEN CLAUT Innovation Center - Automotive Cluster of Nuevo Leon

Talent development for product development, design and advanced manufacturing processes

Nemak Development Center - Nemak

Product development

Kostal Engineering & Design Center - Kostal

Product design and engineering

Magna Cosma Development Center - Magna

Product design and engineering

Public R&D Centers

Main Research and Technological Development Lines

Applied Research Center for Competitive Technologies (CIATEC)

New materials, advanced manufacturing and industrial processes

Center for Engineering and Industrial Development (CIDESI)

Automated systems, microelectronic and microelectromechanic systems, energy, joining technologies, surface engineering, advanced manufacturing, oil industry and technology of cold

Center for Research and Technological Development in Electrohemistry (CIDETEQ)

Bioelectrochemistry, corrosion, alternative energies, electrochemical engineering, nanotechnology, water and waste treatment, advanced materials and coatings, environmental engineering

Research Center in Advanced Chemistry (CIQA)

Polymers synthesis, polymerization processes, advanced materials, plastic transformation processes and biosciences and agritechnology

Mexican Corporation for Materials Research (COMIMSA)

Project engineering, metal-mechanic manufacturing engineering, environmental engineering and materials engineering

Advanced Materials Research Center (CIMAV)

Materials physics and chemistry, environment, renewable energies, metallurgy and structural integrity, nanostructures and polymeric nanocomposites and computer physics and chemistry

Advanced Technology Center (CIATEQ)

Machines and manufacturing processes, measurements and instrumentation, monitoring and control systems, processing equipment, plastics transformation and alternative energies

Optics Research Center (CIO)

Optic fibers and lasers, optical engineering, nanophotonics, non-lineal optics and non-destructive tests

National Astrophysics, Optics and Electronics Institute (INAOE)

Astronomy, astrophysics, physical optics, quantum and statistical optics, photonics and optoelectronics, integrated circuit design, microelectronics, computer learning and pattern recognition and systems engineering

Potosino Institute for Scientific Research (IPICYT)

Geophysics, geoinformatics, geology, applied mathematics and advanced materials

Center for Innovation and Research in Information and Communication Technologies (INFOTEC)

IT development, innovative management, regulation and appropriation

Center for Mathematical Research (CIMAT)

Functional analysis, algebraic and differential geometry, dynamic systems, topology, statistics, computer science and software engineering

Aguascalientes Innovation and Technology Transference Center for the Automotive Industry (CITTAA Research Consortium)

Competencies development for auto parts, electronics and it companies

Tlaxcala Center for Research and Innovation (CITLAX Research Consortium)

Polymers engineering

Consortium for the Development of Infrastructure and Human Resources to Reduce Foreign Dependency on Molds, Dies and Tooling (MTH Research Consortium)

Development of molds, dies and tooling for the automotive, auto parts and metal-mechanic industries

National Center for Nanosciences and Nanotechnology (CNyN) - UNAM

Multi-ferroic materials, materials and plasma optics, nanosciences, nanotechnology and chemical surface analyses

Center for Research and Development in Engineering and Technology (CIIDIT) - UANL

Nanotechnology, advanced materials, mechatronics and software engineering

Center for Productivity and Business Competitiveness (CEPCE) - UANL

Industrial processes, mechanics and digital technologies

Center for Innovation and Training for Composite Materials (CIEMC) - UAQ

System development and control, manufacturing and composite materials engineering

GRAPH TITLE

IN TERMS OF PRODUCTION, HOW READY DO YOU THINK MEXICAN COMPANIES ARE TO PARTICIPATE IN HIGH-TECH COMPONENT MANUFACTURING, SUCH AS ELECTRIC AND AUTONOMOUS-VEHICLE COMPONENTS?

18.24% Ready 57.23% Moderately ready 15.72% Not ready 8.81% No answer

Ready

Not ready

277

| VIEW FROM THE TOP

RUNNING MODELS, SAVING COSTS ARTURO VARGAS Solutions Marketing Manager – Transportation of NI

278

Q: What role does NI want to play in the evolution of the car

Q: How does NI’s value proposition differ from other suppliers

of the future?

of testing equipment present in Mexico?

A: The desire to be the first to deliver an autonomous car

A: Testing-equipment demands are growing faster even

has not diminished. Companies are focusing on using their

than the rate at which OEMs or suppliers can build up new

developed technology in level 2 or 3 autonomy systems that

production lines. This has created the need to do parallel tests

improve safety today, aiming to build on top of these to deliver

on Electronic Control Units (ECU). Only two companies in the

the autonomous car of the future. At NI, we are diversifying

market can perform these types of tests and NI is the only one

our investments to accelerate the arrival of these technologies

that can do them synchronously.

to the market and we are investing in technologies we believe in, like C-V2X systems. We are also creating partnerships to

Another advantage is our global capabilities. We have

help our clients with prototypes or systems, validation and

manufacturing capacity to deliver in all countries where we

eventually production.

operate, which helps us save on delivery times. We have reduced the usual delivery time for a test system from around

We expect autonomous vehicles will be first adopted by

16 to only 12 weeks. The most important element is our single

delivery or ride-sharing companies to build their fleets rather

software and hardware platform that works from design all the

than for personal use. This will change the usual maintenance

way to production. Software adaptability allows us to reuse

and tracking-system thought process for these vehicles. At

test models, which standardizes data and architectural tests

NI, we are working on a software designed to manage large-

thus accelerating development time. For example, we had a

scale systems that will help those companies to monitor their

Hardware in the Loop (HiL) system that reduced development

fleets. We are focusing on 4GHz radar to run tests like no

time from six to three months. Also, a Tier 1 supplier in South

one else can, considering different parameters and obstacles

Korea used our test systems to cut development time to a

in our simulations to save development time. We are aware

sixth of its usual estimations, reducing costs by 70 percent and

that no company can have a complete solution, but we are

the needed man-hours for production tests by 90 percent.

creating partnerships with data sensor companies so they run the simulation and we collaborate in validation tests to

Q: How have transnational automotive companies based in

increase their effectiveness.

Mexico reacted to NI’s HiL tests, solutions for ADAS and V2X systems and end-of-line tests?

Q: How has Mexico’s growth as an engineering and technology

A: Running tests in real scenarios is really expensive. To test

development hub impacted NI’s growth projections and

ADAS controllers you cannot simply drive the car and collect

operations in the country?

data because it would be too expensive. HiL allows you to

A: In the Americas, Mexico and the US are our priority just like

make the controller think real conditions exist. You feed the

Germany, Japan, China or even Romania are in their regions.

controller with radar, camera and other data sources to see

Mexico’s location and talent are added-value features for

how the controller reacts so you can adjust your software.

the country. Thus, we invest in technology and we bring it to

This is how HiL validates the controller’s embedded software.

Mexico as the country sets trends in areas such as production.

This represents great challenges since you have to provide

This enables us to run pilot programs with potential customers.

signals coming from a wide variety of sensors and conditions. Not any platform can deliver that since you need good communication channels to receive data signals and run the

National Instruments (NI) has over 40 years of experience

models that represent the car. Our advantage is our software

developing automated test systems to help companies tackle

adaptability to receive a variety of signals in an efficient way.

the engineering challenges of today and the future. The company

It is the same software for the entire process and that is our

has over 35,000 clients and is present in over 50 countries

main advantage.

VIEW FROM THE TOP |

BOOSTING R&D THROUGH SOFTWARE-BASED VISIBILITY GUNTHER BARAJAS Vice President and Senior Director General of Dassault Systèmes de México

Q: How is Dassault Systèmes working to promote Industry

Q: What new opportunities are EVs bringing to

4.0 principles in Mexico?

Dassault Systèmes?

A: Our goal is to transform jobs so that people engage in

A: Developing local suppliers that can support EV assembly

added-value activities related to customer experience, while

has become a challenge for Ford. Vehicle electrification will

automating other processes and developing schemes where

transform the automotive industry into a high-tech sector.

humans and machines collaborate to increase efficiency. We

This is a great area of opportunity for Dassault Systèmes

developed the “Industry of the Future” concept that puts

because 98 percent of all vehicle-electrification startups

human beings at the core of Industry 4.0. In Mexico, aerospace

now use the company’s 3DEXPERIENCE platform. Mexico

and automotive remain our core industries but others like

needs to train its talent so the people producing combustion

energy and consumer products, are gaining momentum.

engines and other components can answer to the new needs of the automotive industry and produce components for EVs.

Q: How does Dassault’s 3DEXPERIENCE platform help companies improve their design and engineering processes?

Q: What role does Dassault Systèmes play in talent

A: Our platform creates a collaborative environment that

development?

factors in many more elements that previously would not

A: In September 2018, Dassault Systèmes signed an

be considered. For instance, companies can now reflect

agreement with the Ministry of Economic Development of

comments from social media when developing the next

the State of Mexico, the Automotive Cluster of the State of

generation of their products. Similarly, having several areas of

Mexico and the Autonomous University of the State of Mexico

a company collaborating simultaneously helps an organization

(UAEM) to create capable talent to develop EVs and self-

reduce its engineering costs, response times and ppm

driving cars. Dassault Systèmes will open two technology

rates while increasing product quality from a component’s

areas at UAEM so the university can start training students

design stage.

in the use of new manufacturing technologies. We plan to replicate the success of a similar program implemented in

Q: What gaps in Mexico’s automotive industry are addressed

Wichita, Kansas. The company’s 3DEXPERIENCE Center

by the implementation of the 3DEXPERIENCE platform?

focuses on the aerospace industry and several companies

A: One of the most important areas of opportunity to bring

are taking advantage of it to carry out their R&D operations.

more Mexican suppliers into the industry is the lack of standardized processes that could offer certainty to OEMs.

Q: How will the new trade environment resulting from USMCA

3DEXPERIENCE is the best possible communication link

impact Dassault Systèmes’ operations in North America?

between OEMs and their suppliers because it ensures designs,

A: Dassault Systèmes de México now competes with its

simulations and working plans are shared among companies.

US and Canada counterparts in terms of developing local

This gives OEMs the certainty that they are working with

suppliers. The country that manages to develop suppliers

suppliers that have formal, well-defined processes. We are

the fastest will capture a greater percentage of regional

launching new cloud-based software packages so SMEs can

content production. For Mexico to keep its productivity

access this technology and can be in direct communication

level, the country needs to secure more contracts to

with their Tier 1 or OEM clients.

supply components.

Since all companies involved are aware of the final result that must be achieved, they can start performing analysis of

Dassault Systèmes is a French software developer that offers

weight, performance and design and manufacturing times.

solutions for 3D design and product life-cycle management. Its

In Mexico, BMW and Ford are among the companies already

3DEXPERIENCE platform allows companies to optimize design

implementing this platform.

and manufacturing processes

279

| INSIGHT

SOFTWARE ADOPTION FACES LOCAL CHALLENGES MIGUEL ARIAS Director General of PolyWorks México

Despite the advantages that innovation may provide

leaders to improve their own processes. The implementation

automotive manufacturing operations, Mexican companies

of a single platform like that of PolyWorks allows all players

tend to wait for the technology’s efficacy to be tested

to communicate in the same language, which strengthens the

elsewhere before implementing changes. “Mexican companies

whole value chain.

do not implement new technologies as a strategy to adopt

280

best practices or even to reduce costs but because their

One of the main challenges that PolyWorks must overcome

clients or new norms require them to do so,” says Miguel Arias,

to take advantage of this opportunity is training metrology

Director General of metrology software company PolyWorks

specialists in using the software. “Our platform offers several

Mexico, a unit of the global company Innovmetric based in

tools that work to the advantage of metrologists but they

Quebec, Canada.

need to understand how to use these,” Arias says. PolyWtorks has focused on offering training to users and on strengthening

All production processes suffer variations due to changes

its technical support capacities. “These steps are necessary to

in variables such temperature, machine wear and human

help users understand how they can automate measurement

contact, which may lead to production mistakes even if

and reporting processes through our solutions,” he says. These

processes are robotized. To deal with this situation, PolyWorks

courses also help companies to learn about the new updates

family of metrology software solutions helps to identify and

that the company launches each year and the future products

correct these changes. This ensures that parts meet clients’

PolyWorks has in its pipeline. “We expect PolyWorks’ new

dimensional specifications, which works to the advantage of

solutions for desktop computers to be adopted in 2020 in

both OEMs and suppliers. “A defective component can stop

Mexico,” says Arias. “However, the new cloud and augmented-

an assembly line and cause substantial losses,” says Arias.

reality software could take up to four years to be adopted.”

“Investing in quality-control technologies to reduce variations works to the advantage of automotive suppliers because they

Mexico plays a key role in the development of these new

do not have to deal with component rejections or rework

features, according to Arias, despite resistance of local players

components.”

to adopt the newest solutions. “A substantial portion of our cloud software was developed at PolyWorks Mexico’s offices

Using the right metrology software can also go a long way

in Puebla and the augmented-reality solutions that will soon

to helping automotive suppliers diversify by delivering quality

reach the market are being tested in Queretaro,” he says. The

components. “Automotive suppliers that deliver products of

company will hire software developers for the company’s

outstanding quality tend to be hired to supply more than one

development center in Puebla and R&D Queretaro unit as

company, which reduces the risk of depending on a single

new development projects reach the country.

project,” Arias says. According to Arias, the future of metrology software solutions However, adoption of PolyWorks’ software solutions among

for the automotive industry is in the cloud. “Cloud technologies

Mexican clients has taken longer than what Arias expected,

enable companies to store their Big Data online and have it

although there are factors that could offer the company an

readily available for analysis, which is a great advantage for

edge. Several OEMs, including Daimler, BMW and Audi, as well

metrology departments of large automotive suppliers,” he

as Tier 1 suppliers like Continental, Calsonic Kansei and Bosch

says. The company is betting on developing advanced cloud

already use PolyWorks in their operations. “Trust from these

software solutions that allow for trend analyses of production

players can boost the implementation of our solutions among

projects. “Automotive companies often have several large

Tier 2 to Tier N suppliers based in Mexico because their clients

production lines where many distinct variables are measured,

demand greater quality control,” says Arias. Automotive

so centralizing all information can help plant managers to

suppliers tend to emulate the best practices from industry

detect, fix and prevent errors.”

VIEW FROM THE TOP |

SAVING COSTS, BOOSTING ENGINEERING OPERATIONS JORGE DE JESÚS OLIVARES Country Manager of AutoForm

Q: What is AutoForm’s contribution to the automotive

Q: What are the obstacles Mexican companies face when

industry?

trying to use this kind of software?

A: AutoForm has 250 employees worldwide and over 1,000

A: The lack of an adequate labor force is a challenge.

customers. We work with Volkswagen Group, Mercedes-

We do not have enough qualified people to operate

Benz, BMW, PSA Group, Renault, FCA Group, Honda,

technology such as ours. To overcome this, we agreed

Toyota, Kia, Ford and GM. We are also working with heavy-

with our users to develop and train their people over a

vehilce OEMs and with 80 percent of the most relevant Tier

three to six-month period. For our licenses to flourish,

1 suppliers worldwide. We still have room to grow in the

we need someone who knows how to use it. Trainees

US, Latin America and Asia, though.

need metal-stamping background experience, not only in theory but in practice, since AutoForm allows them to

AutoForm is a simulation software for metal stamping

play with a virtual press to produce the parts.

processes. Our contribution is to predict any issue a metal-stamping company might have before reaching

Through our partnership with Schuller and its dual-

production. For metal stamping, you need the design, the

education center in Puebla, the company manages the

tooling and a press. Only when the press strikes its first hit

tooling and press maintenance and we do the simulation.

will you know if the design and tooling equipment are 100

We are establishing a partnership with Quintus to simulate

percent successful. This implies ongoing tests that make

hydroformed press processes. We can also perform deep

production processes more expensive. Often, companies

metal stamping. We are focusing on partnerships with

need to perform 40-60 iterations to get the component

steel suppliers and with Mexican universities like IPN,

right. With AutoForm you can simulate from design to

Tecnológico de Monterrey and UDLAP.

testing. The software can validate all steps involved in the stamping process.

Q: What are the distinctive features AutoForm offers to its users?

We organize an AutoForm users’ meeting every two years

A: A major feature is cost projection of the tooling

where we invite users to share their experiences, and

equipment. Also, the software tells you the right size of

the feedback is always positive. This has enabled us to

the blank for a successful component, reducing waste.

demonstrate to the international market that Mexico can

We are a CAE software that feeds on CAD designs to

perform engineering operations while providing support

perform an early formability analysis to determine if

to other parts of the world. Our contribution is to validate

manufacturing will be successful. We validate, not design.

processes while saving costs without relying on a global

We are working with Volkswagen in Puebla to develop a

headquarters to complete the process.

range of minimum and maximum hardness. If a company delivers components within this range, pieces will be

Q: What advantages does AutoForm offer in terms of costs?

acceptable. Volkswagen can evaluate their suppliers and

A: An AutoForm license costs around US$50,000 to

if their parts are found wanting, suppliers can come to

US$60,000. However, some of our customers have

us to run the simulation and we see how the process

mentioned that using the software has resulted in savings

will perform.

that are worth eight times the value of the license. Several Tier 1s and OEMs were present at our last gathering of users and the figures they presented had a major impact. We also

AutoForm is Swiss-capital company recognized as the leading

help save time, which can be more valuable than costs. In

supplier of software solutions for die-making and sheet metal

a time-sensitive industry, as a deadline approaches, rushed

forming. The company works with major automotive OEMs and

decisions are made that can lead to errors. We prevent that.

their suppliers

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| VIEW FROM THE TOP

ADDED VALUE THROUGH PEOPLE, NOT PROCESSES ARTURO MEDELLIN General Manager of Staufen Americas

Q: What is Staufen Americas’ (Staufen) added value for

company’s poor performance or employee dissatisfaction

the Mexican automotive industry?

can also be unrelated to salaries but more in line with

A: Like many other companies, we offer lean management

a poor leadership. We also evaluate the company’s

consulting for companies in Mexico. What sets us apart from

processes, including its lead and down times, to improve

our competitors is that we also develop the leaders who will

delivery times.

implement and sustain the principles of lean management.

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Using lean management only as a tool is not effective in

Q: How is Staufen helping its clients prepare for future

the long term. To ensure long-term sustainability of these

market demand?

principles, it is necessary to teach them to the leaders who

A: We work closely with OEMs, Tier 1s and Tier 2s. We

will implement them and ensure they are maintained. We

focus on a company’s bottlenecks to help the process

do not deliver processes, we deliver people.

flow and reach the client. For instance, Staufen is working with a leading appliances company in Mexico to help

The core of lean management is to do more with less

make its shop floor and lean practices sustainable before

by increasing the efficiency of processes and reducing

undergoing a digital transformation. This process will

unnecessary steps. Clients usually approach us with a

provide a significant amount of information that can be

series of problems they want to solve, for instance failing to

used to identify problems and ensure a faster reaction to

reach delivery times, poorly-organized stock or low-quality

deviations.

products. We perform an initial evaluation of their practices using our own methodology, which allows us to identify the

We are training company leaders to use this information

main issues, the tools to solve them and the approximate

to tackle problems before they get out of hand. Clients

duration of the project.

are investing a significant amount of money and they want to see a return on investment as soon as possible,

Q: How do you ensure that communication with decision-

which we want to ensure. In the case of this company,

makers goes both ways?

the project will pay for itself in approximately one year.

A: We have a methodology called Shop Floor Management

We are working with the company on two other pilot

that requires a series of meetings with the organization’s

projects. We are training their team leaders to deploy lean

leaders, from the top down. After every meeting, we provide

manufacturing on their own. We start by being heavily

these leaders with feedback on their actions and analyze

involved in our projects and gradually step back so the

what they can do differently the next time.

corporate leadership can take over.

Our methodology involves an evaluation of the client’s

Q: How do you help automotive companies become more

operational processes, the company’s leadership and

efficient and adaptable versions of themselves?

the relationship between decision-makers and their

A: We try to make our clients more flexible by reducing

subordinates. We have identified that in many cases,

cycle times and stock. This allows companies to be more

problems are caused by the company’s leadership and

competitive as they are able to react faster to market

how they communicate and relate to their employees. A

changes. It is never too late for companies to change and become more flexible. If they do not, they will be in a poor position as their competition moves forward. There will be a

Staufen Americas is an international consultancy that works in

dark future for companies that are not prepared to face the

the industrial, automotive, construction, finance, aviation and

rapid changes coming to the industry. If the need to change

medical engineering sectors. The company is present in six

is pressing, our company has a restructuring division that

countries in the Americas, Europe and Asia

can fix processes in as little as three months.

SECTOR AT A GLANCE |

“

CREATING BUSINESS INTELLIGENCE THAT BOOSTS PERFORMANCE

Collecting and processing all the information generated on the production floor allows companies to predict future issues” Gustavo Moya, CEO and Research Director of Ixaya

the needs of the company in a timely manner,” Funes says. The primary issue lies in the reality that, due to ignorance of other products, businesses employ technologies that end up unable to meet the company’s requirements. This can be the result of quick decisions where company leaders do not take into consideration the full extent of their needs and how the chosen tool can impact performance. Funes suggests that businesses invest in and employ techniques that reflect how the company functions to provide a tailor-made solution. Otherwise, these companies risk turning technology into an expense. “Manufacturers in the automotive industry tend to have gray technological areas in

The automotive sector has been quicker to adopt new

their ERP systems. Some of their procedures are digitalized

technologies than others but many companies still lag

and others are not. This is because ERPs tend to be general

behind because of lingering doubts, not so much about the

and will not always satisfy the requirements of customers,

technology but the process. “One of the problems facing

unlike adaptable EOS systems,” says Funes.

companies in the automotive sector is making technological transitions,” says Rafael Funes, Executive Chairman of LOVIS.

Technology advancements have allowed for the development

“Often, there are doubts about how to make the transition,

of tools that cater to the specific needs of businesses. LOVIS

which technologies can help the company grow and who can

has developed blockchain-based EOS technology that

help them in this process.”

allows the host to create the procedures of its company in a decentralized and scalable manner. “EOS technology

According to Gustavo Moya, CEO and Research Director

adapts to any company regardless of the sector in which

of Ixaya, the automotive industry has welcomed Big Data

it operates, its size, geographical location, language or

principles because they provide significant opportunities

otherwise. It is a completely configurable and adaptable

to improve efficiency and reduce manufacturing costs.

technology that can help meet a company’s needs with the

“Collecting and processing all the information generated

precision that companies require to grow,” Funes says. For

on the production floor allows companies to predict future

its part, Ixaya develops many different software solutions

issues,” says Moya. “A small volume of data will not often

for automotive and aerospace companies and aims to be

make sense when analyzed on its own, but processing large

the Top IT provider for these sectors, working specifically

amounts of data and correlating it with information from other

with local companies to improve their operations through

sources will generate interesting results.”

the incorporation of technology. Ixaya also adapts foreign work models to Mexico because local workers tend to have

While the use of new technologies and data analytics offer

different workplace cultures. “We have had to implement

significant opportunities for gathering business intelligence,

several poka-yoke measures in manufacturing processes to

Moya says the true potential of Big Data for applications

avoid damaging parts,” says Moya.

for the automotive industry is often not properly explored. “The term ‘Big Data’ is very broad and frequently not used in the appropriate context,” says Moya. Properly analyzing information requires broad knowledge of several areas, such as statistics and information technology, and the ability to

Digitalization and data analysis can help companies

intersect multiple functions and teams.

increase productivity and face the challenges of

Small local automotive companies that are still too green to

companies need to be mindful of the way they

enter the supply chain of major players face problems in the technology transition process. “There are certain obstacles that companies face when they want to introduce or change a technology. The first problem is not having the tool that meets

an increasingly technological industry. However, transition toward these new forms of analytics to avoid investments from becoming just an added cost

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| INSIGHT

BREAKING THE MOLD IN MANUFACTURING SEBASTIÁN ROMO Founder and CEO of Tridi

The automotive industry has been an active promoter of

Additive manufacturing might be normal abroad but Tridi

emerging technologies, in particular additive manufacturing,

has found itself in the middle of an education campaign

but mostly in European and Asian countries. Mexican

in Mexico to show what 3D printing really is and how it

companies are still weary of trying new equipment, even

can benefit companies, particularly in the manufacturing

though additive manufacturing has become more common,

process where the technology once was seen as slow.

according to Sebastián Romo, Founder and CEO of Tridi.

“Companies would feel discouraged about including it in their manufacturing process, although prototyping

284

“There is still a great deal of reluctance to try new

equipment has helped to spread the word on 3D printing,”

manufacturing processes,” says Romo. “Decision-making has

Romo says. “We are in the process of re-educating the

also become more complicated and there are more people

market so companies understand how 3D printing has

involved in the process.” Companies abroad are used to this

evolved and the overall reach it can have in the actual

process and they tend to send prototypes or parts to their

manufacturing process, not only in prototyping.” The

facilities in Mexico made through additive manufacturing

company is working with clusters, chambers of commerce

technology. Romo says that although the country does have

and state ministries of economy to target as many clients as

research centers focused on these prototypes locally, they

possible and showcase its capabilities to supply equipment

tend to be overly bureaucratic.

and work as a contract manufacturer.

VIEW FROM THE TOP |

VACUUM EQUIPMENT SUPPLIER FILLS AUTOMOTIVE GAPS DANIEL KUCHENBECKER Market Manager Industry at Pfeiffer Vacuum

Q: How does Pfeiffer Vacuum add value to Mexico’s

in the processes of electrolyte filling and component drying

automotive industry?

that require vacuum to prevent moisture from seeping in.

A: While Pfeiffer Vacuum is present in several sectors,

Pfeiffer Vacuum also boosts the efficiency of combustion

including metallurgy and healthcare, the automotive industry

engine vehicles through leak detection tests. By ensuring

is one of the major markets for our products. Globally, there

that combustion engine fuel systems are leak-proof, our

is growing demand for vacuum solutions in this sector,

products also have an impact on vehicle emissions. They

particularly for leak-detection applications, as companies

are also strongly involved in reducing the carbon footprint

look for better-quality components. Leak-proofing ensures

of manufacturing components. We have introduced highly

quality, reliability and a longer life cycle for fuel, brake, cooling

energy-efficient pumps for vacuum systems that reduce

and airbag systems. Pfeiffer Vacuum is also launching new

energy consumption during production processes.

products for lithium-ion batteries used in electric vehicles that require leak-prevention solutions to keep moisture out

Q: What opportunities did Pfeiffer Vacuum identify in

of the battery cells.

Mexico that prompted the company to target the local automotive industry?

There are several automotive manufacturing processes that

A: Mexico is a growing market for vacuum products

require vacuum pumps and which would benefit from our

and other industry-related applications. Automotive

solutions. For instance, Pfeiffer Vacuum’s Vacu2 system

leak detection requirements offer key opportunities for

is a niche product oriented to die casting processes. This

Pfeiffer Vacuum’s solutions. We started investing in the

solution can evacuate both the shot sleeve and the mold

country thanks to the support of Intercovamex, which is

cavity and prevent air pockets in the die cast process, which

a local partner that has broad knowledge of the Mexican

translates to superior component quality. Pfeiffer Vacuum

market. Pfeiffer Vacuum works with European OEMs and

plans to target aluminum die casting components in this

automotive suppliers in Mexico. We can add value to our

process to ride the light weighting wave. We also support

clients’ operations by offering a full range of vacuum

additive manufacturing processes, such as the 3D printing

components, including pumps, fittings and measurement

of components using metal dust.

and analytical equipment.

Q: What are your main targets for these solutions in the

Q: What challenges did Pfeiffer Vacuum encounter while

Mexican market?

establishing in Mexico?

A: Our leak detection and Vacu2 portfolio mainly focuses

A: Concerns related to NAFTA were one of the main

on high-quality, advanced components. Our solutions can

challenges that we faced. Now that USMCA is in place,

have a positive impact on their manufacturing processes

Pfeiffer Vacuum sees a fast-growing market for its solutions

and testing times. We are also working hard to help clients

in Mexico. The country is in a great position to develop

reduce the processing time for their components by

its automotive industry thanks to its know-how and

targeting pre-processing, for example in upstream stages

infrastructure. While there are some areas of opportunity in

in the manufacturing of chemicals used to produce foams

trading contracts to ease imports and exports, the country

used in car interiors.

is well-prepared for the future.

Q: What role does Pfeiffer Vacuum want to play in boosting sustainability in the automotive industry?

Pfeiffer Vacuum is a European supplier of vacuum pumps,

A: Our contribution includes the manufacturing of lithium-

leak detectors and measurement and analysis equipment

ion batteries that power electrified cars. We can conduct

for various applications in the automotive, pharmaceutical,

integrity tests to detect leaks in these components and help

electronics and metallurgy industries

285

| COMPANY SPOTLIGHT

11,000

Tachi-S' associates in Mexico, Brazil and the US

286

TACHI-S: COMPETITIVENESS TO FACE GLOBAL UNREST Tachi-S Mexico is part of Tachi-S, Co. LTD, a Japanese company with a global footprint. It has 27 years of experience in the automotive industry in the Mexican and American markets and its core business is the production of automotive seats. In recent years, the company has increased its business with Tier 2 suppliers, mainly in trim cover of leather and fabric, as well as headrests with Pourin-Place technology. The company works with a vertical integration plan to maintain competitive costs and remain attractive to its current and potential customers. Tachi-S Mexico has nine production sites, three of which are just-in-time facilities. The company’s Regional Headquarter Americas office is in Aguascalientes and oversees 10 additional business sites located in the US and Brazil, totaling 11,000 associates. The company is tackling new businesses and new clients, seeking opportunities in growing sales volumes of different OEMs, as well as their Tier 1 and Tier 2 suppliers. Its clients’ trust and the volume opportunities in the region have been triggers to increase investment in the Americas, following the strategies established by President and Executive Management Officer Americas Gonzalo Esparza, who has strongly promoted the presence of Tachi-S in this region. Tachi-S’ sales strategy is to offer-high quality products to its customers from all markets, taking advantage of the location of its plants both in customer service and in cost competitiveness in terms of production and supply chain. Client demands stemming from global competition have led Tachi-S to strongly develop its supply chain, seeking to increase its response capacity in quality, cost, delivery and safety. This has resulted in loyalty and effective communication, in addition to high confidence in its products. Facing an environment of medium and long-term uncertainty in the region and changing production volumes, Tachi-S Mexico is betting on the preparation and training of its staff to better understand and develop a global industry, while being flexible toward any market demand and customer need. "As a Japanese company led mainly by Mexican personnel, Tachi-S Mexico is always looking for efficiency. Its goal is to achieve exponentially growing results, in addition to promoting the global values of the Tachi-S Group and developing talent that can support the group’s operations throughout the world. The goal of Tachi-S is to be a company that is continuously selected because of its traditions," says Armando Gómez, Vice President of Tachi-S Mexico RHQ.

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| SECTOR AT A GLANCE

HR MANAGEMENT KEY TO SUSTAINED PRODUCTIVITY

“

Production line downtime, even for a single minute, can cost automotive companies thousands of dollars” Gabriel Alvarado, Latin America Vice President and General Manager of Kronos

Management (SHRM). Moreover, the organization states that only 30 percent of Mexican companies have substitute workers to fill these absences. Preparing for absences and adapting to them is essential to maintain a high level of productivity. To address the shortage of highly specialized talent in the Mexican automotive sector, companies, such as HAYS México, focus on recruiting middle and senior management, as well as vice presidential and C-level positions. “While there are professionals with skills and the experience of working at high levels, often they lack sufficient knowledge about technologies, innovation, design and other highly complex

Mexico’s qualified labor has attracted many international

processes beyond manufacturing, however” says Axel Dono,

manufacturers. However, when this workforce is not managed

Managing Director of HAYS México.

properly, productivity suffers. “Assembly or production line 288

downtime, even for a single minute, can cost automotive

DIFFERENT PRIORITIES

companies thousands of dollars,” says Gabriel Alvarado, Latin

With the purpose of helping companies in the sector,

America Vice President and General Manager of Kronos.

enterprises specialized in human resources work hand in hand with the automotive industry. Some companies even

Work absenteeism cuts productivity at Mexican companies

choose to outsource talent management operations to an

by 31.4 percent, according to the Society for Human Resource

expert. “Clients hire a company that does the work for them, resulting in several economic and administrative benefits,” says Director General of IS Company Luz María Lozano. Turnover, in particular, has been a hot topic for years. Although rates

Human capital development is a key element in maintaining a company’s productivity. Although issues like high turnover and absenteeism have impacted the industry in recent years, measures are already being implemented by companies and service suppliers to address these

are similar in various states, the reasons behind employees’ decisions to leave a job are different across the board. According to Director of Catch Consulting Rodrigo Arciniegas, “companies along the northern border have a much higher maturity level, while in Bajio, they have an average of three to six years of established operations. This disparity impacts the technological level and strategy implemented at these plants, as well as the labor opportunities available in their regions,” he says.

VIEW FROM THE TOP |

EMPOWERING EMPLOYEES THROUGH DIGITALIZATION MARIANA SALAZAR Product Management Director of Rever

Q: Given Rever’s strong focus on lean manufacturing and

in a company’s workforce, empowering people so they

the Kaizen model, how does your offering adapt to what

can truly become part of the continuous improvement

the automotive industry needs?

process of their companies. They have in their hands the

A: Everything that Rever does focuses on the employee,

greatest growth potential.

contrary to the traditional Industry 4.0 trend that favors machinery and technology. Our products are user-friendly

Eighty percent of innovative ideas come from frontline

and follow the kaizen model in a simple way. Rever’s

workers. By constantly sharing ideas, other factories

goal is to empower on-the-floor manufacturing staff,

around the world can replicate good practices, which

mainly in the automotive industry, so they can unleash

does not happen in factories that have not invested in

their talent and help companies grow faster. Employees

their talent.

suggest improvements to the whole production line and the overall manufacturing process and after their results

Q: What are Rever’s plans for the short term?

are analyzed, these solutions are implemented across the

A: We are a young company. We have been in the market

plant and in other facilities.

for three years and our intention is to continue growing as a company and in the services we provide to our clients.

Q: How does the Rever app work?

We see great opportunities ahead.

A: Our platform works in iOS, Android and any web browser. Employees can download the app and they are

We see people as a very important element in the

given an account to participate within the company’s

manufacturing process. It is important for us that during

process. They are always identified and the app can track

the digitalization processes, employees are considered as

their ideas and actions. This also serves to acknowledge

active participants in this transformation. I like to believe

employees' hard work.

that what we are doing is unique. Idea management systems and lean systems exist, but we have not found

Q: What role does the automotive industry play within

a system that is employee-centered and focused on

Rever’s operations?

elevating the talent of employees.

A: Around 15-20 percent of our clients belong to the automotive industry. Faurecia, Mitsubishi and Audi are

We see the automotive sector as an important niche

our main clients. Our goal is to work with big companies,

where we can help, given all the trends that are changing

mostly those that are global, given the potential to

the industry. We believe the automotive industry is going

digitalize all their knowledge so it can be transferred peer

to change the world in the coming years. Many of the

to peer, as well as globally regardless of language and

things that are already happening in the industry will

culture. Our focus is on companies that believe in their

transform supply chains and our purpose is to help

employees and that want to invest in their continuous

people within the industry to be part of that change.

development.

Furthermore, we believe the solution to all the challenges in the automotive industry is within the company, in

Q: As a startup, what challenges have you faced to grow

its people.

in the Mexican market? A: The real challenge, not only in Mexico but in the rest of the world, is to plant the idea that for the coming

Rever is a startup that provides an idea management platform

years, every industry will require new skills. Rotating

for employees to create, experiment with and implement new

talent will not help to develop these but developing

ideas, while equipping leaders with a software-as-a-service

the existing human capital will. It is all about investing

platform to plan, track and report the proposed solutions

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| VIEW FROM THE TOP

THE FUTURE IS CONNECTED RICARDO ANAYA General Manager Mexico of Qualcomm

Q : W h a t i s Q u a l co m m d eve l o p i n g u n d e r t h e

not designed for massive use. Thus, 5G’s first goal is to

“Invention Age” concept and how does it benefit the

provide an enhanced mobile broadband. 4G handled 1GB

automotive industry?

of data, while 5G is designed for 20GB of data. 5G can be

A: We are a pure technological company with more

used in a 4G network but data travels faster.

than 40,000 employees globally. Under Invention Age,

290

we develop the technology the world requires to be

The automotive industry is waiting for 5G networks and

connected and to change industries that naturally remain

their greater broadbands and faster connections (lower

disconnected. We have connected people for over

latencies) to process what autonomous cars are seeing.

30 years.

The truly autonomous car will focus not only on the car’s immediate surroundings, but on the interconnectedness

We also have infrastructure that goes beyond phones and

of all the devices in the environment.

our second focus beyond these devices is the automotive industry. There are more than 100 million cars in the

In addition, vehicles will need a really low latency to make

world with a Qualcomm component in them. If you are

crucial decisions, such as emergency breaking. Thus,

connected via Bluetooth in a car, there is a two-in-three

5G’s second pillar is mission critical systems. In these,

chance that you are using a Qualcomm chip. Our concept

latency is around 1ms. The best network today has a 10ms

is to be disruptive and the next big wave of inventions

latency, which was 4G’s objective. Latency refers to the

will include the Internet of Things, the next generation

time data takes to get from one point to another. For

of connected auto and 5G.

instance, our body reacts to impulses in 100ms while our eyes can move as fast as 10ms. Mission critical systems

5G's goal is to provide enhanced mobility broadband, which will support data collection from autonomous vehicles

also require a really strong network where less than 1 out of 100 million information packages are lost. 5G’s third pillar is massive connection. The premise of 5G is the ability to connect 1 million devices per square kilometer to increase signal drastically. In perspective, the Super Bowl is a massive event where everyone wants to be connected. To cover the 100,000-people event, the organizers required 1,000 Wi-Fi hotspots, which equals 100 4G stations or just 10 5G stations. For vehicles, it

Q: How will 5G enable connected vehicles and their

is necessary to have multiple devices connected at the

communication with city infrastructure?

same time in a similar area, which is where the C-V2X

A: 2G was the digitalization of voice, 3G integrated internet

protocol enters the scene.

connection to voice and SMS. When 3G appeared, the Third Generation Partnership Project (3GPP) emerged. This

Q: How will the C-V2X protocol enable safer vehicles

organism defines how devices are connected, from power,

and driving paradigms?

band, energy and the way this connection is established.

A: The C-V2X protocol handles the multiple connections

Then 4G emerged exclusively for data connection, although

that vehicles will have with other devices, such as

the newest devices handle both voice and data.

traffic lights, other vehicles and cellphones. This 3GPP protocol was presented as an LTE platform with the

In Mexico, 4G technology is advancing at its own pace.

ability to connect two devices without the need of an

Even though 4G can provide very good connectivity, it is

external network.

Cellphone operators dismissed the use of this technology

provides connectivity and a state-of-the-art processor. We

but it set the precedent for C-V2X. This technology has a

need the processor for all the images the car is sending

network in which it can operate but when necessary, the

and all the information it is receiving from the multiple

vehicle can create its own network as an LTE. Infrastructure

sensors it has.

is expensive, which is why C-V2X will evolve to render infrastructure everywhere unnecessary. For example, a traffic

Q: What role does Qualcomm play in the development and

light, a crosswalk, trolley or even bike helmets with sensors

application of ADAS technology for autonomous vehicles?

can be an access point for that unified environment.

A: ADAS systems are already the result of the vehicle taking action on all the information it receives from

Volvo is really advanced in the application of C-V2X

sensors. Vehicles have a modem from us, a System on a

technologies and is performing several tests on their

Chip (SOC) that contains a central processor, an image

functionality. For example, take a scenario where a car is

signal processor (ISP) and a digital signal processor (DSP).

reversing and a bike and a truck are nearby. The bikerâ&#x20AC;&#x2122;s

The combination of all these toolkits enables artificial

helmet, the truck and the vehicle are connected, so while

intelligence. By taking all the information, the vehicle starts

the biker does not have a user interface, he can sense the

making decisions.

vibration from the helmet to avoid the car moving in reverse while the truck can emergency brake if needed.

The different levels of automation in a vehicle go from 0 to 5. Level 1 includes cruise control. Level 2 is partial

The variety of applications for this technology is wide: it can

autonomy including braking systems, which start to take

be used for managing fleets, controlling traffic in large cities

action based on a sensor. Level 3 is conditional. Level 4

and providing faster routes.

is high automation and Level 5 is full automation. Levels 1 to 4 require human assistance. Level 5 needs zero human

Q: What is the Qualcomm Snap Dragon Drive Platform

intervention. Most of the new models in the market are

and how does it relate to the C-V2X protocol and 5G

located between Levels 3 and 4 of automation. Tesla, for

implementation?

example, has an autonomous vehicle based solely on what

A: There is at least one modem in most of our devices.

the vehicle sees.

Vehicles already have a 4G modem, but they will also have an additional modem for 5G and eventually will migrate to

Q: What will the vehicle of the future look like and what

C-V2X. We work closely on improving connectivity through

role does Qualcomm want to play in its development and

better technology implementation.

deployment? A: The vehicle of the future will be connected. It will

This innovation has already been developed in the logistics

have more sensors, be automated, shared and electric.

industry, where we have implemented a system that helps these

Shared mobility will be a game changer since vehicles

companies to speed vehicle repairs. Instead of operators going

remain parked 90 percent of the time. Qualcomm provides

to the dealership to check the vehicle whenever the â&#x20AC;&#x153;check

the fundamental technology for OEMs to adapt to these

engineâ&#x20AC;? light turns on, we installed a device that can recognize

trends. We are really advanced in image processing and

where the malfunction is by running a complete scan. It then

many more processes that companies can use. Audi is

sends the results to the dealership when completed.

one of our main customers and it has developed greatly in connectivity applications.

The vehicle shows the user where the closest dealership is. The dealership, in turn, receives a notification that

We are taking the next step toward infotainment, where

specifies the component the vehicle needs. As a result,

drivers have maps, music and most of their applications

the driver avoids wasting time in going through the entire

embedded in the car. SEAT and Audi already have

scheduling process.

augmented reality applications, for example. Through an app, you can open the vault of the vehicle and locate they

The Snap Dragon Drive platform provides the technology

key points of the engine. We provide the technology that

to offer that connectivity at the global level, which is not

enables those applications even though we do not develop

easy. Networks used in Europe, the US and Mexico are not

them ourselves.

the same. We have the ability to offer these solutions since we work for everyone. Qualcomm is a US technology company focused on mobile

The challenge for these services was infrastructure. What we

technology for data processing. The company was founded

did was to deliver an end-to-end solution. The platform is like

in the 1980s and over the years has generated technological

a communication control unit integrated in the vehicle that

breakthroughs on mobile connectivity

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| ANALYSIS

MOBILITY AFTER COVID-19 COVID-19 has impacted how people move within and between cities. Large crowds using public transportation is even less appealing to consumers and could spur greater demand for cars. Meanwhile, Mobility as a Service (MaaS) will continue to gain strength as users became more interested in integrated solutions Automotive manufacturing operations were heavily

secure infrastructure with universal access for walking and

disrupted by the pandemic but mobility schemes will also

biking,” according to SEMOVI’s Strategic Plan for Mobility

see major transformations as part of a new normal. “We are

2019. Mexico City currently has 194km of bicycle lanes and

used to thinking about the sector as auto parts and vehicle

over 2020, another 40km will be built. It remains to be seen

manufacturing when in fact, at a global level, there has

if the capital city will transform its car lanes into sidewalks

been a shift in the sector toward mobility, the environment

or bicycle lanes to alleviate the 45 days per year a car driver

and innovation. This is what is driving the industry today

spends in congested traffic, according to el Universal.

and what we aim to strengthen as a cluster,” says Renato Villaseñor, President of the Queretaro Automotive Cluster.

MOBILITY AS A SERVICE

The state in central Mexico hosts public and private R&D

According to the United Nations Department of Economic

facilities from several Tier 1 companies.

and Social Affairs, in 2018, there were 33 megacities in the world with more than 10 million inhabitants. As more

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As lockdown measures were enforced across the world,

developing countries like Mexico go through an urbanization

tech giants Apple and Google supported governments

process, mobility policies will gain importance as they are

by releasing data regarding mobility trends from their

closely related to quality of life in the city.

respective maps applications. Apple’s Mobility Trends Report displays the mobility trends reflected by the

Mobility as a Service (MaaS) is a concept that encompasses

requests made by users. Google’s Community Mobility

all transportation options, public and private, under a single

Report disaggregates mobility based on destinations:

scheme that helps people to move more easily from one

retail and recreation; grocery and pharmacy; parks; transit

point to another. According to Deloitte: “MaaS relies on a

stations; workplaces; and residential. In both cases, the data

digital platform that integrates end-to-end trip planning,

was not associated with any demographic or personal user

booking, electronic ticketing and payment services across

data, nor with any request history.

all modes of transportation, public or private.”

These metrics registered changes in regular mobility in early

MaaS is closely intertwined with shared mobility in all its

2020. Through this parameter, Mexico kept track of how

variants: bikes, cars or ride-hailing apps. Just in 2019, the

successful its lockdown measures were. In mid-March, when

car-sharing market accounted for US$2.5 billion globally,

measures began, driving, public transportation and walking

according to Global Market Insights. MaaS players have

dropped to around 35 percent of regular levels. Throughout

developed local expertise in transportation options and

the pandemic, public transportation levels remained below

most are startup companies integrating a variety of

35 percent while driving fell to its lowest level in mid-April

services into a single offering for the final user. SkedGo

at 30 percent of the normal rate and slowly increased to

and Moovel are two relevant players in this segment.

above 60 percent by the end of May. These figures mirror

SkedGo is an Australian company founded in 2009 with

the trend seen in ride-hailing apps. According to Juan

offices in Australia, Argentina, Germany, Finland and the UK.

Andrés Panamá, Director of Ridesharing Operations at

The company serves as a “MaaS technology provider and

DiDi México, demand for rides dropped between 40 and

allows public transit authorities, corporations and startups

50 percent in March.

to create their own tailored MaaS applications,” says the company’s official brochure. The company integrates 4,000

In 97 percent of the municipalities, mobility was reduced

transport service providers globally.

due to the National Social-Distancing Program. In the Mexico City metropolitan area, home to more than 20

Moovel is also an exceptional case since it will be

million people, public transportation closed 20 percent of

transformed into Reach Now, part of the mobility joint

stations during several weeks between April and May.

venture between Daimler AG and BMW Group. The Germany-based company is a MaaS service company with

As the city’s mobility gradually returns to normal,

more than 6.7 million users across 20 cities worldwide. “Our

Mexico City’s Ministry of Mobility (SEMOVI) has already

vision is a world without traffic jams,” said CEO of Reach

implemented a short-term strategy to create “safe and

Now John David Von Oertzen.

SECTOR AT A GLANCE |

“

RIDE-HAILING STRATEGIES TO COPE WITH COVID-19

We saw an opportunity to support the community by helping nurses, doctors and medical staff” Juan Andrés Panamá, Director of Ridesharing Operations at DiDi México

path with its Uber Flash service. “We launched Uber Flash in 48 cities, which allows users to send any package to someone who has stayed home. In addition, in 20 cities, drivers can participate in Uber Eats, too,” says González. Part of this strategy also includes transferring Uber’s bike and scooter business to Lime to invest more capital in the startup. As part of the company’s global strategy to be more financially efficient, Uber’s bike service, Jump, stopped providing its service in early May. “Uber is merging its Jump business with

Lockdown measures implemented in late March created

Lime. This means that the Jump operation in Mexico City, as

an unprecedented scenario for ride-hailing companies,

well as in the cities of Sao Paulo, Santos and Santiago, will be

characterized by a sharp decrease in demand. Uber, DiDi and

discontinued,” the company said in a statement.

Cabify, the three market leaders, were forced to adapt to a new environment in which most people were stuck at home.

To support the health sector during the pandemic. Uber and

According to Juan Andrés Panamá, Director of Ridesharing

DiDi have provided free rides to nurses and medical staff while

Operations at DiDi México, demand for rides dropped between

following the recommendations proposed by WHO to protect

40 and 50 percent in March. El Heraldo de México reported

both users and drivers.

that Uber and Cabify drivers saw their income decrease to between 30 and 50 percent of what they usually receive.

DIDI’S EFFORTS

Drivers from different ride-hailing apps protested in Mexico

Recently, DiDi México launched the DiDi Hero initiative,

City in April, demanding government support to cope with

through which the company invested MX$42 million (US$1.77

the downturn in demand.

million) to support health staff in battling COVID-19. “We saw an opportunity to support the community by helping

Amid contingency measures, companies had already

nurses, doctors and medical staff.” According to Panamá,

implemented their own support programs for drivers and

all registered medical professionals will have access to two

users. Gretta González, Ridesharing Director of Uber México,

benefits: two daily rides up to MX$75 (US$3.15), as well as

told Publimetro that the company had created a partnership

three meals up to MX$95 (US$3.99) per week through DiDi

with PepsiCo, one of Mexico’s largest food and beverages

Food. “This is just a small contribution to the great labor

companies, to provide 1,100 temporary positions at PepsiCo

they are providing in being the first line of defense,” he

to Uber drivers. Cabify México’s Director General, Agustín

adds. As for partner drivers, they can participate in DiDi

Jiménez, told Mexico Automotive Review that the company

Hero voluntarily and they will receive payment for those

is working with Lana, a company that is part of the same

trips in full. Considering the drop in demand, through DiDi

group to which Cabify belongs, “to grant microloans of

Hero, the company expects to inject half a million rides into

up to MX$18,000 (US$740) to drivers, according to their

the market to support drivers. Those trips will not generate

characteristics and profile.” DiDi México is also supporting

any charge from DiDi, which means drivers will receive the

partner drivers under different schemes. “We are supporting

payment in full. DiDi has also put together a US$10 million

our partner drivers in different ways. We have a primary focus

fund to support drivers who get infected or are quarantined

on full-time drivers, those who need DiDi the most, to provide

because of COVID-19.

them with incentives to increase their income per hour. For our drivers who are 65 years old or older, we offered a fixed income of 75 percent of their profit over the past 28 days so they can stay at home. The other 25 percent is what they usually destine to gasoline and maintenance,” says Panamá.

As lockdown measures were implemented to contain the

Companies are also adapting their business models to assure

50 percent hit in demand. That, however, did not prevent

a sustained cash flow for as long as lockdowns last in the country. “Cabify launched a new in-app service called Envíos that allows people to send things from one place to another without leaving their home,” says Jimenez. Uber took a similar

COVID-19 pandemic, ride-hailing applications took a 30them from supporting the community of both users and drivers as they coped with the effects of the crisis

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| VIEW FROM THE TOP

BUSTING MYTHS REGARDING EV INFRASTRUCTURE

RODRIGO CENTINEO Founding Partner and Engineering Director of E•DRIVE

DANIEL LÓPEZ Founding Partner and Marketing Director of E•DRIVE

PEDRO CORRAL Founding Partner and Operations Director of E•DRIVE

Q: How did E•DRIVE come to be in a market with low

the customer’s home and to create public EV charging

EV demand?

infrastructure.

RC: We are the result of a merger between two companies,

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one with great operations capacity and the other with a

We can say we are the only company in Mexico with the

great value in its services. Although demand was really

capacity to offer all services to cover the needs of EV

low, there was a need in the market for the services we

charging throughout the country. In addition, we are

started to offer. After 2016, the environmental contingency

certified by TÜV Rehinland, which provides certainty

boosted demand for EVs and Plug-in EVs (PHEVs).

regarding the quality of our products and services.

DL: In that moment, people started to see EVs and PHEVs

We have created an entire university environment for

as a feasible option for the Mexico City metropolitan area.

electric mobility. Our company’s staff has installed most

In those days almost 90 percent of EVs were concentrated

of the electric chargers in the country and manages one

in this area. Today, the figure for Mexico City has dropped

of the few, if not the only one, software platforms for

to 80 percent as other states attract EVs. However, due

charging-point management. You cannot find an electric

to environmental regulations, the market is still mostly

mobility engineer at any university; it is a really new

concentrated in the center of the country. Another element

market. We now offer training and consulting on charging

that helped us to ramp up our operations was the arrival

infrastructure integration.

of BMW’s iPerformance program and ChargeNow Program (BMW and Nissan’s joint venture), which supports all its

Q: Who has been a key partner in the evolution of

EVs and PHEVs.

E•DRIVE and electric mobility? DL: Nissan was a valuable partner in terms of breaking

Q: What is E•DRIVE’s participation in Mexico’s electric

through in the EV segment. Later, BMW helped us to boost

mobility environment?

not only our operations but electric mobility in the country.

DL: E•DRIVE is the largest operator of electric mobility

E•DRIVE truly believes in the need for reaching electric

services in Mexico. We install around 250 chargers per

mobility as soon as possible. Leading by example, these

month, both private and public. In 2016, we were installing

companies have trained their salesforce properly at each

between 10 and 30 chargers. The segment has grown both

dealership, because EVs and PHEVs cannot be sold in the

in number of brands and models and all of them have

same way as other models.

found in us the right solution for charging infrastructure. Porsche has also had a relevant role in boosting PHEVs in We help the industry to solve two main problems. First,

its segment. Respectively, most OEMs have a program to

we solve the issue of large charging station manufacturers

advance electric mobility in one way or another. Without a

like Schneider Electric or ABB. They started introducing

doubt, Tesla was the second greatest boost for our market

their products into the country without a team to install

as it introduced the most ambitious charging infrastructure

and operate the equipment, particularly for residential

program. The company installed between 1,500 and 1,600

charging points. They usually do this through third

chargers in less than two years.

parties but there were none in the country until E•DRIVE. The second problem we solve involves OEMs. E•DRIVE

RC: Any OEM with An EV or PHEV offering is a strategic

helps OEMs to solve the EV charging infrastructure at

partner for us. We cover the entire value chain of EV

charging, from charging points for cargo transportation

an EV is different from changing a high-efficient model to

to distribution patios where batteries need to be charged

an EV in terms of savings.

before they get to the vehicles. We are also involved in EV charging infrastructure at dealerships, as well as their

Q: What are your views regarding infrastructure

aftersales service. We manage an important maintenance

availability and EV adoption?

program that includes particular elements, including our

PC: It is often said that there are not enough chargers.

software monitoring. We are also planning to provide a

There are a lot of public chargers in Mexico. However,

second life for vehicle batteries.

users spend most of their time at home or at the office, both places where they can have an EV charger. Another

Q: What are the minimum requirements a facility or a

question is the ability to go to beach destinations. To

home should have to install a charging point?

address this, EV charging corridors are growing all over

RC: The very first thing you need is an EV charging expert.

the country.

Installing a charger just for the sake of it may be a big mistake; you could not get what you need or expect.

RC: The lack of infrastructure is a myth. It is true that

A house, a small store, a mall or a gas station all have

it needs to grow, but Mexico has 2,500 public charging

different characteristics and capabilities for EV charging

points and almost 100 percent of them are free. For

infrastructure. It is important that clients have an expert

instance, in the Santa Fe area of Mexico City, there are

guide to help choose the charger that really addresses

more EV charging stations than gas stations. Consumers

their needs.

have no idea of that. In E•DRIVE’s history, we have installed more than 7,000 chargers, both public and private. Now

The second step is to understand the electric capacity

we are installing between 200-250 chargers per month,

available at the facility. With that information, we analyze

nationwide.

which charger is best, including additional technology to regulate the demands on the charger while helping the

Q: What are the different types of chargers?

customer to increase its electric capacity.

RC: There are Level 1 chargers, that are often called emergency chargers. These have a 1.2kW capacity and

DL: There is also an emerging phenomenon among some

can be plugged into any regular outlet. However, they rely

of our clients. At some malls, costs related to electric

on the electric installation of the facility. Level 2 chargers

mobility are starting to rise. They have passed the initial

go from 3.2kW to 18kW, but the standard is around 7.5kW.

stage and now need to start implementing a fee for this

Some OEMs like BMW, Porsche, Jaguar Land Rover

service because they are charging vehicles 24 hours a day.

and JAC include the charger and the installation at the

However, even if the user pays for the service, it will still

costumer’s home.

be between 50 to 80 percent cheaper than filling a gas tank. Furthermore, adding sustainable energy sources will

EV chargers have different types of plugs in AC (alternating

minimize costs.

current) or DC (direct current or fast charging). The type depends on the model of the vehicle.

Q: How would an EV impact a regular consumer’s usual energy consumption?

PC: To put it into perspective, a 7.5 kW Level 2 charger

RC: It depends mostly on the EV model. EVs and plug-in

has a power equivalent to around 4 to 5 microwaves. To

hybrids have different batteries, so it is really complicated

charge a car you need to plug in the vehicle for at least

to do a single calculation. A worry for some consumers

three hours. Thus, the electrical installation must have the

is that they will have a higher electricity bill. It is true

adequate infrastructure to support 4 microwaves for three

that they will pay more for electricity but they will save

hours. A Level 3 charger is a super or fast charger. Level

at least two-thirds of what they spent on gasoline, on

1 and Level 2 chargers work with alternating current (AC)

average. Plus, they will have additional benefits, such as

that is transformed to direct current by the vehicle. Level

car ownership tax exemptions, permission to drive without

3 chargers provide direct current from 25kW to 360kW.

restrictions in Mexico City, as well as a guaranteed battery

These are called high-power systems. Customers must be

life of eight to 10 years.

very-well informed and clear-minded about their needs.

PC: We do have an average energy consumption rate for most EVs and plug-in hybrid models of between 400kW/h

E•DRIVE is a Mexican company focused on the entire value

and 500kW/h every two months. That is if the vehicle is

chain of electric vehicle charging. The company has worked

mostly in an urban area. It will be really different for each

with OEMs like BMW, Porsche and Jaguar-Land Rover and it has

individual case. Shifting from an eight-cylinder engine to

installed more than 7,000 chargers for EVs and PHEVs in Mexico

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| SECTOR AT A GLANCE

BUILDING THE CAR OF THE FUTURE

“

We expect autonomous vehicles will be first adopted by delivery or ride-sharing companies to build their fleets” Arturo Vargas, Solutions Marketing Manager of Transportation at NI

(V2X) communication. “Our testing solutions can help clients meet new demands for technology and innovation,” says Rohde & Schwarz’s Sales Manager Nelly Benitez. Among its solutions, the company offers measurement systems that calculate how fast self-driving vehicles detect objects through radar and how stable their signal is. Radar plays a crucial role in Advanced Driver-Assistance Systems (ADAS), particularly in ensuring safe maneuverability when vehicles lose connection with satellites. “Radar sensors are safety-oriented devices that help guide self-driving cars, so

In the automotive industry, the desire to be the first to

we need to understand their frequency’s stability, as well as

deliver an autonomous car has not diminished. Companies

the speed at which sensors detect objects or people on the

are focusing on using their developed technology in level 2

road ahead,” says Benitez.

or 3 autonomy systems that improve safety today, aiming

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to build on top of these to deliver the autonomous car of

To accelerate the arrival of these technologies to the market,

the future. “We expect autonomous vehicles will be first

National Instruments is diversifying its investments into

adopted by delivery or ride-sharing companies to build their

technologies such as V2X systems. “We are also creating

fleets rather than for personal use. This will change the usual

partnerships to help our clients with prototypes or systems,

thought process for maintenance and tracking systems for

validation and eventually production.” says Vargas. “At NI,

these vehicles,” says Arturo Vargas, Solutions Marketing

we are working on software designed to manage large-scale

Manager of Transportation at National Instruments.

systems. We are focusing on 4GHz radar to run tests like no one else can, considering different parameters and obstacles

According to President of REDiA Óscar Poblete, ordinary cars,

in our simulations to save development time.”

on the other hand, are going to look increasingly similar and brands are going to merge. “This will cause more layoffs and

In the automotive industry, the rate of demand for testing

fewer opportunities for people. Car designs will be better but

equipment is growing even faster than that at which OEMs

more standardized. The reason is that OEMs will no longer

or suppliers can build up new production lines. This has

build as much of the car because everything will be made by

created the need to do parallel tests on Electronic Control

suppliers. These companies will have to find more profitable

Units (ECU). “Only two companies in the market can perform

materials and processes to remain competitive.”

these types of tests and NI is the only one that can do them synchronously,” explains Vargas.

RUNNING MODELS, SAVING COSTS Amid this new technological wave, companies are moving to

PENDING ISSUES

adapt. An example of this is Rohde & Schwarz, a company

The car of the future is inching closer to reality but there are

with eight decades of experience in testing and measurement

still several challenges to overcome before electric, self-driving

solutions for telecommunications applications that is riding

vehicles become the new normal. “Solid communication

this new wave by helping automotive companies develop new

between vehicle components and between cars and other

products for self-driving vehicles and vehicle-to-infrastructure

objects and people is necessary to ensure these cars are both comfortable and safe,” says Benitez. Although it will take a while for self-driving vehicles to reach

CASE vehicles have become the talk of the town. As consumer and environmental needs change, companies are forced to innovate, changing years of tradition and business models with decades of development behind them to venure into new technology trends

the roads, all the detonators for these technologies are already present in Mexico, according to Benitez, especially as more automotive suppliers like Continental, Bosch and HARMAN bring their engineering operations to the country. At the same time, Benitez says Mexico has become a market where telecom technologies are implemented swiftly. “The country remains at the forefront of telecom technology implementation and is getting ready for the new 5G network along with China and the US,” she says.

VIEW FROM THE TOP |

BEATING TRAFFIC WITH DATA ANASOFÍA SÁNCHEZ Director General of Waze Mexico

Q: How is Waze adding value to mobility in Mexican cities?

to effectively reduce mobility problems in cities is by making

A: Waze is a mobility platform based on four pillars. The first

more efficient use of vehicles through carpooling.

is our digital app, which focuses on users’ navigation needs and how they can reach their destination safely by using the

Q: How important is Mexico for Waze’s global operations?

best possible route. The second pillar is Waze for Cities, which

A: There are 2 million Waze users just in Mexico City, which

focuses on working with local governments and mobility

says something about how important the Mexican market

associations to exchange information. This helps Waze

is for the company. Mexico is in the Top 5 countries for

improve its user experience and enables governments to make

the largest number of Waze users, who are also highly

better mobility and infrastructure decisions. The third pillar is

active in the platform. The country is also key for the Waze

the Waze Broadcasters service, which shares real-time traffic

for Cities and the Waze Carpool programs. The former’s

information. The fourth pillar is Waze Carpool, which helps to

main goal is identifying mobility opportunities and helping

take cars off the road by enabling users to share commutes.

governments make informed decisions. We are already in talks with the governments of Mexico City, Guadalajara,

Q: What are the main opportunities for Waze to boost its

Queretaro and Monterrey to collaborate in our Waze for

profitability?

Cities initiative.

A: Our platform is funded in its entirety through the ads in our core app. Waze’s advertising strategy focuses on directing

Q: What projects are local governments in Mexico developing

potential clients to retail points using the app. We can

with Waze for Cities?

effectively turn an advertiser’s store into a destination through

A: We worked with the Mexico City government to alleviate

the app. Despite the growth that e-commerce has experienced

pressure on the busiest intersections in the city. This project

in Mexico, 98 percent of all purchases is still done in physical

considered not only drivers and pedestrians but all elements

stores rather than online. This offers a great opportunity for

that can be found at an intersection. The use of our data

Waze to add value for its advertisers because we can learn

helped the local government adapt infrastructure to improve

about our users’ consumption patterns and target them with

conditions for pedestrians at some intersections without

related advertising campaigns. In many cases, our ads have

increasing wait times for cars and to reduce wait times at

resulted in people changing their commutes to reach our

others. We have several other projects with the Mexico City

clients’ retail points.

government that are in the data analysis phase.

Waze is also exploring the concept of location awareness.

Q: What does Waze for Cities look for when searching for a

For consumers, not knowing where a retail point is means

local government to partner with?

not considering that location in their purchasing decision.

A: Waze started with the cities that have the largest

However, realizing that such a location is nearby entices

concentration of vehicles. More vehicles generally mean

consumers to make a stop during their commute.

more headaches for users and the city government and users. Waze has also received requests from other city

Q: How will Waze Carpool help reduce congestion in Mexico’s

governments interested in finding out ways to improve

traffic-ridden cities?

their mobility situation.

A: Traffic in cities only peaks at certain hours and many people routinely commute to and from the same areas at these hours. Waze Carpool will ease the process of sharing rides to improve

Waze is a navigation platform owned by Google that was

mobility in cities. In Mexico, the average occupancy rate per

originally developed by Waze Mobile in Israel. It offers turn-

vehicle is 1.2 people. If this figure rose to just two people,

by-turn navigation information using GPS technology and

traffic could be reduced by up to 40 percent. The only way

user reports

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| PROJECT SPOTLIGHT

298

INTRODUCING AHEAD™ BY DUPONT Accelerating Hybrid-Electric Autonomous Driving (AHEAD™) is DuPont’s new initiative that combines existing and new innovative solutions to advance vehicle electrification, autonomy and connectivity. According to the Global EV Outlook 2019, there were more than 5 million electric passenger cars in the world in 2018, which represented an increase of 63 percent compared to the previous year. It is estimated that there will be between 125 million and 220 million electric vehicles by 2030. This motivated DuPont to launch AHEAD™, a new venture that will use the company’s experience in material science and electronics to offer competitive advantages for vehicle electrification and the autonomous vehicle market. “Creating a dedicated team to offer electrification, autonomy and connectivity for vehicles makes sense for DuPont. It strengthens our more-than-100-year history in the transportation industry, our experience and our broad differentiated product offering,” says Randy Stone, Global President of DuPont Transportation & Industrial. “AHEAD™ is based on recent successful experiences. By combining our position as material leaders with our incomparable capacities on electronics, we can extend our leadership to the vehicle electrification market, as well as the needed supporting infrastructure.” By using adhesives, high-performance elastomers, engineering thermoplastics, special fluids and lubricants, electronic materials, high-performance fibers and safety materials, AHEAD™ will bring innovative solutions for lightweighting, battery and assembly components, thermal management, electric engines and electric applications, among many others. DuPont will present AHEAD™ technologies across major events in the industry. Moreover, there is a space designated in the recently opened DuPont Silicon Valley Technology & Innovation Center that is focused on AHEAD™ and offers customers the perfect experience to explore technologies and capabilities related to vehicle electrification and applications for support infrastructure. At this center, some products are exhibited as solutions to reduce weight, components and battery assembly, thermal management and safety, electric engines, powertrain, chassis, as well as electric and electronic applications for better autonomy, driver’s assistance and self-driving capabilities.

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| VIEW FROM THE TOP

TECHNOLOGY KEY TO STAYING AHEAD OF THE CURVE FEDERICO RANERO Former General Manager of Uber Mexico

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Q: How can Uber maintain its competitive edge in a

Q: How are you taking advantage of data processing

market with high acceptance for ride-hailing platforms

and machine-learning technologies to boost your

but also an increasing number of competitors?

service offering?

A: We are all about competition so it is hardly anything

A: We have a new machine-learning model that uses

new for us, considering there are over 40 companies

data from the over 10 billion trips we have completed

registered as ride-hailing platforms across the country.

throughout the world to identify 40 scenarios that

Competition is what forces us to offer the best value to

could lead to a risky ride-hailing situation. This refers

our clients, as well as our partner drivers. We already have

to a scenario in which our users could be endangered

over 250,000 partners in Mexico and 8 million users in 44

but also one in which our terms and conditions are not

cities across 21 states, which means we must constantly

being followed. We are now blocking more trips than

engage in new practices that can improve our position

ever before but we do this to keep security as a priority

in the market.

in our service.

Security is one of our utmost priorities in our quest for

We have also invested in a new verification algorithm for

competitiveness. We know the country is going through

new users that only choose the cash-payment method.

one of its toughest times when it comes to security

This has been a concern for many of our partner drivers

issues, so we have formed alliances with third parties,

but scanning the Facebook profiles of new users has

such as security experts and police forces, to strengthen

allowed us to weed out fake applications. Regarding

our services. We are just about to launch a panic button

trips, we have developed several telematic applications

on our platform that will share the userâ&#x20AC;&#x2122;s location directly

to gather information from our drivers, which gives us

with the authorities, which will complement other

intel on user satisfaction but also the driving habits

telematics processes we follow to protect drivers and

of our partners. We keep close tabs on our partnersâ&#x20AC;&#x2122;

users before, during and after a trip.

performance so we can offer punctual advice or in more extreme cases, deactivate their account. Only in 2018,

One of our corporate values is that we are customer-

we deactivated 20,000 partner accounts either due to

obsessed, which means we focus on maximizing the user

security concerns or because of driving practices that

experience through our vision of providing accessible

failed to live up to the standards we demand to maintain

mobility in a simple and stress-free way, while also solving

a quality service.

employment needs in the markets in which we participate. This close contact with our users and the attention we

Most of these applications are not visible to the end

pay to their feedback, together with the quality in our

user, so our partners have urged us to make them more

service and our years of experience on the road, have won

evident, among them the filters that potential partners

us the trust of our client base. We also develop specific

go through before being admitted by Uber as drivers.

applications to, for example, identify demand patterns

Before making somebody a partner driver, we first run

based on area or time of day, add a feature to tip drivers

their names through over 500 public registry databases

for exemplary service or build loyalty programs.

to find any past red flags. After that, candidates undergo a face-to-face psychometric exam, which has been refined after years of experience, based on the qualities

Uber Technologies is an American company based in San

we seek in our partners. During the exam we also use

Francisco that provides transportation and mobility services

Microsoft Cognitive Services technology to ensure the

in over 80 countries. In Mexico, the company has operations

person being tested matches the personal documents

in 44 cities

previously presented.

VIEW FROM THE TOP |

INTERNATIONAL MOBILITY EXPERIENCE AVAILABLE IN MEXICO JUAN ANDRÉS PANAMÁ Director General of DiDi Mexico

Q: What have been the keys to your success in Mexico since

In Coahuila, we are the only application that has permission

starting operations in November 2018?

to operate. To achieve this, we had to understand the state’s

A: We have a great understanding of the industry as the largest

regulation, talk to the government to understand its needs

player in the world. Globally, DiDi completes 10 billion trips

and concerns, as well as its operating rules. One of their

per year, which is twice the combined number of flights that

biggest concerns is that all companies follow the appropriate

all airlines make in the same period. This positions us as the

procedures, get the necessary licenses and enroll their drivers

largest mobility company in the world. Given this experience,

in the government’s system. Once we understood this, we

we understand different markets and the different needs of

collaborated in benefit of the city and its inhabitants.

users and drivers. Because of this expertise, we launched a strategy focused on understanding what passengers and

Q: What elements make the platform more attractive than

drivers in the Mexican ride-hailing market were looking for.

others for potential drivers and users?

While drivers were looking for higher profits and security,

A: There are two very important advantages: the first is greater

passengers have focused on more affordable prices and

profits. We have the lowest take rate in all the cities where

also greater security. This has become our focus for the past

we operate, which ranges from 10 to 17.5 percent, while our

two years.

competitors are above 25 percent. The second advantage is driver security, which is just as important as that of our users.

Q: What have been DiDi’s milestones after almost two years in the Mexican Market?

Drivers are the most exposed to insecurity as they make many

A: The first achievement for us is the market penetration we

trips every day. We are the only company in the market that

have reached in just two years. We are present in 34 cities in

verifies users who pay in cash beyond using social networks.

Mexico and we have been able to use different locations in the

We ask for official documentation if a user is going to pay

country as testing grounds for many of our developments. A

with cash on their first trip. Also, for certain trips, we use facial

clear example is DiDi Food, initially launched in Guadalajara,

validation software to better identify them. Beyond that, our

which is now present in three cities. We also launched DiDi

drivers’ vehicles are equipped with a security toolkit that can

Comparte, our carpool service, in Merida, allowing passengers

contact specialized centers, either DiDi or 911. In several states,

to share trips with other users.

we are already connected to the C4 or C5 of the cities.

Q: How has DiDi worked with local authorities to sort out any

As for passengers, we offer more affordable rates than our

regulatory obstacles that may hinder the company’s arrival

competitors. This has helped us reach different areas of

in new destinations?

the cities in Mexico as more accessible rates open up a

A: One of the things that sets us apart as a brand is the

completely new market that did not exist before. Moreover,

collaboration we have with authorities, which comes in our

we have the most robust driver registration process in the

DNA as a Chinese company. We always divide our business

industry. In addition to requesting all the documentation

in two ways: one is with passengers and drivers, and the

required by each regulation, we do background checks in

other is with cities, as our mission is to improve their mobility

national, state and international databases. The latter is

environment. We know that without good collaboration with

especially important for border states.

governments, we would never be able to improve mobility. A clear example is the launch of DiDi Taxi in Oaxaca, a state that no mobility application had been able to reach. We

DiDi is a Chinese mobile transportation platform with more than

approached the government and created the appropriate

450 million active users worldwide. The company provides app-

business model to launch this platform, which helps taxis

based transportation services, including taxi hailing, private car

within the state to be safer and more efficient.

hailing, social ride-sharing, bike sharing and on-demand deliveries

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| ROUNDTABLE

HOW CAN DIGITALIZATION IMPROVE FLEET MANAGEMENT OPERATIONS?

Digitalization is paving the way to a new way of managing logistics and transportation operations. From preventing security issues, to managing public transportation, telematic, telemetry and fleet management companies discuss the challenges and opportunities that the industry is facing. Notably, tackling insecurity and improving efficiency remain key priorities for the sector.

E-commerce is here to stay. What companies need to understand is how to transfer the efficiency of e-commerce to all elements within the value chain. It is a fact that transportation companies that are more efficient are more successful. A company can invest in technology but if the operator does not follow instructions, the investment will not deliver results. We provide data for companies to make better decisions in

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both long-route and last-mile segments. We are working with a new concept called

JOSĂ&#x2030; ANAYA Managing Director for Latin America of Omnitracs

Omnitracs One, which integrates into a single platform all the information from all our devices for easier and better use of data. Data is important and companies need to handle it properly. We have worked to generate broader reports and dashboards. One key element is that all internal information, combined with outside data, increases our ability to identify patterns and perform predictive analysis to prevent any major failure.

Telematics can do much more than just help recover stolen trucks. Fleet companies generally look for track and trace services that help them monitor where each unit is, but Mexico-based transportation companies demand telematics to recover the vehicles. Our solutions enable companies to monitor the routes that operators use and receive alerts if a truck strays from designated routes or stops in nonpermitted rest areas. Telematics applications also help reduce the likelihood of robberies.

MANUEL DE LA TORRE General Manager of Webfleet Solutions

Although criminals have stepped up their game and now use jammers to block telematic signals, together with our partners we have marketed a new solution to make theft even more difficult. When we identify that a truck has been robbed, we prevent that unit from being moved. This allows for transportation companies to respond and reach the truck so authorities can recover it.

Telemetry gives clients the confidence of knowing the exact position of the vehicle at all times. Clients seek to cut as many costs as possible and we are in a difficult market considering fuel prices keep increasing. Traffilog offers integral solutions and our telemetry offering is one of the strongest in the market. In terms of security, we have strengthened our offering to the point where we can now compete with the biggest players in the market. Theft increases insurance tariffs but also represents an obstacle

FERNANDO ARDURA CEO for Latin America of Traffilog

to the companyâ&#x20AC;&#x2122;s operations. Telemetry not only prevents theft but also reduces fuel consumption and maintenance costs, while incrementing the lifespan and availability of the fleet by tracking each unit and its driverâ&#x20AC;&#x2122;s performance. Clients can then customize training and get better results with the same assets and human resources.

Technology allows us to quickly provide web services. We link our platform, which provides the geographic position of units, with our clients’ systems to receive realtime route information, which is dynamic and subject to changes or cancellations. Technology, such as geofences, disconnection alerts, cabin voice communication and panic buttons, provides us with many tools but implementation needs to be coordinated for the system to be effective. Doing this without proper communication can generate vulnerabilities. Companies should internalize this information and increase their security

ÁNGELO GORDILLO CEO México of Sitrack

measures. The theft of a shipment can result in a stock shortage at retail points.

Since we are an innovation-developer business, we started with the automation of some internal processes. We have a department called Brain, which specializes in customer service, logistics and R&D. It has developed Tesi, a personal smart assistant that performs all our basic and intermediate services. We launched Tesi at Hannover Messe Leon 2019. It stays in touch with our customers 24/7 and can address up to 200,000 requests at the same time. It is a very interesting search engine we have integrated into our systems. Moreover, we are testing Tesi as an after-sales trainer. While Tesi is focused on basic and intermediate requests, our human talent will now be specialized in solving red alerts.

FERNANDO SEGOVIA CEO of SAKTËSI

Some companies have not digitalized their fleet management operations because they see technology as an expense rather than an investment. The lack of digital platforms that can centralize key fleet information, such as fuel consumption, due maintenance and real-time location in a single software suite, is a common hurdle across the continent. We are the layer that integrates all these KPIs into a single solution so fleet managers can have all the data in one place. Our platform also enables companies to calculate variables per driver, route and type of vehicle. Being able to crosscheck information offers fleet managers a clear, yet in-depth perspective of their fleet.

JAVIER ARAMBARRI Co-founder of Pulpomatic

Surveillance tools help companies know if a driver has done their job well. Meanwhile, the driver behaves well because he knows he is under surveillance. In addition, the system can prevent unfair incarceration of drivers. We had a case in which a person committed suicide by crashing into a bus. A review of the video showed that the bus driver was not guilty. However, technological implementations must be accompanied by the appropriate experience to process collected data, which means human knowledge is still required. There are events that are difficult to analyze for a machine. Human experience is needed to analyze these special incidents.

LUIS GUZMÁN Director General of Telematica y Controles

Modern platforms provide a significant volume of data. We provide our clients with business intelligence as an added value, using the information collected by our devices. The information we provide can be targeted to our customers, who can use it to increase their sales and reduce costs. A major concern in Mexico and Latin America is vehicle recovery. At this point, vehicles without a tracking device have a recovery rate of 30-35 percent. Insurers and leasing companies facing this problem hire us because we provide a comprehensive solution that includes installation, servers, tracking and recovery of the vehicle.

MERCEDES PACTONG Director General Mexico of Ituran

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OMNIplus spare parts logistics center

TRADE, INVESTMENT & LOGISTICS

The ability to comply with just-in-time logistics was once a key differentiator, but companies involved in the logistics process now need to focus on a series of new elements to genuinely create an added value for their customers. Among the challenges the supply chain has faced over the last year, security has increasingly raised valid concerns in the sector. Between 2014 and 2019, truck robberies increased 94.2 percent. Lack of customs capacity has also hindered logistics operations and new government incentives geared toward logistics have yet to materialize.

As the industry adapts to these challenges, its own sense of urgency will continue to introduce new opportunities for specialized companies whose added value is based on efficiency. Trade, Investment & Logistics highlights the offering that each player involved in the workings of the supply chain will bring to an industry that seeks ever-growing savings.

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CHAPTER 13: TRADE, INVESTMENT & LOGISTICS 308

ANALYSIS: COVID-19 Took Logistics on a Bumpy Ride

310

VIEW FROM THE TOP: Guillermo Godoy, ConaLog

311

INSIGHT: Iker de Luisa, AMF

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INSIGHT: Miguel Elizalde, ANPACT

313

VIEW FROM THE TOP: Manuel Fernández, SSA México

314

PROJECT SPOTLIGHT: Lazaro Cardenas: Door to Mexico’s Automotive Trade

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VIEW FROM THE TOP: Víctor Benavídez, TIBA

317

SECTOR AT A GLANCE: Customer-Oriented Services a Must

318

VIEW FROM THE TOP: Antonio Soda, DB Schenker México

Marissa Vergara, DB Schenker México

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SECTOR AT A GLANCE: Specialized Logistics Supporting the Automotive Supply Chain

320

SECTOR AT A GLANCE: Technology Helps Ensure Logistics Security

321

VIEW FROM THE TOP: Francisco Aragón, MetPro

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VIEW FROM THE TOP: José Luis García, Seraph Consulting

323

Héctor Soto, Seraph Consulting

INDUSTRY PERSPECTIVE: Alexander Mahoney, Biz Latin Hub

Emilio Cadena, Prodensa

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| ANALYSIS

COVID-19 TOOK LOGISTICS ON A BUMPY RIDE COVID-19 has fundamentally altered many businesses and in some cases, the changes likely will be permanent. The automotive industry, due to its dependency on multinational, complex supply chains, was also deeply affected in Mexico and abroad as a plant stopping in a single country has repercussions across the globe A car is made of 30,000 separate parts. It is one of the most

disruption by chartering supplies for its North American

intricately manufactured products and relies on an extensive

truck production.

supply chain characterized by outsourcing, just-in-time

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operations and thin margins. COVID-19 has not only exposed

The electronics industry also adapted. Samsung was among

the fragility of global supply chains, regardless of the

those that decided to shift some phone production from

industry, but it has also questioned what car manufacturers

South Korea to Vietnam as COVID-19 was quickly spreading in

have been taking for granted. That is, a supply chain relying

the company’s home country. The company is also chartering

just on cost, quality and delivery.

parts from China to Vietnam.

According to the United Nations Conference on Trade and

Global crises inevitably change the world’s way of working.

Development (UNCTAD), COVID-19 could cost the global

From the Great Recession to 9/11, trade flows have always

economy up to US$2 trillion. In addition, traditional supply

been affected but no modern crisis has hit the world as hard

chains that prioritize low costs and deliveries will most

as COVID-19. Robert Koopman, Chief Economist of the WTO,

likely be reorganized to minimize risks. In the words of MIT

has defined the pandemic as a “war-like” scenario without

Prof. Simchi Levi, “companies will come under pressure to

the physical destruction or violence. Phil Levy, former White

diversify where they make their products, which will prove

House Economist, has said that “if we are already starting to

easier for some than for others.” For the World Economic

match Great Recession statistics, that means we are on pace

Forum, KPIs to be considered for future supply value chain

for the modern record.”

designs will likely contain traditional metrics as well as resilience, responsiveness and reconfigurability.

As Mexico implemented policies to contain the COVID-19 outbreak, its automotive exports fell due to factory closures,

The outbreak caused significant disruptions to heavily

weakening the logistics chain between Mexico, the US and

interconnected supply chains, which are the core of many

Canada. The sale of tractor trailers, for instance, saw a 72

manufacturing industries thanks to a globally interconnected

percent drop due to falling demand, said ANPACT.

economy that has led major companies to outsource supply to foreign countries. Yet, this same outsourcing has resulted

Mexico’s containment policies also affected other countries’

in severe disruptions to land, sea and air logistics amid

supply chains. US Ambassador to Mexico Christopher Landau

the COVID-19 pandemic. Some companies, for example,

expressed his concerns about the supply chain between

are heavily reliant on raw materials from China, which

Mexico and the US. He said that Mexico’s “pretty narrow

limited or stopped production as the country implemented

list of essential industries” had created a situation whereby

strict lockdowns that led to temporary plant closures.

connectivity between US and Mexican factories within the

Manufacturing plants across the globe were also forced to

USMCA agreement had been shown as critical. Because

limit their operations to reduce exposure to the virus.

US automotive factories had continued working when their Mexican counterparts had not, US factories did not have all

Though some activities were labeled “essential” and were

the supplies they needed to produce.

allowed to continue operating, others were closed or run on skeleton staff, leading to reduced output. Automotive

PORTS, RAILS AND ROADS

plants from Europe to Mexico had to deal with this problem,

The outbreak has hurt almost all forms of transportation.

some due to the lack of components from China while

But rail and road transport companies in Mexico have

others adhered to local shelter-in-place regulations. Other

struggled, owing to a general reduction in trade and the

companies underwent significant and costly alterations to

difficulties faced in moving across borders. “The transport

their supply chains to minimize disruptions. For example,

and logistics sector has suffered a considerable impact

agricultural vehicle manufacturer John Deere announced

as consumption has decreased substantially. We are

a US$40 million investment in expedited freight to avoid

an essential industry as we transport necessary goods,

disruption to its supply chain. General Motors also averted

cleaning products, medications, foodstuffs and beverages

but everything else has completely stopped,” says Pablo

government relaxes manufacturing restrictions. On June 1, the

Ocampo, co-Founder and CEO of Grupo Mexamerik.

automotive, mining, aerospace and construction industries restarted operations following strict safety measures designed

Mexico’s maritime system, which transports goods to and

to protect workers.

from its Atlantic and Pacific coasts, is another story altogether compared to its global counterpart. The world’s maritime

The strategy to reopen each individual plant will depend

transport, which according to Ocean-Insights transports 90

on the specific health situation within a given municipality

percent of the world’s commodities, has seen an explosion

and will be expressed through a traffic-light system that

in transport and storage of products from the oil and gas

moves through four colors: red, orange, yellow and green.

industry. But at the end of March, port authorities in Manzanillo,

When a municipality’s light is red, only essential activities

Mexico’s largest port by tons of transported goods, foresaw

will be allowed. As COVID-19 cases drop, the municipality

a decrease in trade of up to 45 percent, driven by a paralysis

will move through orange and yellow toward the green

in Chinese trade, the country’s third-most important trading

light, which signifies that restrictions on movement and

partner. Director of API Manzanillo Héctor Mora Gómez said

work no longer apply.

that the port had registered a 30 percent drop in containerized cargo and that figures would “continue to fall, maybe 10 to 15

The green light will buoy industries that have suffered

percent more.” The maritime industry’s reliance on Chinese-

greatly due to work restrictions. But damage has already

produced goods has been highlighted as the main reason for

been done and recovery will be slow. For the first time since

this. The Asian nation has been dubbed “the world’s factory”

1Q17, the commercial exchange between Mexico and the US

and, as the first nation to confront COVID-19, has endured a

went down in 1Q20 when compared to 1Q19. According to

massive slowdown in economic activity. When the world’s

the US Bureau of Transportation Statistics, the monetary

major player takes a knock, the effects ripple across oceans.

value of all trade between the US and Mexico for 1Q20 totaled approximately US$147.78 billion, which represents

AIR LOGISTICS

a 1.9 percent decrease compared to 1Q19 results totaling

While the COVID-19 pandemic highlighted the importance

US$150.58 billion. The decrease is closely related to the

of maintaining logistics networks, global restrictions on

spread of COVID-19: trade fell significantly in March as

international travel greatly constricted the sector, which

the infection spread through Mexico. These figures can be

relies on air transport to deliver time-sensitive goods. In

further broken down by method of transportation. Road, port

particular, the cancellation of a significant percentage of

and air cargo trade also reflected a decrease. Meanwhile,

passenger flights has greatly complicated logistics as about

commercial exchanges through cross border rail lines and

half of the total cargo is shipped on those flights. While

pipelines actually increased. The downward trend continued

many airlines have tried to address this gap by turning their

through April, according to Mexico’s Confederation of

regular aircraft into cargo planes, measures have not been

Custom Agent Associations (CAAAREM), which states that

enough to address the needs of the sector. Just in Mexico,

all foreign trade operations decreased by 21 percent at the

the transport of air cargo fell by 9.5 percent in 1Q20 in

end of April when compared to the end of March. However,

comparison to the previous year.

the chamber predicts an upturn in these numbers that will coincide with USMCA’s enforcement on July 1.

Airlines are adapting to this new reality and paying more attention to cargo. Viva Aerobus turned 10 of its Airbus

However, as automotive companies continue reactivating, new

A320s into fully cargo flights by using both the cabin and

opportunities for the country’s logistics sector are expected

cargo holds for the transportation of goods, which will allow

to emerge, with some key transportation companies posting

the aircraft to carry up to 19 tons of cargo. Aeroméxico

favorable figures in the stock market during May. One of

also adapted some Boeing 787 Dreamliners to cargo flights

these winners was Grupo México Transportes, the logistics

between Mexico City and Shanghai and Tokyo. While some of

and transportation subsidiary of Mexico’s corporate giant

these flights were organized with the Mexican government,

and major mining sector player Grupo México. The company

others were charters booked by private companies.

accomplished 13.5 percent growth in its stock price, from

Passenger airlines may be facing a challenging future, but

US$1.01 to US$1.15. Grupo México Transportes advertises

cargo and charter airlines are seeing a sharp increase in

itself as the largest and most profitable rail cargo company

demand as companies scramble to move essential and time-

in Mexico. Another winner is XPO Logistics with a 14.1 percent

sensitive goods to support the fight against COVID-19.

increase in its stock price for the month of May, from US$69.08 to US$78.81. Grupo Traxión, a road transportation and logistics

LIGHT AT THE END OF THE TUNNEL

player, reported flat results by the end of May, but kept the

This situation is expected to turn around gradually as a larger

needle at US$0.58 per share. While the sector may just be

number of companies were granted essential status and the

recovering, there is still a long road ahead.

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| VIEW FROM THE TOP

INDUSTRY 4.0 TECH ENSURES VISIBILITY, BOOSTS SUPPLY CHAIN COLLABORATION GUILLERMO GODOY President of ConaLog

Q: How does ConaLog help its members improve their

active and direct communication with consumers. In the case

logistics processes?

of the automotive industry, it is important for client demands

A: ConaLog aims at developing the competitiveness of

to trickle down the supply chain so component suppliers

Mexicoâ&#x20AC;&#x2122;s logistics sector through the exchange of the best

can know what is behind changes in technical specifications.

practices developed by its many associates. ConaLog focuses

The automotive industry is at the forefront of supply chain

on linking academic institutions, the logistics industry and the

integration given OEMsâ&#x20AC;&#x2122; communication with Tier 1 and Tier 2s.

public sector by establishing impartial triple-helix strategies

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that benefit all players. For instance, the Council is promoting

Q: What role does Big Data play in increasing the efficiency

a working plan based on an assessment of warehousing and

of the logistics chain?

logistics needs that was developed in association with the

A: Goods, information and monetary resources are the three

International Youth Foundation and a large logistics provider.

elements flowing across the supply chain and we need tools

This research impacted the academic plans at CONALEP, thus

that ensure visibility and connectivity to keep track of them.

allowing 300 warehouse technicians to graduate with skills

This includes everything from ERP and Customer Relationship

endorsed by the industry.

Management (CRM) software to Warehouse and Transport Management Systems (WMS and TMS). We also need

Q: How should logistics operators and their clients

strategic tools that help companies design their supply chains

work together to maximize logistics efficiency in the

and transform data into useful information. Technologies such

automotive industry?

as IoT come in handy for the latter. All internal and external

A: Collaboration is the name of the game. This means

data from a company needs to work together efficiently and

mapping all players and their contribution to the value chain.

Big Data analytics, together with artificial intelligence, enable

For Mexico to play a significant role as a logistics hub, the

organizations to process information to ensure the needed

country needs to develop its infrastructure, as well as lean and

visibility and make agile and efficient decisions.

agile corporations that live up to the demands of the logistics market in terms of reaction speed and efficiency. Next comes

The first step toward adopting these technologies is to have

technology. It is impossible to have a collaborative economic

reliable data mining based on strong data governance. This

environment if there are no technical platforms that generate

means being able to identify the source that generated every

the visibility that the value chain needs. Being aware of what

piece of data and the owner of that source. It is also important

is going on everywhere at all times is necessary to maximize

that data is generated by technologies like master data

efficiency. Visibility is achieved when a supply chain in any

management (MDM) systems that do not depend on humans

sector can integrate all Industry 4.0 technologies to ensure

logging data. This ensures greater information consistency

total traceability. To that end, blockchain could be a great

and a lower margin of error. Next, it is key to offer visibility to

addition for its ability to decentralize and democratize data

understand what happened in the logistics process and why

so all members of the chain can use it to meet their goals.

it happened. Many companies that are adopting Industry 4.0 practices are already working on this step.

This level of integration is commonly found in the consumer goods sector, where many companies and brands have an

Adopting predictive models based on external data that can affect the process comes next. This leads to a stage of adaptation and learning where companies have already

The National Council of Logistics and Supply Chain Executives

earned solid experience and can formulate scenarios to

(ConaLog) is a nonprofit organization that aims to boost the

anticipate changes in the market to generate innovation and

integration, development and competitiveness of Mexicoâ&#x20AC;&#x2122;s

evolve their business. This optimizes processes and ensures

logistics sector through common best practices

the elimination of operational barriers.

INSIGHT |

RAIL FREIGHT COMPETITIVENESS OPENS OPPORTUNITIES IKER DE LUISA Director General of the Mexican Railroad Association (AMF)

As a largely exports-oriented economic sector, Mexico’s

according to AMF, and will improve safety and mobility in

automotive industry needs all the logistics advantages it can

the city, while creating a direct access to the Honda plant and

muster to ship components and vehicles. Companies tend to

increasing efficiency in the region’s exports.

prefer road or sea transportation but despite the challenges it faces, the country’s rail infrastructure remains a competitive

To counter security problems, AMF members are adopting

alternative, especially for long-haul transportation, according

new technologies to minimize and ensure quicker reaction

to Iker de Luisa, Director General of the Mexican Railroad

times to incidents. Aside from collaborating closely with

Association (AMF).

federal, state and city authorities, AMF is working alongside CONCAMIN on a legislative proposal that disincentivizes train

“Automotive is the third-most important sector for railway

robberies. “We seek to have the same status as air and sea

freight after grains and minerals and cement,” says de Luisa.

transportation in terms of security,” says de Luisa.

Refineries, breweries and auto-assembly plants tend to set up shop close to railways because rail-based freight is a highly

Successful development of logistics infrastructure requires

efficient way to frequently transport large volumes of goods

long-term planning for intermodal transportation, says de

over long distances. OEMs alone have consistently grown

Luisa, and that includes rail infrastructure. “Having integral

their exports year-on-year, surpassing the 3 million-vehicle

solutions where transportation means are connected with

mark in 2017, which makes rail an attractive solution to take

each other benefits the logistics chain and the end consumer,”

these vehicles to the US. “The longer the distance, heavier the

he says. “Road-based transportation companies in the US no

weight and larger the volume, the bigger the advantage rail

longer see trains as their competition but as an option to

can provide over road-based transportation,” says de Luisa.

complement their service offering and Mexico could follow that example.”

Mexico started developing its rail infrastructure a century ago but involvement from the private sector in rail operations

There is a significant intermodal-services offering along the

began in the mid-1990s. According to de Luisa, after

Canada-US-Mexico corridor that if combined, could ensure

railways were licensed, Mexico’s rail-based freight increased

JIT logistics are not broken. “Intermodal transportation offers

at an average compound annual growth rate of 4.1 percent

new opportunities for the longest hauls to be completed

through an investment of US$8.5 billion in railroads, trains and

by train and last-mile deliveries by truck,” adds de Luisa.

locomotives. In comparison, the country’s GDP grew at a 2.9

“Such a transformation would enable all links of the logistics

percent rate. “The fact that rail freight has increased 1.4 times

chain to grow.”

more than Mexico’s GDP shows the good health of Mexico’s rail sector,” he says.

For intermodality to work, however, port capacity and the connectivity of Mexican ports and borders with roads and

Celaya, Guanajuato, is an example of how freight cargo

railways are issues that should be looked at. De Luisa also

has grown as a consequence of the development of the

highlights less obvious challenges for Mexico’s logistics,

automotive industry. The city is a key node thanks to railways

including inspections, customs, working hours at ports and

operated by both KCSM and Ferromex that stem to the

border controls. “Coordination between authorities and

north, south, east and west. The city has an exchange yard

the private sector present at the borders or ports is just as

and handles a significant volume of automotive, grain, steel

important as the construction of new docks or other expansion

and petrochemical freight generated locally. The region’s

projects,” he says. “New infrastructure is welcome but paying

infrastructure keeps expanding; the Celaya rail beltway

attention to synergies between government agencies and the

project, for example, is already 65 percent complete. This

private sector and the implementation of adequate public

project will require a total investment of US$123.1 million,

policies is also important.”

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| INSIGHT

THE ROAD TO SUSTAINABILITY, EFFICIENCY MIGUEL ELIZALDE Executive President of ANPACT

Given the volume of people and goods transported by

could play a key role in helping over 120,000 SMEs and

road, public authorities should pay attention to the sector’s

owner-operators to acquire new trucks and buses,” says

needs and proposals. “If Mexico wants to grow its GDP by

Elizalde.

4 percent as the federal government projects, the country’s transportation industry must grow by 7 percent,” says

In terms of emissions regulations, Elizalde says the Mexican

Miguel Elizalde, Executive President of ANPACT.

heavy-vehicle sector is already committed to reductions. ANPACT’s members are ready to take the next step and

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Road transportation is a pillar for Mexico’s economy as

offer trucks and buses that comply with SEMARNAT’s new

over 20 percent of all students, as well as 40 percent of all

NOM-044. This regulation requires all trucks that circulate

workers, in Mexican cities commute by bus. At the same

on Mexican roads to meet Euro V or EPA 7 emissions

time, over 56 percent of all goods and 96 percent of all

standards starting July 2019. The standard will be raised to

passengers move between states by truck or bus, while

Euro VI and EPA 10 on Dec. 31, 2020. “SEMARNAT calculates

almost 100 percent of all goods in cities are transported

NOM-044 will generate benefits worth US$120 billion in

by truck. According to Elizalde, the future of sustainable

terms of public health and environmental protection within

mobility is rooted in transportation, which means reducing

two decades of its enactment,” he says.

and eventually eliminating heavy-vehicle emissions while boosting road safety. “Improving the general conditions of

However, new technologies face a challenge to deliver these

Mexico’s road-transportation sector is key for the country

benefits. There is little point in adopting stricter engine

to improve its logistics and mobility.

standards if the right fuel is not available. “Trucks that meet Euro V and EPA 7 standards require ultra-low-sulfur diesel

Mexico’s aging vehicle park is the main issue that needs to

(ULSD) to effectively reduce emissions but availability of

be dealt with. The average age of the national fleet stands

this fuel in Mexico is still limited,” says Elizalde. Eighty-four

at 18 years in the freight segment and at 15 in the passenger

percent of the diesel sold in Mexican gas stations is ULSD,

segment. Renewal strategies and the implementation of

so there is a gap to be filled. By comparison, ULSD has

new motorization technologies will be the keys to increase

been mandatory at all US gas stations since 2010. “CRE

competitiveness and reduce the transportation sector’s

decreed ULSD should be available nationwide by the time

environmental impact. Elizalde enumerates five factors

NOM-044 was enforced, but there have been setbacks to

that could help Mexico renovate its fleet effectively:

ensure this,” says Elizalde.

green incentives, competitive financing schemes, professionalization of Mexican carriers, updates to local

Regarding road safety, NOM-012 requires transportation

regulations and constant monitoring regarding compliance

companies to add safety devices such as ABS brakes,

of new and existing norms. “The Mexican government can

automatic slack adjusters, secondary braking systems,

support this process by offering financial support to small

speed governors and extra rear-view mirrors to all

transportation players, boosting federal laws on emissions

vehicles that circulate on federal roads. Enforcing this

and road safety, ensuring nationwide supply of cleaner fuels

regulation in February 2018 was a milestone for ANPACT.

and addressing mobility and logistics through a nationwide

“Mexico’s heavy-vehicle sector is committed to road

policy,” he says.

safety and after lobbying to make these safety devices compulsory for years, we finally succeeded,” he says. New

In Mexico, most loans to purchase heavy vehicles are

safety devices may increase initial costs and the trucks’

offered by OEMs through their financing arms. For many

overall weight but the impact they have on road safety

small players, however, accessing these products is still an

is a major advantage for transportation companies and

uphill battle. “By endorsing these credits, the government

society, according to Elizalde.

VIEW FROM THE TOP |

SPECIALIZED TERMINAL ALLEVIATES LOGISTICS SATURATION MANUEL FERNÁNDEZ CEO of SSA México

Q: How important is automotive trade for SSA México?

where certifications are normally required. Our clients have

A: About 10 percent of the cargo we handle is cars,

tested our processes and are satisfied.

while 30 percent is auto parts and other material for the automotive industry. We operate at seven ports nationwide,

Q: What is the extent of your cooperation with customs

including Lazaro Cardenas that has the only automobile-

authorities and where do you see opportunities for protocols

dedicated terminal in Mexico. Last year, we handled a total

to improve?

of 950,000 cars. The sector has grown considerably, and

A: There have been several changes in customs. The biggest

we want to continue expanding in it. We could do this by

issue is a lack of personnel to process cargo applications. In

providing services not just at ports but throughout the entire

Manzanillo, we have experienced serious delays in our ability

transportation network.

to offload containers due to this issue. This does not just impact us but the whole port and its capability to generate

We handle both import and export cargo; we load it off

revenue. More customs personnel should be brought in and

and onto ships. When cars arrive at the port, we store them

the port should be working toward a 24/7 service model.

at specialized patios where we also provide additional

There have been announcements of more customs personnel

services such as accessorizing, car washing and painting

but these have not materialized yet.

to repair any small damages that may have occurred during the trip. We can also apply grease to the vehicles’

The new government administration has announced it is

undercarriages to protect metal parts. Our storage spaces

going to support the logistics sector with decisive measures.

also provide weather protection.

One of these could be strategic fiscal regulations that make it possible to process and inspect cargo before it reaches

Our main clients are large car companies like Volkswagen,

the port. This could greatly increase efficiency in offloading

Audi, Nissan, General Motors, Chrysler, BMW, Daimler Benz,

processes. Further improvement could be achieved by making

Toyota, Suzuki and Mazda. We also work with truck, bus

all customs processes electronic.

and heavy machinery manufacturers. We provide different combinations of services depending on the client’s needs.

Q: What are your main growth projections for 2019 in terms

Some companies, for instance, prefer to have their cargo

of capacity to handle vehicles and infrastructure expansion?

directly distributed to their client without previous storage.

A: We expect to handle more than 1 million units by the end of 2019. We should always work toward more efficiency

Q: What are the main benefits of working with SSA México

and fewer accidents. We want to remain at the forefront of

and how has that attracted OEMs like Volkswagen and Nissan?

technology, offering software that allows our clients to see

A: We have a varied and customized service portfolio and our

in real time where their cars are. Furthermore, we want to

port terminals teams are flexible enough to meet our clients’

expand our logistics operations beyond ports and further

needs. Furthermore, we maintain constant contact with them.

into our clients’ supply and distribution chains. Some clients

During the rainy season, for example, there may be hail. Some

are looking to move their cars from the Bajio region to the

clients will want to take their cars out of the patio and into

Veracruz port. We are able to solve this need by offering

a roofed storage location outside the port. We provide the

integrated logistics services.

logistics to make this possible. We want to be a strategic partner. When a new customer

SSA Mexico offers diversified services in the most important

approaches us, we learn their requirements and build a

Mexican ports, operating automobile, container and cruise

tailored solution. Training is also key to maintain the level of

terminals and general cargo. It is a subsidiary of Carrix Group,

quality we provide, especially with automotive operations

one of the largest privately-owned port operators in the world

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| PROJECT SPOTLIGHT

314

LAZARO CARDENAS: DOOR TO MEXICO’S AUTOMOTIVE TRADE An essential part of Mexico’s logistics network, Lazaro Cardenas is the most important port terminal for vehicle trade on Mexico’s Pacific shore. With 464,889 vehicles handled in 2018, according to API Lazaro Cardenas, this terminal accounted for 22.9 percent of Mexico’s seaborne vehicle trade in that year, making it the second-busiest vehicle terminal in the country. The port’s administration estimates that 483,364 cars went through Lazaro Cardenas in 2019, which says a lot about the port’s capacity but also about the need for a strong stevedoring partner. The cutting-edge, Dedicated Vehicle Terminal (TEA) operated by SSA México is key to Lazaro Cardenas’s success as a logistics hub. The combination of SSA México’s highly skilled staff with the terminal’s comprehensive infrastructure guarantees quality and efficiency in logistic services.

The Lazaro Cardenas Dedicated Vehicle Termianl handled over 480,000 vehicles in 2019, according to API Lazaro Cardenas Lazaro Cardenas’ TEA has static and dynamic capacities of 15,000 and 755,972 vehicles, respectively. Its 600m berths allow two ships to dock and are designed to support Roll On-Roll Off (RoRo) ships thanks to specialized platforms designed for that purpose. Additionally, the terminal has six railroad spurs that connect the terminal with the port’s railway system. As Lazaro Cardenas’ TEA operator, SSA México loads and unloads vehicles from and onto Pure Car Carriers (PCC) and other types of RoRo ships. It also receives haul-away trucks and specialized railcars to be loaded or unloaded. However, there is more to stevedoring than just moving cargo between boats and land transportation means. SSA México offers a series of added-value services to support its automotive clients’ operations. Traveling thousands of kilometers by boat can damage a car even if the best care possible is provided by couriers. SSA México makes sure that all vehicles entering Mexico are inspected and, if necessary, repaired and repainted at the terminal. Clients are also welcome to use SSA México’s ramps for undercoating services to prevent cars’ undercarriages from eroding. The company also has a Vehicle-Processing Center where cars are washed, labeled, accessorized and registered with Mexico’s Public Vehicle Registry (REPUVE) upon arrival.

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| VIEW FROM THE TOP

COMPLETE VISIBILITY AT AFFORDABLE COSTS VÍCTOR BENAVÍDEZ Country Manager of TIBA

316

Q: How has TIBA advanced in growing its presence in the

Logistics operators cannot create projections based solely

Mexican logistics market?

on cargo movements, because this adds little value. The

A: The global strategy for TIBA Mexico is to become the No.

added value of information can be found in integrating and

1 country within TIBA’s global network in the near future.

analyzing the data generated throughout the entire supply

The company sees a huge opportunity here and we will

chain, not just in one part. TIBA has a business intelligence

concentrate our efforts to make our local subsidiary achieve

department in which it constantly invests to provide valuable

its market potential. The first step TIBA took was to appoint

insights on market and volume trends to our customers so

a Country Manager for Mexico. In the past, the regional CEO

they can have qualified elements for better decision-making.

was responsible for both the country and the region. Having a specific manager for Mexico will strengthen our position

Q: How does TIBA differentiate from other companies that

in the market.

offer similar services? A: TIBA is dedicated to offering services only in the niches

TIBA Mexico’s development is key not only for TIBA but also

where it can add value to its clients. In view of the increasing

for Romeu Group’s global strategy, as was announced to the

demand for speed, efficiency and quality, we make sure to

group’s 100 top leaders at the annual strategy meeting that

comply with our customers’ expectations, transparently

was held in Spain in 2019.

delivering what was agreed, without over-committing. As a result, we ensure our clients receive high quality and an

Q: How has TIBA evolved to meet the demands of new

added value with our services. For TIBA Mexico, this service

companies arriving to the market?

model has been truly effective and we hope to be able to

A: Our market niche specialization strategy and customer-

reproduce it at a regional and international level.

centered culture is making the difference in how we approach and solve, alongside our customers, the challenges every

Q: How can saturation be eliminated at Mexican ports

company faces when ramping up in the automotive industry.

and airports?

Our company’s size allows us to respond quickly and be

A: New technologies and system integration among all the

very flexible when adapting to our customer’s ever-changing

players will definitively improve processes. Mexico needs

environment while we provide integrated solutions. For new

to learn from other countries and replicate what state-of-

companies arriving into the market, integrated solutions are

the-art ports have implemented. At the same time, public

strategic for them to structure their business.

and private investments should also resolve saturation at ports and airports. Pressure must be exerted within private

Q: How has demand for predictive logistics increased in the

sector chambers and associations so greater and better

last couple of years?

investments can be made in logistics infrastructure, including

A: Customers continue to demand more and more data.

rail and road.

We have found, however, that historical information in the sector helps little to predict certain behaviors and situations.

Q: What are the greatest advantages that TIBA’s technology

Predictive analysis, therefore, involves cooperation from

offers to its clients?

all sides: OEMs, suppliers and logistics services providers.

A: Throughout the automotive supply chain, there are gaps where there is no transparency and clients lose visibility of their processes My TIBA is a powerful tool, beyond standard

TIBA is a Spanish-based logistics operator that offers customs

GPS and ERP systems, that provides customers with real-

brokerage and specialized freight-forwarding services for

time visibility of their cargo. TIBA also has alliances with

several industries, including automotive, food and beverages

technology startups that are working to improve integration

and pharma

and visibility along the supply chain.

SECTOR AT A GLANCE |

“

CUSTOMER-ORIENTED SERVICES A MUST

A logistics mistake can make automotive companies lose millions of dollars in a short time” Artur Bezerra, President of ONE México

automotive logistics chain. We record every step of the process with our clients so they have security and peace of mind when they need to make a quick decision in the event of a problem arising," says Giovanni de la Rosa, National Sales Director of RH Shipping. In addition to the small adequation services that logistics companies can offer, innovation and the implementation of technology are significant opportunities to cater to

The highly demanding needs of the automotive industry have

companies’ needs and provide higher quality. According to

spurred a competitive environment where customer-oriented

a PwC study, Shifting Patterns: The Future of the Logistics

services have become a must. “Companies no longer just

Industry, technology is an important avenue to improve

demand JIT logistics but high levels of service and visibility,”

the logistics industry’s progress. From data analytics to

says Arturo Olvera, Director of Business Development and

automation, technology promises reduced expenses,

Marketing Central America at CEVA Logistics. Understanding

enhanced effectiveness and opportunities for players to make

the customer’s needs and responding appropriately are two

a real breakthrough in how the sector operates.

key ingredients that guarantee success. “We are aware that the industry is very demanding in terms of requirements

"The logistics segment presents a great area of opportunity

and delivery times because a logistics issue can result in the

for innovation," says David Flores, CEO and Founder of

delay or stoppage of production. A logistics mistake can make

YetCargo, a Mexican logistics start-up that connects owner-

automotive companies lose millions of dollars in a short time,”

operators and smart fleet companies with potential clients.

says Artur Bezerra, President of ONE México.

"We help owner-operators access a large pool of potential customers while shortening operation times. Most companies

While the ability to comply with JIT logistics was once a

depend on the cost of logistics operations to define their final

key differentiator, Olvera believes that logistics companies

prices. Technological solutions such as ours can provide a 5

need to focus on different aspects of the delivery process

percent reduction in logistics costs."

to generate added value for clients and develop long-term relationships. “We prefer to manage all steps of our clients’

Reducing the carbon footprint of companies’ embarkments

supply chains, from raw material sourcing to delivery.” For

also represents an opportunity for logistics companies

Eduardo Aspero, Vice President and Senior Director General

to stand out and create customer-oriented services, with

of Hub Group, there is a great opportunity in Mexico to shift

strategies that range from intermodal conversion to improving

the transportation industry’s mindset from a transactional,

reverse logistics processes. “Intermodal conversion is at the

capacity-focused operation to a more strategic, holistic

heart of our sustainability initiative due to its meaningful

solution. “These integrated services help provide better

carbon dioxide reductions,” says Aspero. However, Olvera says

visibility and assign solutions that can mature over time,

that reverse logistics services are not as advanced in Mexico

offering consistency that is more carrier-friendly,” says Aspero.

as in other countries because of the country’s constrained transportation infrastructure. “Reverse logistics are key to

Managing the entire supply chain allows for more visibility and

increasing the efficiency of shipments and keeping logistics

larger control of the logistics process, which is why several

costs at bay,” he says.

logistics companies offer this option, often including sea and air freight. “Our sister company MCL handles airborne and seaborne cargo to complement our land-based operations. This allows us to offer an integral service from Canada to

Automotive logistics services are no longer limited

Panama. Moreover, we can handle all steps for auto parts

to point-to-point distribution. Logistics companies

logistics, from the import of raw materials to the handling of

are constantly evolving to meet ever-stringent

the final product,” says César Ventura, Commercial Director

requirments from OEMs and suppliers pressured

of Interland Transport.

to reduce production costs. In this challenging environment, close contact with the client and a

When dealing with different transportations schemes, an adequate transportation management system (TMS) is essential. "We know that time is a crucial factor in the

customer-oriented approach is a must

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| VIEW FROM THE TOP

AUTO PARTS AN OPPORTUNITY FOR LOGISTICS PROVIDERS ANTONIO SODA CCO of DB Schenker México

318

MARISSA VERGARA Key Account Manager Automotive at DB Schenker México

Q: What role does the Mexican automotive industry play

Q: How can companies better address the needs of

in DB Schenker México’s operations?

automotive companies in terms of just-in-time (JIT) and

AS: Mexico is the most important market for DB Schenker

just-in-sequence (JIS) operations?

in the Americas in terms of EBIT and one of the Top

MV: Adoption of JIT and JIS logistics in Mexico has

10 performing countries globally. At the same time,

been boosted by the sector’s local development. To

automotive is becoming the most important sector for

reduce inventory costs, automotive companies produce

DB Schenker México’s operations. We are also present

in sequence to deliver their products to clients exactly

in the oil and gas and energy sectors with project cargo

when they are needed. To achieve this logistics scheme,

solutions and turnkey solutions for industrial projects,

it is necessary to have a correct communication between

as well as in the retail, healthcare, aerospace, industrial,

different areas within an automotive company, to make

chemicals and other relevant sectors in Mexico.

accurate demand forecasts and to stablish that leading times on the operation flows secure a better management

MV: At DB Schenker, each vertical market (VM) is

of the logistics chain. This enables suppliers to calculate

important as we are focused on delivering solutions to

when clients will need raw materials and what are the

our customers worldwide understanding specific needs

times needed for production and transportation so

from the different VMs. For this reason, DB Schenker has

they can deliver just in time with an accurate stock

invested in key account managers to understand that

management.

every vertical market demands their own complexity, as they attend the special needs from the following

Q: What elements in DB Schenker’s value proposition

vertical markets: pharma, retail, industrial, Electronics,

help the company stand out among competitors?

Perishables, Aerospace and Automotive.

AS: Transparency is DB Schenker’s hallmark, which is key to solving contingencies in the automotive industry

We have been leaders in the aerospace VM, but automotive

and is highly appreciated in the market. By becoming

remains our strongest sector in Mexico after two years,

consultants for our clients, we help them deal with critical

which is a consequence of the growth the Mexican

situations that are common to automotive logistics.

automotive industry has experienced. Our client portfolio includes main OEMs, Tier 1 and 2 suppliers. For more than

MV: Each logistics supplier usually specializes in

40 years, DB Schenker has been working to develop

developing certain strengths and expertise. At DB

a wide range of value-added services and different

Schenker, we focus on delivering solutions to specific

transportation methods including, air, ocean, land, customs

customer needs. We identify “pain points” in their logistic

and contract logistics to offer a door to door solution. As

chain and proposes a solution for these. DB Schenker’s

the automotive industry continues growing, we have been

goal is become a strategic, long-term partner for its

forced to develop specific solutions such as hand carriers,

clients. We focus not only on making the right logistics

charters and domestic helicopter operations to support

implementation but also on allowing all the people who

customer needs while delivering an end-to-end solution

will be working on each project to hit the ground running.

for the automotive industry. Q: How important is digitalization for DB Schenker México’s innovation strategy? DB Schenker is a global logistics services provider and part

AS: DB Schenker remains at the forefront of all logistics

of the German rail operator Deutsche Bahn AG. With over

trends. We are modernizing and digitalizing our

140 years of experience in logistics, DB Schenker develops

operations to better deal with new trends in across

innovative solutions to optimize logistics chains

different industries, such as Industry 4.0.

SECTOR AT A GLANCE |

SPECIALIZED LOGISTICS SUPPORTING THE AUTOMOTIVE SUPPLY CHAIN

“

If a company is looking to ensure JIS supply, it should not buy a software but a visibility service” Saúl Haro, President and CEO of Macrolynk

negative consequences for the client.” For that matter, the use of CRMs becomes critical. “Having an adaptable CRM system is essential for operations to be more efficient,” says Juárez. Fleet management can also be more efficient through the use of data. "Companies need to adapt their processes to a technological platform and have a database to collect all that information. Having records allows to monitor the fleet’s behavior and to make decisions in real time," say Rosario Cuahonte and Paulina Guzmán, Managing Partners at Partner Fleet.

The automotive industry’s just-in-time (JIT) and just-insequence (JIS) logistics require not only specialized platforms

In addition to visibility and constant tracking, catering to

but also companies with sufficient expertise and capabilities.

specific niches allows not only an increase in service quality but

“Unlike other industries, automotive companies need our

provides and opportunity to stand out in a heavily competitive

services because they often are managed under a constant

market. Juan Lam, Mexico Sales Director of ULINE, says the

sense of urgency,” says Esahw Juárez, COO of ALP Logistics.

company has managed to stand out by providing solutions that cater to the specific packaging needs of automotive

Proximity to the US, free trade agreements and a qualified

companies. “Common boxes may not be suitable to ship

labor force have positioned Mexico as an automotive

heavy metal components as these parts may suffer wear or

manufacturing hub, which consequently has attracted

damage. Hence the importance of offering resistant, more

a significant number of logistics companies. “Mexico’s

robust corrugated cardboard boxes,” says Lam. “Having

proximity to the US and the relevance of its exports

quality materials in stock in Mexico is an advantage for auto

offer major business opportunities for logistics suppliers

parts companies that may need unique materials to package

working across the entire supply chain,” says Alejandro

and ship their components,” he says.

Marines, Director General of GEFCO México. “Logistics is growing in importance for automotive companies, but solid

The renegotiation of the NAFTA agreement generated its

services depend on the good performance of all players,”

fair share of uncertainty for the Mexican automotive industry

says Marines. For Edgardo Hamon, Country Manager of

and its business partners. However, USMCA’s ratification and

Dachser Mexico, the key is to understand logistics in the

its future implementation have provided breathing space for

automotive industry as an integrated process. Manuel Díaz,

the industry and a new range of possibilities. “As a result of

Director General of Seko Logistics, agrees that the most

USMCA, Mexican companies will more easily integrate into

important goal is to turn supply chains into value chains by

regional supply chains and Asian manufacturing companies

integrating logistics services into an end-to-end solution

will need to set up shop in Mexico to meet the new rules

that offers several advantages. “First, potential mistakes

of origin, benefiting the supply chain. In terms of growth

are eliminated as fewer transactions are needed because

opportunities, increased trade volume between Mexico and

all processes are carried out in-house.”

the US and Canada will detonate demand for international logistics services,” says Díaz.

Achieving visibility in the supply chain can be a tricky subject, however, especially when companies lack the requisite technology. “Companies need to visualize their stock in real time and doing that by hand is impossible. The

The automotive industry has forced logistics

issue is that people think technology is expensive and yes, it

companies to comply with JIT, JIS and other highly

is. The secret is to find a way to make expensive technology

specialized demands. The solid performance

accessible to Tier 1, Tier 2, Tier 3 and Tier 4 companies,”

of the logistics element, as well as a complete

says Saúl Haro, President and CEO of Macrolynk.

understanding of the needs of the industry, inevitably impact the performance of all players in

The use of data translates into better service and monetary savings, says Juárez. “When managed properly, data translates into an excellent logistics service. If mismanaged, it will have

the automotive production chain

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| SECTOR AT A GLANCE

TECHNOLOGY HELPS ENSURE LOGISTICS SECURITY

“

Apart from cargo, thieves may take parts from the vehicle or jump the operator for his personal items” Francisco Mijares, Commercial Manager of Inter MG

regions where the risks are greatest. Guanajuato and Puebla have become much more complicated in recent years and companies cannot easily relocate their plants,” says Rodrigo Mazatán, Managing Partner at CYF Logistics Queretaro. While it is true that an increase in theft will not necessarily lead to a cease of operations, Eduardo Mena, Managing Partner at CYF Logistics Queretaro, says companies have had to adapt and become more flexible in regard to scheduling and be prepared to deal with theft. “We

320

Logistics companies have been among the most impacted

have recommended that our clients adjust their delivery

by the country’s insecurity conditions, but technology

times to between 6 a.m. to 6 p.m. so drivers circulate only

is helping to level the playing field. New technologies

during the day and even have the option to sleep at the

like blockchain could lead the way in solving monitoring

plant,” Mena adds.

problems for logistics companies and create a disruption in the industry, which can only be compared to the

Digital monitoring has become one option to maintain

disruption the internet created in the 1990s.

an overview of the operation. A truck can be followed in real time and various data points can be collected

“Although GPS technology has been in the country for

simultaneously. This allows the company to provide

years, it can only show the trucks’ location but not what

advice to an operator on their driving, and if necessary,

is happening with it when it stays in one place for two

indicate when to change routes, according to Francisco

hours. By providing a richer dataset through more sensors

Mijares, Commercial Manager of Inter MG, who adds that

and actuators, companies can know they are managing

the risks for logistics companies go beyond product

their operations more precisely. By using blockchain and

damage or loss. “Apart from cargo, thieves may take parts

a radio frequency ID tag (RFID), companies can track

from the vehicle or jump the operator for his personal

each component from the place it was manufactured to

items,” says Mijares.

its current location,” says Karl McDermott, Global Head of Business Development at Morpheus.Network.

Companies like Onest Logistics have gone one step further and created tools that help them discern

Insecurity has been among the major issues for logistics

problematic routes. “We have mapped Mexico City’s

companies in recent years. In 2018, the National Chamber

streets and the country’s highways by hour to determine

of Cargo Transportation (CANACAR) pegged the cost of

risk areas depending on the time of day. We instruct

insecurity at MX$92.5 billion (US$4.77 billion), around 0.5

our drivers on what areas to avoid at certain times to

percent of Mexico’s GDP in 2017. This landscape requires

minimize robberies. Moreover, we have defined hour limits

detailed planning on the part of logistics companies.

for departures in the morning and at night depending

“Routes must be planned and we need to identify the

on previous criminal incidences,” says Rubén Imán, President of Onest Logistics. In addition, the company has developed a platform that provides visibility of their trucks and reduces theft. “Our TMS platform has

Insecurity along the country’s roads have taken a toll on

also been a great tool to improve operational security.

many industries, with logistics companies among the

In 2017, we experienced about 30 robberies. Thanks to

most impacted. However, a number of technological

the implementation of TMS and improved operational

innovations could have a positive impact and reduce

processes, that number fell to seven in 2018.”

security concerns. However, logistics companies and their clients must adapt and become more flexible in

While technology can offer cost-effective solutions to

regards to their operations

combat theft, logistics companies agree that the human factor cannot be disregarded. “Drivers play an important role in TMS’ functionality. There are several checkpoints

that they must register on the platform, sometimes even

Mexican Association of Insurance Institutions (AMIS) said

providing photographic evidence of the truck. We have

that between 2014 and 2019, truck robberies increased

also devised a checklist to make a quick revision of the

94.2 percent, leading to an hike in insurance premiums.

truck’s integrity once it arrives at a loading or unloading

“We need to have everything under control so that when

area. If the unit does not comply with all the necessary

something happens, the insurance company can take

requirements, we do not grant access to the trailer. These

responsibility for the client’s loss,” says Mazatan. While it

measures have been fundamental for ensuring driver and

is true that the technology investments made by logistics

cargo security and they have also helped us reduce our

companies represent an added cost, companies must

insurance premiums,” says Imán.

improve their offering to appeal to more customers and ensure an adequate service. “You cannot charge more

Rising insurance premiums is an extremely visible

for routes, as all companies use them. However, where a

externality of the toll insecurity takes on businesses. The

company can win, is in its quality of service,” says Mijares.

VIEW FROM THE TOP |

ENSURING QUALITY TO THE LAST STEP FRANCISCO ARAGÓN CEO of MetPro

Q: What role does the automotive industry play in METPRO

us because we do not know what their true capacity is nor

VCI’s operations?

what it could offer us.

A: The automotive industry has grown a great deal in Mexico over the past few years. Changes force us to be better in our

I have always said the heart of a company is its human capital,

work and offer the best-quality products and services. We

not its machines. Mexican suppliers should focus on getting

focus on both the automotive and metal-mechanic industries,

certifications for all processes. Companies should not lower

although we participate in other sectors like electronics, oil

their guard; that would make it impossible to be a player in

and gas, shipping and defense. Our R&D center is in Belgium

this highly competitive world.

but all our products are manufactured in Mexico. Q: How does METPRO VCI view the logistics of its packaging? Q: What are the key elements of your strategy to maintain

A: We have broad experience in certifications, quality

your client relationships?

inspections and final checks. Our packaging works at the

A: Our strategy is based on continuous improvement. We are

end of the supply chain, which means we have a great

leaders in R&D and manufacturing and we sometimes produce

responsibility. If we fail, the entire supply chain behind us feels

packaging based on a client’s specific needs. We work with

it, from the gas supplier that works to turn on the smelting

Japanese, American and European companies, whom we see

furnace to the polishers that work on finishing a component.

as partners for mutual growth. We see in a client our capacity

We receive a finished product and our clients want it to be

to improve in the best way possible.

delivered intact.

Q: What advice would you give to Mexican businesses that

We have been in the market for more than 22 years and we

want to work with foreign companies?

have many prestige brands in our portfolio, as well as zero

A: Everything is possible through perseverance. Success

corrosion issues registered.

comes from the day-to-day fight. There are giants all over the world, huge enterprises, but if you have a quality product and provide constant follow-up, you can compete

MetPro is a Mexican company with more than 20 years of

against any company. Similarly, we would not underestimate

experience in the production of anticorrosion packaging based

what might seem like a small company wanting to work with

on MetPro’s VCI technology. The company works in sectors like automotive, electronics, oil and gas and energy

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GOOD MANAGEMENT BASED ON CLOSE EMPLOYEE RELATIONS JOSÉ LUIS GARCÍA Engagement Partner at Seraph Consulting

HÉCTOR SOTO Engagement Partner at Seraph Consulting

Q: How does your consultancy approach distinguish you

implemented, we ensure that actions can be sustained

from other companies?

by training employees and having one of their managers

HS: Our approach to consultancy is very simple: we make

participate in our team.

everything practical. Our business is not to come up with new management theories. We try to execute real changes and

Q: Could you give an example of a successful project

then ensure the client can sustain these new practices. Our

you managed?

projects are usually between three to six months, although

JL: We recently worked with a Japanese company that had

they can be longer depending on the client and the situation.

the goal of increasing its output per hour to 260 pieces from a rate of 40 pieces per hour. It was a very sophisticated

322

production line. We held meetings with operators,

Seraph Consulting’s solutions helped a client reduce waste in its manufacturing operations by 50 percent

supervisors and managers and came up with several changes. As a result, the company’s output rate went up significantly, while reducing waste by 50 percent. Q: What are the most common practices that companies need to change in their manufacturing operations? JL: Good management based on close attention to what

JL: We are an American company that offers consultancy

is happening at the plant floor is the key to success.

services dedicated to different areas: restructuring, relocation

Many managers make bad decisions based on the wrong

and consolidation of plant lines, due diligence and M&A. We

priorities, leading to waste of resources and potential. One

only have a few projects in Mexico but we see great potential

very important aspect is good engagement with the staff.

in this market, particularly in the automotive sector.

Every person at the company has their own expertise. Good communication also means maintaining warm relations

Our engagement is direct. The first stage of our process

with employees despite being in an executive position. A

is to observe and conduct an assessment of the client’s

strong work culture allows teams to solve complex problems

operations. In this process, we engage with everyone at

through collaborative thinking.

the plant, including those at the production floor. We believe that operators have significant knowledge about

HS: Labor improvements also require greater inclusion.

what is going on. There is no predetermined recipe to

There are many in Mexico who suffer from down syndrome

our approach because every client is different. The next

or autism but are perfectly capable of working. They are

phase is to stabilize the client’s operation. This means

some of the most loyal and capable people you can have. We

looking at all the places where there is inefficiency in

also believe that managers should do more to accommodate

the production flow. We try to reduce wasteful practices,

recent graduates to give them a place to learn their trade.

increase efficiency and improve communication between employees. Our proposed modifications are based on

Q: How beneficial is automation for Mexican manufacturers?

KPIs formulated by the client. Once changes have been

HS: In Mexico, plant operators cost 20 times less than in Germany. For this reason, making a US$20 million investment in system automation is more attractive there than here. We

Seraph Consulting is an American company with over 12 years

believe that despite Industry 4.0 implementations, the human

of experience in Mexico. Its primary markets are Queretaro, San

element will always exist. One of the goals of automation

Miguel de Allende, Ciudad Juarez and Puebla. The company’s

should be to grow the production output and to open more

clients include major OEMs, as well as Tier 1 and 2 manufacturers

locations thus hiring more people, not less.

INDUSTRY PERSPECTIVE |

THE RIGHT PARTNER TO BRAVE CHANGE Knowledge on how to do business in a new country

Q: What is Grupo Prodensa’s strategy to add value

can make or break a company. Finding a good

to its clients’ manufacturing operations?

partner that can provide investors with a soft

A: Grupo Prodensa helps companies optimize

landing is essential, according to Alexander Mahoney,

their manufacturing footprint by participating in

Country Manager of Biz Lain Hub, especially in an

everything from the design to the implementation

uncertain economic and political environment.

of new projects. We help our clients identify key variables such as costs, clients and suppliers to decide

“Companies are sometimes taken advantage of

where to set up shop in a new location in Mexico

due to their lack of knowledge on the market and

or the US. When plants are already running, Grupo

its regulations,” says Mahoney. “Therefore, the

Prodensa helps clients to maximize productivity. This

first contact with foreign clients is crucial to gain

hands-on approach helps us materialize efficiencies.

confidence and grow their business.” Biz Latin Hub has identified this need and is now specialized in

Q: How is Grupo Prodensa helping its automotive

supporting incoming investors looking for someone

clients adapt to the new trade environment?

with experience in corporate management, as well as

A: Grupo Prodensa needs to fully understand

a cultural connection with the client. “Investors need

the rules of the game established by USMCA,

someone who can help them understand the legal

work with the government authorities to clear

and fiscal reality of the market so they can build an

all gray areas in the treaty and help clients

appropriate budget,” says Mahoney.

develop strong quality and compliance systems.

ALEXANDER MAHONEY ountry Manager of Biz Latin Hub

EMILIO CADENA CEO of Grupo Prodensa

Most recently, companies have had to deal with

USMCA’s requirements need to be integrated

extra complications to doing business: the political

into automotive companies’ quality management

uncertainty stemming from the USMCA negotiation

systems. These help to keep track of production,

and López Obrador’s election as President of

monitor inventories and control quality.

Mexico. Mahoney says companies have taken more time to decide whether or not to come to Mexico.

Q: How will Gropo Prodensa cater to Asian

Furthermore, they now prefer to work through a

companies that could arrive as a result of USMCA?

shelter service to outsource their labor, fiscal and

A: Grupo Prodensa has a special strategy to target

legal management. “That way, they can test the

Asian companies that want to set up shop in North

waters first and see if there is political turmoil that

America and take advantage of USMCA’s new

could impact their business,” he says.

rules of origin. We design customized products that support the needs of Asian companies and

Now that USMCA is signed, companies must learn

for that, we need to understand their specific

how to work with the new rules of origin established

requirements, as they have unique practices when

in the agreement. What the country needs now,

it comes to developing partnerships and purchasing

Mahoney explains, is a clear vision from the new

services. To that end, Grupo Prodensa has added

administration on how it plans to run the country and

Asian experts to its teams to fully capture how

what it will do to attract foreign investment. “There

these companies think and what they prioritize.

have been some positive changes with the shift in

Asian investments will be responsible for most of

administration, including the signing of USMCA, but

the growth that the North American automotive

there is still much unpredictability as well.”

supply chain will experience in the near future.

323

Chevrolet Malibu

SALES, FINANCING &Â INSURANCE

Annual sales declined 7.7 percent in 2019 compared to 2018, which means the industry should be prepared for what is coming. Meanwhile, digitalization is heavily influencing all aspects of vehicle sales, including financing and insurance, as showroom visits decline and clients look for an increasingly digital experience. Now, more than ever, financing players, whether banks or a brand's financing branch, will play a key role in boosting sales. The financing branches of OEMs maintained a share above 60 percent of new vehicle sales, while used cars sales boomed amid political uncertainty. How will key players in the industry brave the current challenges and come out on top?

Mexico Automotive Review's final chapter features insights from industry leaders participating in vehicle sales and distribution activities. Each of these players presents a different vision of how the industry downturn is impacting their business and what they are doing to not only survive but thrive in a changing market.

325

CHAPTER 14: SALES, FINANCING & INSURANCE 328

ANALYSIS: Online Sales Provide Breathing Room for OEMs Amid COVID-19

329

VIEW FROM THE TOP: Carlos López de Nava, Grupo Alden

330

ANALYSIS: The End of a Sales Cycle

332

VIEW FROM THE TOP: Fernando Enciso, Grupo Surman

333

VIEW FROM THE TOP: Alexis Uribe, Grupo Uribe

334

VIEW FROM THE TOP: Ricardo Duhart, BBVA

336

VIEW FROM THE TOP: Simon Harrsen, CHG Meridian

337

VIEW FROM THE TOP: Carlos García, KAVAK

338

VIEW FROM THE TOP: Nazareth Black, Car Fast

339

VIEW FROM THE TOP: Amelie Mossberg, Mercado Libre México

340

VIEW FROM THE TOP: Joel Kotowy, Prime Action

341

VIEW FROM THE TOP: Germán Aguado, GNP Seguros

342

SECTOR AT A GLANCE: User-Friendly Solutions Develop Vehicle Insurance Market

343

VIEW FROM THE TOP: Juan Carlos Quartino, MAS Seguros

344

VIEW FROM THE TOP: Eduardo Hernández Mestre, Marsh México

345

VIEW FROM THE TOP: Felipe Sánchez, Assurant Mexico

346

VIEW FROM THE TOP: Mauricio Medina, TIP México

347

SECTOR AT A GLANCE: Leasing Gradually Transforming Mobility

327

| ANALYSIS

ONLINE SALES PROVIDE BREATHING ROOM FOR OEMs AMID COVID-19 The auto industry has been submerged in a severe sales slump since 2016 and is now dealing with COVID-19 lockdowns and clients’ limited purchasing power. Online sales have been a lifeline in 1Q20, leading some companies to bet their resources and efforts on strengthening these channels Amid the COVID-19 pandemic and the sales downturn that

in the midst of the pandemic, some companies have already

has plagued the auto industry since 2016, dealerships had

taken advantage of these opportunities. A clear example

to push their digital strategies to try to make up for losses

is Kavak, a digital platform where the user can sell or buy

and keep in touch with potential customers. According to

a vehicle without leaving their home. “We have seen daily

data from INEGI, a total of 42,028 new vehicles were sold

growth between 5 to 10 percent. We expect that by the

in Mexico in May, compared to 34,903 in April. However,

time we reach the final stages of the pandemic, we will see

May figures reveal a decrease of 58.96 percent in the sale

a remarkable performance. Most of the customers who are

of light vehicles with respect to the same month in 2019.

approaching Kavak now are those who have realized they

Deputy Director General of AMDA Guillermo Rosales said

need a private vehicle rather than the other transportation

that the confinement measures implemented because of

options they were used to,” said CEO of Kavak Carlos García.

the COVID-19 health crisis have led to companies only being

328

able to market vehicles through remote sales channels, such

One initiative presented to support the transition from a brick-

as telephone service, social networks, websites and in some

and-mortar business model to a 100 percent digital sale is

cases, customer visits. Rosales also said that since lockdowns

the Popular Auto Academy, a digital tool that encourages

were implemented, population consumption habits and the

dealers to use digital platforms to sell their vehicles. “This

management capacity of dealers have changed dramatically.

is a very important initiative due to the value it represents for customers. Postponing the project due to the COVID-19

During the period of confinement, Hyundai Penta Triunfo,

pandemic was not an option, especially at times when the

a car dealer in Chihuahua, has concentrated its efforts on

industry most needs our support,” Antolín Velasco, Manager

enhancing its attention to the public through digital channels.

of Popular Auto Academy’s Business Development Division,

“Our showroom remains closed, but the momentum that

said in a statement. Among the main strategies proposed by

COVID-19 has given to social media, along with facilities

Popular Auto Academy is that dealers see their electronic

like free monthly payments, discount vouchers and more,

store as a showroom, which can provide the customer with

have been very helpful,” Karina Herrera, Head of Hyundai’s

as much information as possible. It also urges companies to

Marketing area, said in an interview with Diario.mx. In May

provide knowledge and confidence about their product and

alone, Hyundai Penta Triunfo sold 73 2020 model vehicles in

to empathize with the client.

Ciudad Juarez through its online platforms, with the Tucson and Accent models being the most popular. “Clients do not

AUTOMOTIVE FINANCING

have to leave their home. We can arrange a test drive around

The crisis unleashed by COVID-19 also affected financing for

the neighborhood and later, if they are interested, we arrange

vehicle acquisitions. According to AMDA, at the end of 1Q20,

all the necessary paperwork for the sales contract and finally

296,677 new cars were sold in the country, of which 62.5

we deliver the vehicle to the client’s door,” Herrera said.

percent were purchased through financing. This represented a drop of 7.3 percent against numbers from 1Q19, although

In late May, Peugeot launched its online store in Mexico,

the percentage of financed cars against the total number of

called Peugeot E-STORE, where customers can check vehicle

sold units grew by 2.4 percent. Faced with the pandemic and

availability in real-time and schedule a test drive at home. “We

the economic downturn, the industry also expects a drop in

have identified this new need and desire of the customer to

insurance sales due to the fall in people’s income, according

be able to buy from home. The desire to buy a vehicle online

to Ricardo Ochoa, President of the National Commission on

has grown in May by 40 percent against April. This shows

Insurance and Bonds (CNSF). This will impact both insurers’

that clearly some customers are interested in this new sales

income and their liquidity, as well as the cost of insurance.

channel,” said Igor Dumas, CEO of Peugeot in Mexico.

“Insurance sales will decline. The use of cars has decreased as people are not leaving their home. This affects the purchase

This sales channel could be strengthened once the

of new cars and the acquisition of insurance, among other

contingency in Mexico ends and automotive companies can

things,” Ochoa said during a virtual meeting with the Chamber

dedicate more of their resources to this business model. Even

of Deputies’ Finance and Public Credit Commission.

VIEW FROM THE TOP |

MARKET DISRUPTION RATTLES DEALERSHIP BUSINESS CARLOS LĂ&#x201C;PEZ DE NAVA Director General of Grupo Alden

Q: What are the main challenges hampering sales in the

newly arrived brands trying to penetrate a saturated market,

Mexican vehicle market?

mainly because they ask for low initial investments from their

A: New vehicle sales in Mexico peaked at 1.6 million units in

distributor partners. Traditional brands with big market shares

2016 thanks to several conditions. Inflation and interest rates

in Mexico like GM and Chrysler will see less-than-ideal results,

were on the low side, allowing financing companies to offer

in part due to the lack of new vehicle launches. On the other

inexpensive car loans and to demand exceeded production.

hand, brands like Toyota, Honda and Kia, will maintain or even

Most brands had to deal with backlogs in terms of production.

grow their market share as Mexican car buyers become more

Mexico eventually entered an inflationary period and costs

pragmatic and go for brands known for their reliability. Luxury

of credit increased, which has disincentivized the purchase

brands are likely to maintain similar results as in previous years

of new vehicles. Aside from these macroeconomic factors,

with minor variations depending on what OEM introduces the

younger generations no longer perceive cars as a symbol

latest technology.

of status, so millennials feel no need to constantly change vehicles. At the same time, vehicles sold in 2016 had better

Q: What is the best strategy to weather the storm until the

technology than in previous generations, which means they

market recovers?

have longer life cycles. Consumers who purchased a car in

A: Dealership groups that offer great customer service and

2016 will not need to change it for a new model in 2019. As the

have quality processes supported by a robust business

electrified vehicle park increases, new challenges will emerge

resilience strategy will survive, while others will leave

because EVs take longer to deteriorate when compared to

the automotive industry. This sector used to be highly

traditional internal combustion units.

attractive for investors but that appeal has faded away as market conditions change. Rather than trying to open new

Q: How much will this loss of interest in vehicle ownership

showrooms, companies interested in this sector should look

impact sales in Mexico?

for opportunities in having and operating fleets to offer

A: Compared to Generation Xers or baby boomers who saw

mobility services.

cars as an extension of themselves and a status symbol, millennials and younger generations have lost interest in

Q: How is Grupo Alden planning to take advantage of new

owning and driving vehicles. Life has become much more

mobility services to grow?

expensive for them; it is harder for millennials to own a car

A: We may take advantage of our used vehicle stock to offer

and even those who can afford it are largely uninterested.

a car rental service based on a straight-forward and user-

This transformation has spurred speculation regarding car-

friendly digital platform. Customers will be able to rent one

sharing services and whether Uber and its competitors will

of Grupo Aldenâ&#x20AC;&#x2122;s used cars for as long as they want through

become the new norm, which puts pressure on OEMs to find

an Uber-like app where they can choose the vehicle that they

new buyers for their vehicles. Large fleet owners that purchase

want to drive. We will deliver the car to the customer without

vehicles at bulk prices and offer transportation services for

them having to go through the hassle of signing insurance

a premium could become the main source of revenue for

and waiver documents. Moreover, we are working to make

automakers as fewer end consumers purchase new vehicles.

the service up to 30 percent less expensive than traditional rental competitors.

Q: What are your projections for the Mexican vehicle market, considering the sustained drop in sales? A: It is unlikely that we will see an improvement in the short

Grupo Alden is a new and used-vehicle dealership group

term. Sales remain on the low side and profit margins are

that started operations in 1984. The group handles 14 brands

still shrinking, which may drive some dealership groups out

including Kia, Hyundai, Ford, Mazda, Audi, Kia, Renault, Suzuki

of business. Some companies may choose to partner with

and Lincoln

329

| ANALYSIS

THE END OF A SALES CYCLE The Mexican automotive industry is reaching the end of

the Top 3 sellers decreased their market share between 0.5

a sales cycle. Annual sales declined 7.7 percent in 2019

to 1.5 percentual points, while Toyota and KIA gained 0.5

compared to 2018. The Top 5 sellers did not change from

points in market share. Outstanding growth rates go to JAC,

2018. Nissan stays at the top with 268,156 units sold,

BAIC and Bentley. However, their market share remains low.

followed by GM with 211,987, Volkswagen with 143,649,

Companies with more than 15 percent annual growth are, in

Toyota with 105,663 and Kia with 95,539 units. Interestingly,

descending order, Volvo Cars, Renault and Suzuki.

VEHICLES FINANCED BY

NEW VEHICLE FINANCING IN MEXICO BY

GRAPH TITLESEGMENT 2018-19

CREDIT MATURATION TIMES 2018-19 GRAPH TITLE 2019

2019

6 months 11 months 12 months 18 months 24 months 30 months 36 months 48 months 60 months 72 months Other periods

2018

Number of credits in 2019

Total vehicles financed in 2019

902,026

790,823

968,870

871,324 in 2018

in 2018

330

plus selffinancing

2019

2018

Used vehicles financed

New cars 87.7% 89.9% cars New vehicles financed12.3% 10.1% Used

18 months

48 months

Other periods plus self-financing

12 months

36 months

72 months

11 months

30 months

60 months

2018

0.8%

1.5%

2.9%

3.2%

2.2%

1.7%

10.3% 9.4% 0.8%

1.6%

16%

15%

16.6% 16.9% 33.8% 34.1% 10.3% 12% 4.7%

4.2%

Although new car sales and car loans for new units have decreased, more used vehicles are being sold with financing in Mexico 6 months

24 months

LIGHT-VEHICLE SALES VARIATION IN 2019 COMPARED TO 2018 BY OEM (percentage) 80

11.44

8.69

ISUZU

Subaru

1.38

11.92

Mitsubishi

3.38

18.31

60 40

-8.81

-16.09

-14.06

Nissan

-12.92

-11.21

Lincoln

-2.84

-16.31

Ford

-60

-32.88

-14.18

FCA Group

-40

-10.20

-20

General Motors

-80

Japanese OEMs

US OEMs

Hyundai

KIA

Suzuki

Mazda

Acura

Honda

Toyota

Infiniti

-100

South Korean OEMs

Asian OEMs

AVERAGE QUARTERLY INTERBANK INTEREST RATE BALANCE AT 91 DAYS (TIIE) IN MEXICO

8.15

8.35

8.57

8.51

8.31

3Q18

4Q18

1Q19

2Q19

3Q19

7.72

7.92 2Q18

7.46 4Q17

7.8

7.39 3Q17

7.1

3.4 4Q15

2Q17

3.34 3Q15

4.69

4.16

3.31 2Q15

2Q16

3.32 1Q15

3.83

3.3 4Q14

1Q16

3.31

3.69 2Q14

3Q14

3.8

1Q14

5.6

7 6

6.54

1Q17

1Q18

AVERAGE QUARTERLY INTERBANK INTEREST RATE BALANCE AT 91 DAYS (TIIE)

BEST-SELLING LIGHT VEHICLES 2019 (thousands)

65% of MAR19/20 interviewees expect the domestic market to start growing between 2020 and 2025

100 80 Source: 60 40 20

Jetta

Sentra

Beat

KIA Río Sedan

Beat 4 doors

Vento

March

NP300

Aveo

0 Versa

4Q19

3Q16

4Q16

331

LIGHT VEHICLES SALES IN MEXICO BY SEGMENT

LIGHT VEHICLES SALES BY SEGMENT (thousands) Subcompacts SUV's Compacts Pickups Luxury Minivans

2018 2019

Sports cars 0

100

200

300

400

500

23.24

-10.61

12.79

Peugeot

5.70

18.37

Renault

-11.51

Mini

2018

French OEMs

British OEMs

Volvo Cars

Jaguar

Land Rover

Smart

Porsche

Audi

Bentley German OEMs

Mercedes Benz

Chinese OEMs

SEAT

Volkswagen

-96.97

-3.70

-11.46

BMW

44.44 -16.72

-5.38

5.40

58.87

BAIC*

-8.54

63.46

JAC

2019

Swedish OEMs

European OEMs *Started reporting in June 2018

Sources: AMDA, AMIA, INEGI, Banxico

*started reporting in June 2018

| VIEW FROM THE TOP

NEW VISION NEEDED TO KEEP DEALERSHIP BUSINESS CURRENT FERNANDO ENCISO Director Mexico of Grupo Surman

Q: How has Grupo Surman advanced in its strategy to

can configure their car using a life-sized digital version. As we

revamp sales?

adapt new technologies to our showrooms, we will continue

A: We have taken significant steps toward changing the way

hiring younger staff who can help the company deliver a

we sell cars. In some cases, Grupo Surman engages directly in

positive digital experience to customers.

the sales innovation strategy that each brand implements. In

332

others, the company establishes its own methodologies and

Q: What is Grupo Surman’s strategy to stand out in Mexico’s

promotes new digital channels. For example, we developed

contracting vehicle market?

a new app that helps us monitor the used-vehicle inventory

A: Quality service goes a long way in the vehicle market. There

of our 95 dealerships to improve communication within our

are so many brands and vehicle options out there that people

network and make used-vehicle sales more efficient.

look for a trustworthy consultant that helps them understand what type of vehicle better suits their needs. One of the

Dealership visits continue to plummet, with an increasing

advantages of being a multi-brand company and the largest

amount of sales now coming from digital leads. As a

dealership group in Mexico is the possibility to offer a wide

dealership group, Grupo Surman cannot afford not to change

vehicle lineup to clients and to collaborate with digital sales

its ways. Working the way we used to is unsustainable. In

channels to deliver the vehicles they need.

this new environment, we must attract more millennial talent who bring digital know-how to the company. The combination

Rather than just making customers feel good with the

of younger and older generations in Grupo Surman’s sales

purchasing process, Grupo Surman also focuses on boosting

force has not been easy, however. On the one hand, there

employee satisfaction to the point where they are proud

is the advantage of modernizing the leadership style in our

of what they do and they transmit this feeling naturally to

organization and generating a new internal dynamic. On the

others. Customers can sense when people are happy and

other hand, the cultural change toward modernization that we

passionate about their work, which gives peace of mind. It

expected has not happened as fast as we had hoped, so staff

also instills trust, which leads the customer to come back for

turnover has remained high in some areas of the company. It

new purchases.

is complicated for any company to retain millennial profiles when there is a Generation X or older leadership in place.

Q: What partnerships is Grupo Surman developing to deliver a more attractive value-offering?

Q: What future do you see for Grupo Surman and its

A: Out of a need to complement their income, companies

competitors in the digital age?

are starting to enter areas of the automotive business in

A: The dealership role in vehicle sales will change. We will

which they were traditionally not present. For instance,

become customer service centers to some extent, so our staff

Grupo Surman used to develop agreements with insurance

needs to adapt to meet this new profile. Grupo Surman will

companies and aftermarket lubricant suppliers but now works

continue to meet OEM requirements, such as having large

with the companies that have an agreement with all the

showrooms and in-house shops, but the company will also

brands that we manage. We work closely with the brands that

adapt to new formats as brands implement new ideas. For

we represent and are always onboard for the new projects that

instance, Chevrolet is now launching videowalls, where users

OEMs implement to generate synergies in new business lines. Grupo Surman works with all the financing branches of the

Grupo Surman is a Mexican dealership group focused on

brands it represents and we have our own vehicle leasing

new and used-vehicle sales. The company manages brands

division, called Time 2 Lease. These different business lines

including Chevrolet, Bentley, VW, Peugeot, Porsche, JAC, Kia,

help the company deliver a more integrated value offering

Hyundai, Audi, BMW, Ford, Nissan and VUHL

to car buyers.

VIEW FROM THE TOP |

FOCUS ON THE PRODUCT, NOT SALES NUMBERS ALEXIS URIBE CEO of Grupo Uribe

Q: What role does automotive play in Grupo Uribe’s

My advice to them is to not focus just on selling volume, but

operations?

to focus on selling unique assets. Distributors need to have

A: We have been distributors for several large car brands,

clarity on the advantages their vehicles have in terms of

including Audi and SEAT. Our dealerships provide a range of

technology and safety. This is how you convince a customer.

benefits, one of them being Smartlease, which is a form of

Volume will come naturally but with healthier margins, clients

full-service leasing. For large clients, we take complete charge

will be convinced about why they trusted the brand. One way

of their fleets. One of our goals is to support the client with

to improve this is through a strong digital outreach. The reality

choosing the right product by looking at their needs. We help

is that margins have dropped and sales and aftersales services

them pick the right brands and estimate maintenance costs.

have become more important as people turn to the used-

This ensures that they can plan their budget in advance and

car market.

provides them with certainty. It also allows us to work more effectively with OEMs, for example in the supply of spare

Q: Considering Grupo Uribe’s activities in LPG, are you

parts. Our light-vehicle area is complemented by our heavy-

considering offering this fuel for cars?

vehicle division, where we represent the truck brand Hino. In

A: Yes, we have worked on this for the past two years and have

total, automotive operations represent 5 percent of Grupo

invited several OEMs to consider it. Unfortunately, LPG use is

Uribe’s operations.

still limited in Mexico. This makes it very hard for OEMS to see a return on their investment in this technology and the business

Q: What strategies are you implementing to cope with the

models that go with it, considering as well product quality

latest market changes?

validation. The issue is not restricted to Mexico. Generally,

A: We live in a very different political and socio-economic

there is limited infrastructure for LPG fueling, which would

landscape than in 2017. Our goal is to grow our automotive

need significant investment, even though we are convinced

operations through continuous improvements in our

it is worth it. This is an area where we would need the help of

dealerships. People worry as they witness drops in car sales,

the government, car manufactures, and other LPG companies.

coupled with heavy competition between car brands and

For now, we are focusing on aftermarket LPG conversions.

between dealerships. There are markets where dealerships are 10 minutes away from each other and sell the same car brands.

Q: Are you venturing into the electric car market anytime soon?

Our formula is to focus on strong service and providing advice

A: Electric cars are a fashionable topic. It is a reasonable

to our clients; it is all about generating client loyalty. To do

alternative but far from ideal. In terms of the environment,

this we have to invest heavily in training our staff, which is

there are issues with sourcing the lithium for batteries and

expensive. Because of the ongoing hurdles, we have had to let

the production process for these batteries still relies on

people go at many of our dealerships. However, rotation has

conventional energies. Regarding the market, unfortunately

not been as bad as in other years, particularly 2017. Despite

there are no subsidies in Mexico. Furthermore, production

difficult times, we personally saw an extraordinary growth of 8

volumes remain low. It is very expensive for OEMs to produce

percent for SEAT last year. Overall, we had an increase in sales

such a car if the product is not competitive. I see this as a

of 11 percent. Of course, this is in part related to the fact that

long-term project.

we are still new in the market and consolidating our position. Q: What is your advice for struggling car dealerships?

Grupo Uribe is active in the energy, financial services, LPG and

A: With the increasing number of brands in the market, it

real estate sectors. In the automotive sector, it provides sales,

has become harder for dealerships to stand out. Some are

leasing, fleet management and aftersales services representing

offering large discounts hoping to increase their sales volume.

different car brands

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CONSUMERS CONTINUE TO DEMAND CREDIT RICARDO DUHART Director of Strategy and Solutions for Companies and Government at BBVA

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Q: How successful has BBVA been in attracting new

Q: As digitalization permeates the credit sector, how does

clients in the automotive segment with its digitalization

BBVA’s offer stand out from other players with similar

strategies?

products?

A: Financing should be an element of the overall

A: Digitalization is the essence of our business model.

purchasing process and our solutions have helped clients

A first competitive advantage is our specialization in

to apply for loans directly through a mobile device. The

the automotive sector, since not all financial entities

client receives the approval and then picks up the car.

competing in this market are ready for digitalization.

This platform is already available and it has made the

Second, we have a comprehensive offering as a financial

purchasing process easier. Although growing steadily, this

entity and we work under a personalized scheme to offer

side of our business remains small, representing around

our products to a dealership or an individual customer.

3-5 percent of our monthly activity.

We offer everything the value chain needs through a

BBVA's digital credit portfolio is at 5 percent. The goal for 2020 is to reach 10 percent

specialized business unit. A third element is our level of service, reliability and closeness to dealerships. All these advantages give us a quicker response time, a better market understanding and overall specialization, thus making us leaders in the market. Q: As the largest bank in Mexico for consumer credit, what are BBVA’s strategies to cope with declining financing numbers in Mexico, both for consumer and

Buying a car is an emotional experience, but all the

automotive credit?

paperwork around loans makes it a nightmare. If a bank

A: Despite sales falling around 8 percent, we are growing

takes three or four days to approve your credit, you might

at a 14 percent rate. This is due to different factors. One,

think twice about your purchase. In essence, we want to

our innovative products and the strategies we have

become almost invisible in the purchasing process by

implemented together with dealerships have made us

making it easier to apply for a loan for both the end-

the preferred brand for financing. We have also molded

customer and the dealership. We are also working on

our strategy in the automotive sector for the long term.

improving our response time, for which we are already the industry’s benchmark.

Financial entities should also be more careful when approving loans and know who their potential client is.

Today, 75 percent of all credit applications are answered

In the banking sector you manage risks. If you are not

in less than 25 minutes, enabling dealerships to provide a

careful regarding the key indicators for a healthy portfolio

test drive while we analyze the application. The customer

and you start approving loans randomly, you end up

will not only be in love with the car, they will be able to

paying for it. I have seen this through my 30 years in the

buy it immediately, which increases the probability of

banking sector. Car financing is a business of economics

closing the sale.

of scale and if you do not generate valuable elements, it is very difficult to guarantee million-dollar investments to sustain the service. Constant feedback allows you to

BBVA is the result of Spain’s Banco Bilbao Vizcaya Argentaria

improve your services and products as operations ramp

(BBVA) becoming the main shareholder of Bancomer in 2000.

up. Being cautious and providing a very good service

BBVA is the largest private financial institution in Mexico and

has helped us to become leaders in the industry. There

the main bank for automotive financing

have been months when we have been country’s top

loans provider. This is a major achievement because it is

relief, little by little the financial situation will improve and

a situation that has not happened before.

the negative trend will end. If there are no external factors that have an impact on familiesâ&#x20AC;&#x2122; income, I would expect

Q: What strategies are you implementing to grow your

a decrease in interest rates and a subsequent gradual

market share and capture the non-banked population?

increase in car sales and financing.

A: Financial inclusion is something we have talked about for quite a bit at the bank and we are the only bank

Q: What are your growth expectations regarding

that does not ask for income receipts from our clients,

automotive credit acquired through digital means?

except when the loan exceeds a certain amount. In 95

A: Today, digital credits represent 5 percent of our total

percent of the cases, we do not need income receipts

portfolio and the goal for 2020 is to reach a 10 percent

to grant a loan.

share, although we are aware the year will be challenging due to challenging market conditions. Regarding car

Given our experience in financing cars since 1988, we

sales, I believe growth will remain close to zero. The

have developed our capabilities enough to know when

automotive industry has had over 30 months of declining

someone is eligible for credit. It is true that it can be

sales, which means the financing market will not grow

difficult to be proactive in loan decisions with little

again until 2020.

information. Yet, we took a step forward in the industry when we launched this decision-making process in 2015.

Q: What further innovations could clients expect from

Our financial inclusion strategy only requires clients to

BBVA in the near future?

provide their ID and a proof of address. There is still much

A: We are rebuilding what we already have. We are

more to be done, however.

improving customer experience to make it even easier to get a loan. At the end of the day, what we want to do

Q: What market conditions are needed for automotive

is embed ourselves in the purchasing process since the

financing to start growing again?

important element here is buying the car. We are the

A: If you look at it from the demand perspective, the

means for client to fulfill their dream of having a new

market has not shrunk. The number of applications that

car. If we become more invisible in the process, we will

BBVA gets on a monthly basis is growing. It is not that

know we are doing things right. Next year will bring some

people do not want to buy a car but that their purchasing

interesting opportunities for BBVAâ&#x20AC;&#x2122;s services.

power has deteriorated. For three years, we have seen a small but consistent decline in clientsâ&#x20AC;&#x2122; credit profile

Q: What is the extent of your relationship with online

due to inflation. If prices are rising while salaries remain

platforms like Mercado Libre and Kavak?

the same, families do not have money available for a

A: Collaborating with these websites is part of our

loan. Therefore, the decline in car financing is due to an

digitalization strategy. We are working on a first product

increase in the number of rejections.

that could be replicated on all platforms. The idea is for clients to be able to choose their car, apply for the loan

If things start to change in the next year, with salary

on the same website and receive an approval or rejection

increases, more people getting into formal jobs and debt

immediately to complete the purchasing process.

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| VIEW FROM THE TOP

HELPING COMPANIES GROW IN THE MEXICAN MARKET SIMON HARRSEN Vice President Sales of Mexico at CHG Meridian

Q: What role does the automotive industry play within CHG

thanks to the leasing schemes we provide to give them

Meridian’s operations?

access to state-of-the-art machinery and technological. With

A: Thirty percent of our client portfolio is in the automotive

attractive leasing schemes, companies have the opportunity

industry. We are a German company with more than 10

to update their equipment regularly, which helps them to

years in the Mexican market. There are important German

adapt quickly to new production requirements.

automotive companies in the country and we support them

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with their investments in production lines, machines and

Q: How does technology leasing help companies to

other technologies. Large global players also trust us to meet

save costs?

their technology needs. At the same time, we support local

A: There are several contributing elements. The first is the

companies by financing their industrial equipment and other

tax benefit. All rentals are 100 percent tax deductible. We

technologies. The automotive sector plays a key role for CHG

also take into account our equipment’s residual value, so

Meridian and our commitment to the industry is strong. Our

our customers are not amortizing 100 percent of their

outlook remains overall positive for the middle and long term.

investment on machinery. We can also help our customers generate savings because they are able to access the

Q: How do your ‘global standardized prices’ help companies

latest technology. If you have the newest machinery you

to be more competitive?

can produce more components, improve your productivity

A: We are a global company with a footprint in over 27

and generate savings. We believe that under a smart leasing

countries. Global companies are looking for a unique, yet

scheme, companies have a great deal of room to reduce

standardized solution for all countries where they operate.

costs. It is different from company to company and it also

Mexico is an important destination for the automotive sector

depends on the nature of the activities, but savings usually

and we can offer a global platform for companies working

average around 20 percent.

here and for companies that want to work here. We are working with customers that are looking for standardized

Our leasing schemes are flexible and accessible to meet

solutions, which is an advantage for us.

our customers’ needs. At the end of the day, we do not directly supply any machinery, which assures our autonomy

Among our clients is one of the largest automotive producers

in supporting the technical decision our customers prefer.

in the world that has several manufacturing facilities in the

Based on the technical requirements, we can offer a

country. Our business relationship goes back 10 years. We have

financing solution while integrating several brands or

a very good relationship with the company’s headquarters

distributors. If needed, we also take into account technology

in Germany, while maintaining a local approach and close

integrators and installation in the lease agreement.

communication to adapt solutions to the local context. Q: What potential do you see to grow in the Mexican market? Q: How do you help companies to adapt to the automotive

A: Mexico has been one of our fastest-growing markets

industry’s dynamic context?

over the last few years. The country plays a relevant

A: We believe that as a company we can maximize the

role among our 25 locations and we see great potential

productivity of our customers’ employees and processes

considering the imminent enforcement of USMCA. With this new trade deal, Mexico will be more closely integrated into North America. Companies in the country

CHG Meridian is a German leasing company with operations in

will benefit from the close relationship with the US and

27 countries. The company specializes in tailor-made leasing

this region will be stronger in the future and so will the

schemes for technological equipment and machinery across

Mexican economy. Our expectations remain high for

different sectors

Mexican companies.

VIEW FROM THE TOP |

TRANSFORMING THE USED‑VEHICLE MARKET FOR GOOD CARLOS GARCÍA CEO of KAVAK

Q: What opportunity did Kavak find in the Mexican used-

Q: What impact has COVID-19 had on Kavak’s

vehicle market?

business model?

A: We saw an opportunity for Kavak to participate in this

A: We analyze growth through different consumption

segment to provide all necessary warranties to consumers

channels. When the emergency started, we slowed our

to trade their used vehicles. We learned that given the

operations to protect our teams and our consumers by

informality levels of the market, there was no room for

implementing all required health and safety protocols. We

those transactions to be financed, which made it more

built a contactless experience. While we were preparing

difficult for a potential customer to sell or purchase a

for this, we saw a deceleration in our numbers but

used vehicle. Globally, between 80 and 90 percent of used

since we set the plan into motion, we have seen daily

vehicles are financed. In Mexico, this figure drops to just 5

growth between 5 to 10 percent. We expect that by the

percent. There was a huge gap in the segment. Kavak has

time we reach the final stages of the pandemic, we will

been in the market for four years and, during this time,

see a remarkable performance. Most of the customers

we have become the country’s No. 1 platform for selling

approaching Kavak now are those who have realized they

and purchasing used vehicles. More importantly, given the

need a private vehicle rather than other transportation

current circumstances, we are the only alternative that

options they were used to.

allows people to sell or purchase their vehicle without leaving their home. We guarantee that customers feel

Q: How would you describe Kavak’s unique features?

comfortable with the vehicle’s mechanical functionalities

A: We are the only online platform where you can find

and any financing scheme they may need. Over 50 percent

more than 2,000 vehicles in optimal conditions and

of our sales are financed.

within any price range. We have a verified stock with the best price-quality ratio in the market. Moreover, we

Our clients have seven days or 300km to test the vehicles.

are the only platform in Mexico with a unique seven-day

If they do not like it, they can return it, no questions

or 300km return policy. To offer that, we conduct an

asked. Another element that has helped Kavak to grow

excellent reconditioning and inspection of the vehicle.

in the Mexican market is its philosophy. We prioritize our

Moreover, despite the market’s informality, we can

consumers, treating them as if they were our mothers. On

provide access to financing schemes through traditional

the other hand, as a digital company in a country that has

banking institutions. We are obsessed with finding

seen its digital gap decrease considerably over the last five

new alternatives for our customers under a full digital

years, we are capturing some of that growth. Furthermore,

experience or through a personalized experience related

in the COVID-19 scenario, we are the only alternative for

to the vehicle. We work to reduce the unnecessary time

such transactions. The world is changing considerably

our customers spend when looking for a new car. We are

because of the pandemic. What we are seeing in countries

very passionate about our consumers. Buying a vehicle

that have passed the first stages of the pandemic, such as

is one of the most important decisions for them and we

China and Germany, is that consumers are choosing private

want to guarantee an excellent experience throughout

vehicles over public transportation. People are prioritizing

the entire process. Our consumer-centered culture is our

social distancing, which will be reflected in the growth

biggest differentiator.

of private vehicles sales. However, the greatest growth will be experienced in the used-vehicle segment given the affordable prices it offers. If we add social distancing and

KAVAK is an online platform for purchasing and selling used

the fact that people are also prioritizing savings given the

vehicles in the Mexican market. The company has been in the

harsh economic conditions, those are ideal conditions for

market for four years and since 2019 it has been a leader in its

a company such as Kavak to be successful.

segment due to its unique customer-centered approach

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| VIEW FROM THE TOP

PIONEER IN A NASCENT NICHE: DIGITAL VEHICLE SALES NAZARETH BLACK Founder and CEO of Car Fast

Q: How does Car Fastâ&#x20AC;&#x2122;s operational structure benefit the

buying online are going to start acquiring the habit, not

final customer?

only to do basic things like shopping for groceries but

A: We are focused on selling and promoting new vehicles

for long-term decisions like buying a vehicle.

digitally. Car Fast is the first automotive dealership on

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the internet where people can buy a new car or even a

Q: How has Car Fast strengthened its relationship with OEMs,

tractor, truck or mower. Car Fast is the only dealer that

brands and dealership groups?

an entirely integrated automotive offering. We are guided

A: Car Fast originally intended to obtain a fully digital and

by the prices or by the price policy established by each

exclusive dealership from an OEM without having a dealer as

brand. We will also match the price a customer may find

an intermediary. In the early 2000s, this was illogical and even

at any other dealership. What want to ensure the client

impossible. We started with a business model where our role

pays a fair price for what they are acquiring.

was that of a digital marketplace for dealerships and banks to offer their products and services. We had to have a great

In Mexico, seven out of 10 vehicles are sold with financing

deal of patience to see the results that we are seeing today. We have two exclusive concessions: Zacua and Tazzari. We are the only Zacua dealers in the world, a 100 percent Mexican brand of electric cars. Similarly, Tazzari is an Italian electric vehicle brand that can only be purchased in Mexico through our platform. There has never been a direct concession of an OEM to a digital platform in the

Financial focus is also very important for Car Fast. In

country or in Latin America before Car Fast.

Mexico, seven out of 10 vehicles are sold with financing. Having said that, financing is precisely where clients can

Another major effort in this regard is Car Fast Financial,

find savings. Based on the customerâ&#x20AC;&#x2122;s profile and needs,

our sister digital platform where clients can receive

we can design the best option in terms of financing.

financing options for new or used vehicles in a few

Although different credit schemes can appear the same,

minutes. Our platform allows secure and transparent

the client can save a lot of money by choosing the

purchases of new vehicles. When DiDi arrived in Mexico,

right option.

we created a pilot test to provide loans to all its drivers for the acquisition of new units.

Q: What critical moments has the company lived through? A: We are finally beginning to see the fruits of our efforts.

Q: On your website, you mention that the purchase is

With the COVID-19 crisis, people are buying most things

just the beginning of the journey. What does this mean

online. It has become clearer than ever that digitalization

for Car Fast users?

is very important. At the moment, the streets are empty,

A: Aftersales service is extremely important. We have

dealerships are closed and companies do not know how

delivered thousands of vehicles and to each of our

to react. For their part, people who were not used to

clients we have also delivered a thank you letter for their purchase with my personal cellphone number included. If at any time they need support, they can talk to me so

Car Fast is a Mexican digital dealership that offers all car

we can help them solve any problem they may have with

brands. It has exclusive partnerships with Zacua and Tazzari.

their vehicle. Aftersales attention corresponds to each

Vehicle sales are supported by its digital financing platform

brand, but we like to create a bond with our clients and

CarFast Financial

help them solve any inconvenience they may have.

VIEW FROM THE TOP |

AS BUYERS CHANGE, WILL BRANDS AND DEALERSHIPS ADAPT? AMELIE MOSSBERG Commercial Director of Motors Classifieds at Mercado Libre México

Q: What is Mercado Libre’s strategy to boost vehicles sales

need a little push to take the required steps toward this

in a contracting sales environment?

transition. Mercado Libre provides that nudge. Five years

A: We are a technology company that constantly improves its

ago, Mercado Libre used to go dealership to dealership

platform to deliver a great user experience by creating new

to offer its e-store solutions.

tools that users appreciate, such as our new price comparator and allowing users to connect with us on their smartphones

We changed our strategy to target OEMs and dealership

through WhatsApp. Around 80 percent of all searches

groups directly to deliver a more structured solution.

made in Mercado Libre are done through either our app or a

Mercado Libre also offers seminars to members of

smartphone and 80 percent of all traffic is organic. Mercado

AMIA, ANPACT and AMDA to raise awareness about

Libre’s automotive classifieds section accounts for 7 million

digitalization and how companies can transform their

visitors per month and seven vehicle searches per second.

operations.

We receive the most traffic of all the site’s sections, which showcases user interest in online vehicle sales. The millennial

Q: What enticed Mercado Libre to start offering e-stores

generation, which will account for 40 percent of all car buyers

to brands and dealership groups?

by 2020, has a different way of looking for information and

A: Historically, classified sales traditionally focused on

comparing vehicles before making a purchase decision;

used cars. In 2016, we noticed that sales were going

Mercado Libre provides exactly the tools they need.

well in this segment and decided to also target the newvehicle segment. Mercado Libre faced some resistance at

Q: Why should brands choose Mercado Libre as an online

first because brands did not want to mix its new-vehicle

sales platform instead of building their own?

offering with used cars but we have seen significant

A: We offer brands the opportunity to build an official e-store

growth in the former segment. Up to 95 percent of all

within our platform to achieve greater brand exposure.

cars sold on our platform are used but the number of

OEMs such as Audi and Nissan, as well as dealership groups

classified ads for new vehicles increased 25 percent

including Grupo Kasa Automotriz or Grupo Witt, already

between 2018 and 1Q19. We also increased the number of

have e-stores on Mercado Libre. However, not all players in

official vehicle e-stores by 30 percent in 1Q19 compared

the automotive segment are interested in investing in digital

to 4Q18 and expect to maintain that momentum.

marketing, preferring to develop their own online dealerships. The problem is that they lack the strength to attract potential

The e-commerce market is becoming increasingly

car buyers, which Mercado Libre manages thanks to its long-

professionalized, which boosts cooperation between

standing experience.

Mercado Libre and brands and dealership groups. An average of 100,000 vehicle ads are posted on Mercado Libre every

In 2019, Nissan developed a partnership with Mercado Libre

month. Last year, half of these vehicles were posted by private

with the goal of using our platform to provide its potential

individuals and the other half by dealership groups and

customers with a digital experience when looking for a new

brands but this balance has changed. In May 2019, around 60

car. We created an e-store for that brand and we support it

percent of all vehicle ads were posted by dealership groups

through online advertising. As a result, Nissan can raise brand

and brands and the rest by private individuals.

awareness and generate digital leads. Q: What is Mercado Libre’s strategy to promote e-stores

Mercado Libre is a technology company that operates online

among automotive companies?

marketplaces in 18 countries in Latin America. It was founded

A: The automotive industry in Mexico and abroad is aware

in Argentina in 1999 and is the biggest e-commerce player in

of the shift from offline to online sales but companies

Latin America

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| VIEW FROM THE TOP

ACKNOWLEDGING CULTURAL DIFFERENCES KEY FOR SUCCESS JOEL KOTOWY Managing Partner of Prime Action

Q: What are Prime Action’s solutions for the

A: They do not acknowledge cultural differences between

automotive industry?

the brand’s country of origin and the country where they

A: We are a Brazilian company with more than 18 years

are landing. For instance, when a brand is just entering

in the Mexican market. Our service is oriented toward

the market, it has its own programs or projects set by

marketing strategies, dealership development, process

headquarters. Dealership networks and final customers

standardization and sales channel development. In the

have different needs here. Bringing a preset package can

automotive sector, we provide services for heavy and

be a liability.

light vehicles. Some of our main clients in the country

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are Toyota, Nissan, Renault, Mitsubishi, Harley Davidson,

Consumers are used to looking for information online.

BMW and Daimler. Looking at our history, we have worked

When they go to the dealership, they go to confirm their

with 80 percent of the automotive brands present in the

decision with an expert. Today’s customers are better

country, either in their new car sales area, used car sales,

informed, which is why it is imperative to have a better-

aftersales, parts and financing areas.

trained and better-informed sales force. Each brand has its specific market niche. They should to identify this first and

Each project is unique and so are our customers. Our

then identify the effective market potential, with which

first project in Mexico was “Siempre Contigo” (Always

brands they are competing and where. In defining this

With You), which aims to standardize all sales and

kind of strategy, brands need to identify customers’ needs

aftersales processes in Chevrolet’s dealership network.

and then address these through data-based decisions.

We established a scorecard to keep track of sales

A company cannot be making offers based on feelings.

results and improvement areas. We eliminate the ghost

This applies to all automotive market segments: volume,

of coincidence through evidence. This model remains

premium and even to heavy vehicles.

after 18 years at GM’s dealership network. Another major experience was the “Comonuevos” (Just Like

Q: How is Prime Action embracing trends such as Big

New) project we implemented with Toyota. This model

Data and digitalization?

was developed by Toyota USA, but we adapted it to the

A: We understand the market needs more assertive

Mexican market considering dealership needs and market

strategies. To that end, data analytics capabilities will be

needs. In the premium segment we have worked with

essential. We are investing to provide greater value for

BMW on adaptating and implementing a Basic Process

our customers through digitalization, including machine

Guide (BPG) to adapt one of its programs to the Mexican

learning and artificial intelligence solutions that can boost

context for both the dealership network and the end

our clients’ results in sales and aftersales. We continuously

customer. Using this model, BMW has achieved customer

support our clients on how to produce more and at

satisfaction with aftersales service in 2019, according to

better-quality data and how to manage such operations.

J.D. Power.

Most dealerships do not have an adequate structure to use databases or a process to make these efficient.

Q: What are some common mistakes that brands make

This is one of the greatest needs and opportunities for

when landing in the country?

this market. What Big Data can do is help a company to redefine

Prime Action is a Brazilian consultancy focused on product

its strategy and even its business model. We cannot

management, dealership and sales channel development. Prime

neglect the role Big Data plays in product distribution.

Action has collaborated with Toyota, Chevrolet, Ford, Nissan,

All strategies must interconnect both headquarters and

Mitsubishi and Renault, among others

dealerships through the right use of information.

VIEW FROM THE TOP |

STEADY GROWTH FOR INSURANCE COMPANIES GERMĂ N AGUADO Director of Car and Damage Insurance at GNP Seguros

Q: How important is the automotive sector for GNP

Q: How has theft impacted the insurance market?

Seguros (GNP) and how have changes in regulations

A: Theft is a complicated issue in the truck segment and

boosted domestic insurance penetration?

this is closely related to cargo theft. Three years ago, truck

A: GNP was the biggest insurance company in Mexico in

robberies spiked, so we are now working on preventive

1H19. Our main segment is medical insurance, where we

measures. Today, most trucks are equipped with GPS

are unquestionable leaders. We are also leaders in life

devices. We also have the support of federal agents and

insurance, with the biggest labor force in the industry at

the National Guard. Thus, when a vehicle is reported stolen,

more than 10,000 insurance agents. Our third-biggest

the authorities take action to recover it. Theft continues

segment is car insurance, which accounts for 25 percent

but the situation has somewhat stabilized.

of our operations. Regarding car theft, contrary to what the media portrays, New regulations have not had the impact that the

the number of stolen insured cars decreased in 1H19

insurance industry expected. Despite insurance being

compared to 1H18, which has helped to reduce our prices.

mandatory, there is no inspection for it and there is

Furthermore, there was also a reduction in material

no sanction for not having it either. For a moment, we

damage coverage as people actually crashed less during

thought the car insurance industry would grow, but the

1H19. We donâ&#x20AC;&#x2122;t have an explanation for this but we believe

reality is that the same clients we had are the ones buying

there are several factors around this trend: first, fuel

car insurance.

scarcity at the beginning of the year; second, gasoline has become more expensive so people use their car less

Q: How does your strategy vary when dealing with new

and third, traffic regulations and car safety systems have

and used cars?

also reduced accidents.

A: With new cars it is all about efficiency. Around 70 percent of all new cars are purchased through financing,

Q: How will new mobility options impact the car

60 percent using brand financing and 10 percent through

insurance market?

banks. Financed cars always come with insurance since the

A: We have studied new mobility trends and technologies

company granting the loan needs to protect its investment.

in Mexico and we believe they will modify car use but their

Brands and banks offer several insurance options to the

impact will be gradual. We dismissed an impact on car

client and often, the decision is based on price. GNP is the

insurance because insurance penetration remains low. Only

best-known insurance brand in the market, so potential

30 percent of cars have insurance. This figure is growing

clients choose us when prices are similar. In addition, we

slowly but there is still a big opportunity to grow. At the

have a special relationship with dealerships and financing

same time, the middle class is expanding, which means

companies. We have supply agreements to guarantee cars

more people will need cars and thus insurance. Growth

will be repaired at brand workshops while the warranty is

rates in the insurance market may diminish but for the next

still active, which usually lasts two to three years.

five years we do not foresee a relevant variation in demand nor a significant trend in terminating car ownership in

Used-car sales are more of a one-to-one deal. The internet

favor of other mobility options.

has transformed insurance into a very transparent and easy-to-purchase product. Therefore, our clients are empowered and can look at different car insurance options

GNP Seguros, part of Grupo Bal, is an insurance company with

online and then approach the insurance agent or bank to

over 115 years of experience working in the life, car, medical

buy it. It is a two-step purchase. Our main strength is our

expenses and damages insurance markets for both private and

reputation and our several distribution channels.

corporate clients

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| SECTOR AT A GLANCE

USER-FRIENDLY SOLUTIONS DEVELOP VEHICLE INSURANCE MARKET

“

There are several groups that have been neglected by the current insurance market” Leonardo Cortina, Founder and CEO of miituo

to have transparency regarding costs, especially in these opportunity niches. “From a financial perspective, it is important to keep insurance costs affordable and personalize them according to different client profiles.” Cortina says high prices are behind the market’s limited penetration, especially among those who do not use their vehicle much. “If clients are not driving their car, they should not have to pay for their insurance,” says Cortina. miituo’s offering has successfully reached people who never had car insurance before. “Approximately 30 to 35 percent of our clients never

342

With a vehicle park of around 40 million, where almost 70

had car insurance before miituo,” he says. Innovation is a key

percent is uninsured, Mexico represents a significant prospect

ingredient in improving the sector, says Raúl Barba, Director

to increase insurance penetration. A great opportunity is to

General of ANA Seguros. “We need to offer policies that are

focus on those people who have never had an insurance

more affordable for a broader segment of the population and

product, says Leonardo Cortina, Founder and CEO of miituo.

that also cater to their specific coverage needs.” he says. In

“There are several groups that have been neglected by the

this process digital technologies are a must.

current insurance market,” he says. Although innovations and national coverage have helped In a contracting insurance market, Blanca Velázquez,

to grow insurance penetration, there are additional steps

Metropolitan Director of Quálitas, says it is also important

that the government and insurance companies could take to boost insuance penetration. “Legislative changes to make insurance mandatory would greatly increase coverage and general awareness about the importance of insurance.

In a contracting market, insurers are starting to see an opportunity to use technology to boost the penetration of insurance products among those who have never had insurance and those who drive used cars, but to be successful one factor may prove the most beneficial among skeptical consumers: transparency

Unfortunately, this is still not effectively implemented and some states are lagging behind, such as Mexico City and the metropolitan region,” says Velázquez. In addition to making civil liability compulsory for drivers, Cortina believes that the government could make it mandatory for every car that is sold at a dealership to have insurance. “The first thing would be to make civil liability compulsory for drivers. The government could take different measures to ensure this is enforced and impose a series of sanctions for those who do not comply.”

VIEW FROM THE TOP |

CARGO TRUCKS ON THE STREETS SIGNAL GROWTH JUAN CARLOS QUARTINO Director General of MAS Seguros

Q: How does MAS Segurosâ&#x20AC;&#x2122; product and services

Q: What impact has highway insecurity had in terms of costs

offering adapt to the industry, specifically to the heavy-

in the last few years?

vehicles sector?

A: In the last three years, insurance policies have gone up

A: MAS Seguros is an insurance broker with 32 years

around 80 percent in this sector. So, it has had a great

in the market and specialized in heavy vehicles, mainly

impact. We have identified three types of theft: one where

of classes seven and eight. We serve around 4,500

they steal the unit to sell the parts, another where they

operators and 45,000 tractor-trailer units. We are leaders

continue using the vehicle with total impunity and a third

in Mexico; there is no other company in the country with

where they take the units to Central America to work there.

the numbers we manage. In 2019, we will end up with

For those clients who are the owners of the cargo, the impact

almost MX$2 billion (US$102.3 million) in heavy-vehicle

is also significant.

insurance premiums. Q: How have you shared the advantages of your solutions We focus on creating an added value for clients so they

with potential clients?

can control their risk and provide a better service. All our

A: When we share the price of our insurance policies, we

insurance policies have satellite tracking included. This

specify all the added values we offer. We mention the satellite

helps us in logistics terms but also with theft issues. We

GPS, that our equipment is approved by the insurance we

have a joint venture with a multinational company that

work with and that it reduces the insurance deductible by

puts a GPS in all the units we manage, which has led to a

10 percent.

recovery rate of more than 90 percent even when theft frequency has multiplied by four.

In Mexico, there is still a lot of room for growth and we want to expand both organically and inorganically. Demand for

We also provide legal services around the country, which

heavy vehicles is a sign of growth. If the country is doing well,

means our clients do not need to travel from one point

there is a need to buy more trucks to transport the products

to another. We help them solve their issues and keep the

the country needs. Furthermore, 76 percent of all Mexican

supply chain on track. We have clients that are still with us

imports are moved in cargo trucks.

after several years. Our portfolio covers industries such as automotive, food and beverages, manufacturing and even

As a leading player, not only in prices but in service, we need

oil and gas. We are looking forward to opening offices in

to work on retaining and developing our client base. We have

the US because we have so many clients that cross the

an almost 95 percent retention rate and a large part of this

border or are even moving their operations there.

success comes from our focus on risk. We help clients with problems with their fleet, so they can take action and work

Q: What is the best strategy to ensure greater insurance

on continuous improvement. Technology plays a significant

penetration in the heavy-vehicle sector?

role in this regard. Right from their phones, our clients can

A: There is a need to have the right coverage but not

see their insurance policies, the status of their claim and their

according to SCTâ&#x20AC;&#x2122;s standards because they are too low:

payment dates so they can manage everything correctly.

19,000 minimum wage days, which is about MX$1.8

We have also linked the satellite platform to track the units.

million (US$92,000), which covers practically nothing. MAS Seguros prefers that clients buy the right coverage in accordance with the products and risks they incur.

MAS Seguros is a Mexican company specialized in insurance for

When dealing with theft, we try to ensure that all our

tractor-trailer units. With more than 30 years of experience, the

insurance premiums specify the cost of the vehicle to

company has 24 offices across the country, with headquarters

cover total or partial theft.

in Mexico City

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| VIEW FROM THE TOP

DEALING WITH RISK DURING THE DOWNTURN EDUARDO HERNÁNDEZ MESTRE Senior Vice President Commercial, Consumer & Affinity of Marsh México

Q: What makes Marsh a strong player in the Mexican

Approximately 90 percent of buyers who search for a car on

automotive sector?

the internet do not buy it online. They still go to the dealer.

A: With 150 years of experience, Marsh is the world’s leading

The sales floor, therefore, remains a place of vital importance.

risk adviser, insurance broker and financing solutions

344

provider. In Mexico, Marsh is No. 1 in the automotive sector,

Q: What is behind the ongoing sales downturn in the

with a dedicated team of 170 specialists in this industry:

domestic market?

manufacturers, dealers, trucks and fleets. The depth and

A: Twenty years ago, people bought a car for a three to four-

breadth of our network and experience in financing programs

year period. All financing at the time was built for that. This

is currently unbeatable in the market. Our position as the

has changed, with the purchasing cycle now adapted to five

largest player in the auto risk and insurance industry has

or six years. A longer cycle has had a negative impact on

given us the capacity to keep on growing, despite the fact

dealerships as car sales have declined. People who are more

that 2019 was a very complex year, with a 7.7 percent drop in

impatient and want a car for three years are looking at the

automotive sales.

used segment, which has grown substantially, resulting in a drop in the value of new cars.

Q: What tools do you provide to dealerships? A: Our goal is to deliver the most innovative risk and insurance

In the US, leasing is much more common and allows people

solutions, as well as the digital tools needed to understand the

to get new cars regularly with a favorable financial deal.

products and how to sell them. They use our digital platforms,

In Mexico, that is not the case. People still buy cars while

which provide real-time information to facilitate better

companies choose to lease.

decisions on what kind of offers to make to a customer, based on the type of car and the type of client. We provide training

Q: What advantages can you offer to clients that work with

on the use of these systems and communication materials, so

corporate customers?

that every salesperson is ready. Having a global outlook helps

A: In the fleet segment, we work with specific clients, of

us to better calculate the correct price quotes and special

which many are multinationals. Having a relationship with

conditions that apply to particular cars and final clients.

multinationals in other countries helps when they come to Mexico and need a fleet. We can provide the pricing quotes,

Car sales come with a package of conditions, which cover

facilitate the acquisition through our services and offer risk

both the credit structure, the insurance and extra options for

management services. Also, we provide training programs to

the purchaser. Of course, not all brands are the same. There

teach clients how to drive defensively, make better use of GPS

are volume and premium brands. In the latter segment, the

systems, and to choose certain routes and certain hours to

client is willing to pay more so the conditions are better and

avoid traffic jams. We are really focusing on better prevention.

coverage is optimal. The training we provide to people on

It is a fact that in Mexico, there is a growing problem with theft.

the dealership floor is unique to each player. There are only

Incidences have grown by 30,000 between 2015 and 2019,

a few players in Mexico who actually do this. Our strength

which makes training programs very important.

is our ability to adapt to the client. Some still choose to do certain processes manually, so we adapt our solutions to this.

Q: What is your outlook for 2020? A: The outlook for the year is in line with the market’s negative trend. Our goal is to help dealerships overcome the challenges

Marsh is a global insurance broker and risk manager. It is active

and perform well. Returns are now in the aftermarket, as

in more than 130 countries and provides services in multiple

people look to extend the use of their current car or buy a

industries. In the automotive sector, it works with financing

used one. Dealerships will have to offer better discounts and

groups and dealership associations

rebates, which will reduce their sales margins.

VIEW FROM THE TOP |

B2B MODEL TO PROTECT COMPANIES' ASSETS FELIPE SÁNCHEZ President of Assurant Mexico

Q: What role does the automotive industry play within

a sales agent. We provide them with tools and information,

Assurant’s portfolio?

advise on how to pitch the products and suggest how to

A: We have five business lines, of which automotive is the

promote certain deals.

largest at about 45 percent of our sales. Our programs are focused mostly on domestic light vehicles, although we do

Q: How has the sales downturn impacted your business?

offer several programs for commercial vehicles. Our two

A: The industry has seen a drop in sales since 2016. There are

main programs are extended warranty and insurance. The

different factors at play. First, there are always periods when

former allows a car owner to receive between one and three

people buy a lot of cars, followed by a period in which sales

years extra in protection for their car, which can apply to

drop. The second factor is uncertainty regarding the impact

both a new and a used car. In the insurance area, we have

of the new government. Currently, people do not want to

a variety of options for cars. We offer standardized car

saddle themselves with debt. USMCA’s ratification would

insurance, insurance for personal accidents and options for

help inspire confidence with respect to investment and

specific components of the car. This can include rims or keys,

export possibilities. There are still many smaller automotive

as well as things that are in the car, such as mobile devices.

companies that are seeing a lot of growth but the biggest carmakers have seen a drop in sales. Distributors are now

Q: What principal partners do you work with?

seeing that the money is not in sales, but in aftersales.

A: Our model is B2B. We do not work directly with final

Fortunately, this is an area perfectly suited to our products.

customers. We have partnerships with the major OEMs,

We provide dealerships with the opportunity and tools to

including Nissan, Volkswagen, GM, Toyota, Audi, Suzuki,

make money and increase their margins. This is a win-win

Kia, Mazda and Mercedes-Benz. Our programs cover all their

situation, also for major carmakers. One of our biggest

models, including hybrids. Clients like Nissan, for example,

assets is that we have access to a lot of data, through our

will put “Nissan warranty” on our insurance product. It is

global presence and our long history. We know everything

a white label product. Major carmakers have their own

about cars and are very good at calculating the risks for

associations of distributors, whom we visit to provide training

each model.

on how our programs work and how they can best be sold. Distributors benefit from our programs because customers

Q: What are your expectations for the next few years?

will return their cars to their location, instead of a random

A: The automotive industry will continue seeing rapid

auto shop around the corner. This provides extra revenue

change, with new areas, such as EVs, e-commerce and

for dealerships and also ensures that the final consumer is

insurtech, gaining ground. Latin America still has immense

getting services that are specialized to the brand they own.

growth potential and generally there is a lot of appetite to

This makes for a high-quality offering for both parties.

invest here. Mexico, in particular, remains a very interesting market. One of our traditions at Assurant is to support small

Q: How do your training activities contribute to the

businesses with innovative ideas but we also are willing to

penetration of your products?

make major investments. This was demonstrated by our

A: Warranty sales are always met with a certain amount of

acquisition of The Warranty Group, which significantly

resistance from the customer. In this respect, there is a need

increased our market presence.

to change the Mexican mindset. Warranties and insurance protect what is most important in people’s lives. People spend a lot of money on their car. For a few thousand pesos

Assurant provides B2B risk management services and products

more, they can ensure their car will remain in good condition

in 21 countries. It is active in the automotive, retail, mobile

after a few years and can avoid having to pay more for

devices, financial services and real estate sectors. In Mexico,

repairs. Getting that message across is the primary task of

the company works with many major OEMs and dealerships

345

| SECTOR AT A GLANCE

LEASING GRADUALLY TRANSFORMING MOBILITY

“

Even though ownership is an important element of Mexican society, the country is gradually opening up to the shared-economy culture” Kent Bjertrup, CEO Mexico and Regional Director Latin America of ALD Automotive

Automotive leasing has been far more common among businesses because of its perceived benefits. By embracing leasing, companies free up time and resources, according to Bjertrup. “When a client does not own the asset, such as a car, there is a tax-deductible percentage for the car rental and other benefits that can contribute to the financial health of a company,” says Alejandro Espinosa, Partner at Active Leasing. Regina Granados, CEO of LeasePlan, agrees with Espinosa and Bjertrup. “Mexico is a developing country in terms of leasing culture. Having said that, many companies are still unaware of the tax benefits that leasing can offer and are

346

Owning a car is a common goal in Mexico. However,

still buying vehicles.” Director General of Ariza de Mexico,

changes in mobility paradigms are making other options,

Antonio Pinto, however, is certain of the promising future of

such as leasing, more attractive. “Even though ownership

the leasing market. “The leasing market has been growing

is an important element of Mexican society, the country

at a double-digit rate. This year we expect growth to remain

is gradually opening up to the shared-economy culture,”

steady. Given that more than 75 percent of the market

says Kent Bjertrup, CEO Mexico and Regional Director Latin

remains unattended, the opportunity is there,” he says.

America of automotive leasing company ALD Automotive. Clients need to understand that not all leasing operators develop the same schemes, says Hugo Alduenda, Director General of Arrendomóvil. “We offer

Changes in the perception of the shared-economy

clients the possibility to combine the advantages of

culture combined with awareness regarding its fiscal

different service models to provide a solution that

benefits have increased the popularity of vehicle-leasing

caters to their vehicle needs.” Leasing solutions offer

schemes. Particularly in the corporate environment,

an attractive option for companies whose main input

leasing has become an attractive option for companies

is vehicles, such as mobility companies. “Cars are our

to manage their fleet. However, the next big opportunity

work tools, so we pay close attention to vehicle wear to

area for leasing is private individuals

schedule timely maintenance and repairs,” says Manolo Artigas, Commercial Director of executive mobility company Arguba.

VIEW FROM THE TOP |

HOW TO MITIGATE OWNERSHIP RISKS MAURICIO MEDINA CEO of TIP México

Q: What are the most important factors powering Mexico’s

contract expires. We also offer a bonus for returning

vehicle-leasing market?

the unit after the end of the leasing agreement, which

A: Companies in Mexico that were previously unaware of

entices them to trade in used vehicles for new ones in a

the advantages that vehicle leasing offers are now giving

restructured leasing scheme. This is particularly attractive

this scheme a shot. The main allure is the tax benefits it

among younger generations.

offers in the form of deductibility and the smaller initial and monthly installments compared to vehicle loans. This

Q: How can leasing foster the adoption of hybrid and

is also attractive for companies with limited cash flows

EVs in the Mexican market?

who find it hard to make a down payment of 20 to 25

A: There is still a great deal of uncertainty regarding the

percent of a vehicle’s price. Instead, they can pay the

practicality of EVs, their components’ lifespan and the

equivalent of two to three monthly rents as deposit and

vehicle’s residual value. All these factors prove to be

take a new car home.

an advantage for leasing over purchasing. Not only is deductibility of an EV or a hybrid greater than that of a

Considering that approximately 70 percent of all

regular combustion engine car, but leasing helps drivers

vehicle sales in Mexico are on credit, there are many

to only pay for the use of the vehicle and to mitigate

opportunities for leasing to grow. TIP México is betting on

the risk of owning a product that has not matured in the

communicating the advantages that leasing offers to grow

Mexican market.

with the market. We also remain close to clients, dealership groups and even OEMs to get more people to try leasing.

Depending on the customer’s needs, it is possible to lease

To differentiate from competitors, TIP México offers

an EV for 12, 18 or 24 months and keep the car if it meets

value-added services such as fleet management services,

their expectations or return it if it does not. Additionally, it

which we tailor to the client’s needs. For instance, we may

is possible to add chargers and other accessories as part of

include vehicle maintenance, insurance or telematics in our

the leasing agreement and these are also tax deductible.

proposition. TIP México also offers schemes to improve the deductibility of clients’ leasing products, as well as

Q: What are the most important advantages that TIP

consulting services to help clients understand how to

México offers to transportation companies?

make the best out of their leasing agreement.

A: First, we offer immediate availability of trailers. We have a large and diverse cargo fleet, so transportation

Q: How are the federal administration’s austerity policies

companies can lease between one and several hundred

impacting the leasing market?

trailers in a few hours. Second, we are flexible when it

A: The public sector is moving away from ownership

comes to lease periods. Transportation companies can

and leaning toward leasing. The federal administration

lease units for anywhere between one day and seven

has launched two large calls for bids to lease the cars

years. Finally, all our units meet the new regulations for

that public officers will use. These tenders are attractive

road-based freight transportation: NOM-044 and NOM-

because they offer the chance to market more than 12,000

012. We also have repair shops giving maintenance to

vehicles in a single transaction

over 3,000 units per year.

Q: How can TIP México meet in the middle with clients who prefer ownership over leasing schemes?

TIP México is a leader in cargo equipment and vehicle leasing, as

A: TIP México offers clients a right of first refusal on the

well as fleet management, with more than 26 years of experience.

sale of leased vehicles. We give our clients the option

The company has a fleet of more than 26,500 units and offers

to purchase the unit at a certain value when the leasing

national coverage through commercial offices in 19 cities

347

| INDEX #-I 3M 2, 5, 183, 190

Continental Automotive 103, 104, 110

Accenture 5, 33

Cummins 37, 70, 121, 124, 129, 140, 276

Acerall 205, 220

Daimler Trucks México 37, 72

Alian Plastics 205, 207, 214, 215, 236

Dassault Systems de México 279

AMBA 8, 225, 232, 233, 235

DB Schenker 307, 318

AMDA 5, 9, 21, 26, 38, 39, 86, 105, 129, 148, 156, 165, 184, 185,

Dekosys 79, 88

208, 236, 237, 252, 328, 331, 339

Deloitte 5, 25, 31, 248, 292

AMF 307, 311

DiDi 29, 271, 292, 293, 301, 338

AMIA 5, 6, 9, 10, 18, 22, 24, 26, 28, 40, 59, 107, 130, 153, 164,

DISMA 247, 267

206, 230, 231, 237, 269, 275, 331, 339

DuPont 183, 187, 271, 299

Amistad Industrial Developers 8, 79, 80, 96

E2M 225, 242, 243

ANPACT 5, 9, 19, 26, 75, 153, 307, 308, 312, 339

Eagle Tlaxcala México 174

Aquantium Technologies 79, 95

E-DRIVE 294-295

ARIDRA 5, 8, 23, 196, 197

Eduardo Solís 5, 6, 26, 28, 189

Assurant México 345

Embassy of Japan 16

Audi México 6, 8, 9, 30, 34, 37, 40, 54-55, 59, 88, 89, 91, 96,

Embassy of the Republic of Korea 7, 17

117, 136, 140, 160, 161, 163, 164, 165, 167, 168, 170, 173, 174, 175,

ERM 225, 241

176, 230, 233, 234, 236, 244, 280, 289, 291, 313, 329, 332,

Everis México 261

333, 339, 345

Evolucion en Moldes 135

AutoForm 271, 281

Evonik Industries de México 183, 191

Automotive Cluster of the State of Mexico 183, 184, 186, 279

FANUC 247, 254

Auto Safe 225, 234

Ferrari 37, 50, 65

Axon' Interconex 103, 114

FOTON México 37, 75

Balluff 247, 250

Gestamp 124, 132, 140, 177

BAIC México 52

Giant Motors 37, 53, 194

BBVA 238, 327, 334, 335

GiPA 5, 29

Bechem Lubrication Technology 103, 115

GKN Driveline 79, 80, 89

BIG KAISER México 183, 184, 195

GMD Stamping 124, 133

Bilsing Automation 163, 177

GNP Seguros 327, 341

Biz Latin Hub 307, 323

Governor of San Luis Potosi 7, 126

Bodycote 124, 134

Grupo Alden 327, 329

Bosal 103, 113

Grupo Energos 225, 243

Brose México 103, 111

Grupo IPS 225, 238

BTS Development 183, 201

Grupo León 79, 94

Car Fast 327, 338

Grupo MAEN and Maindsteel 145, 157

CERATIZIT Group 247, 266

Grupo Multisistemas de Seguridad Industrial 225, 239

CHG Meridian 327, 336

Grupo Prodensa 323

Chihuahua Automotive Cluster 205, 206, 212

Grupo SURMAN 332

CIDESI 106, 110, 271, 272, 274, 277

Grupo Traxión 225, 227, 228, 309

CIDETEQ 271, 273, 274, 277

Grupo Uribe 327, 333

Cinko Group 247, 261

HARMAN International 103, 112

CLAUGTO 79, 80, 84, 85

Heller Machine Tools de México 247, 263

CLAUT 22, 136, 195, 205, 207, 211, 213, 215, 221, 276

Hogan Lovells 5, 32

CLAUZ 27, 163, 164, 167, 170, 174, 175

Honda 37, 38, 40, 46, 59, 76, 80, 81, 83, 86, 89, 90, 91, 139,

Coats México 179, 183, 193

146, 148, 152, 154, 200, 230, 258, 273, 281, 311, 329

COFOCE 79, 80, 81, 82, 84

Honda de México 37, 46

Cofremex 183, 198

Hyundai Motor de México 37, 38, 45, 59, 90, 105, 177, 211, 227,

Colliers International 183, 200

228, 230, 231, 328, 329, 332

ConaLog 9, 307, 310

INA 5, 9, 20, 24, 26, 107, 153, 164, 206, 213, 226, 230, 237

INDEX I-Z | Industrias Norm 163, 175

Qualcomm 9, 271, 290-291

INFINITI 37, 43, 60

Queretaro Automotive Cluster 27, 103, 104, 107,-108, 109,

Inmolding 135

292

Integra Automation 247, 248, 260

Radici 145, 158

Interpuerto Monterrey 205, 219

Renault México 6, 37, 43, 49, 60, 148, 177, 230, 231, 281, 329,

ISGO Manufacturing 136

330, 340

Jaguar Land Rover México 9, 37, 63, 90, 177, 295

Rever 271, 289

Jalisco Automotive Cluster 145, 147, 150, 152, 159

Roberlo 183, 199

JATO Dynamics 5, 30

Robert Bosch México 183

KAVAK 327, 337

San Luis Potosi Automotive Cluster 27, 124, 130

KIA Motors México 3,5,44

Scania México 37, 71

Koyo Joint Mexico 137

SCHUNK 247, 265

Kromberg & Schubert 79, 88

Schunk Group 183, 192

Lamborghini Aston Martin Catarham Morgan & Rimac 37, 66

SEDESU Guanajuato 82-83

Lintel 79, 98

SEDECO Nuevo Leon 210

MAN Truck 37, 74, 105, 217

SEDESU Queretaro 106

Marabis Group 79, 80, 97

SEDECO San Luis Potosi 127

Marposs México 247, 258

SEDECO Tlaxcala 166-167

Marsh México 327, 344

Seraph Consulting 307, 322

MAS Seguros 327, 343

Siemens 8, 247, 251

Mazda de México 6, 37, 38, 40, 47, 50, 59, 81, 83, 86, 89, 90,

SKF de México 163, 171

99, 111, 139, 154, 155, 230, 258, 313, 329, 345

Sonavox 163, 173

McLaren 37, 67

SSA México 307, 313, 315

Mercado Libre México 327, 339

Stant 79, 90, 93, 5

Mercedes-Benz 37, 57, 96, 137, 153, 208, 217, 230, 233, 281,

Staufen Américas 282

345

Subaru México 37, 61, 90, 230, 248

Meritor 205, 217

SUZUKI Motor de México 37, 48

MetPro 307, 321

Tachi-S 145, 146, 154-155, 157, 271, 286, 287, 5

Minister of Economy 5, 6, 12-13, 24, 147, 205, 207, 210, 221,

Temaplax 79, 94

237

Thyssenkrupp System Engineering 103, 118

Ministry of Economic Development of Jalisco 151

TIBA 307, 316

Misumi 103, 119

TIM 163, 176

Mitsubishi Electric 247, 249

TIP México 327, 347

National Automotive Cluster Network 186

Total Shield 225, 232

National Instruments 278, 296

Transportes LIPU 225, 228

Nissan 2, 9, 37, 38, 40, 42-43, 49, 59, 60, 89, 90, 104, 112,

Tridi 271, 284

139, 142, 143, 146, 148, 153, 154, 157, 177, 181, 194, 230, 231, 236,

Uber México 29, 47, 271, 293, 300, 329

250, 273, 276, 294, 313, 330, 332, 339, 340, 345

UBSA 79, 99

Nissan Mexicana 37, 40, 42, 43, 146, 153

Universal Robots 247, 254, 255

Nissha PMX Technologies 138

Vinco Automotive 201

North American Lighting Mexico 139

Volvo Car México 37, 62, 173, 177, 184, 185, 198, 217, 230,

NSK 79, 80, 91

248, 291, 330

OMRON Automation Americas 247, 256

VUHL 37, 64, 101, 105, 222, 230, 332

Parque Industrial Cuadritos 79, 98

Waukesha 140

Pfeiffer Vacuum 271, 285

Waze 271, 297

Pioneer Electronics de México 183, 197

WTC San Luis Potosi 124, 141

Polyworks México 280

Zacua 37, 51, 161, 165, 230, 338

Prime Action 327, 340

Zanini Auto Group Mexico 103, 114

ProCredito 229

ZF Services 145, 153, 156, 252

| PHOTO CREDITS Cover Lamborghini

85 MBP

Inside Front Cover Volvo

2 Nissan

89 MBP

90 MBP

Ministry of Economy

Dekosys Kromber & Schubert

14 BMW

91 MBP

15 MBP

92 Stant

16 MBP

93 Stant

17 MBP

18 MBP

95 MBP

19 MBP

96 MBP

20 MBP

97 MBP

21 MBP

98 MBP

22 CLAUT

99 MBP

23 MBP

100 MBP

27 CLAUZ

106 MBP

29 MBP

107 MBP

30 MBP

108 MBP

Deloitte México

110 MBP

Hogan Lovells BSTL

111 Brose

MBP MBP

33 Accenture

112 MBP

Audi México

113 MBP

Nissan Mexicana

114

MBP MBP

44 MBP

115 MBP

118 MBP

Hyundai Motor de México

46 MBP

119 MBP

Mazda de México

120 BMW

SUZUKI Motor de México

126

Government of San Luis Potosi

Renault México

127

Government of San Luis Potosi

51 Zacua

128 MBP

52 BAIC

130

53 MBP

132 MBP

Audi México

133 MBP

Audi México

134 MBP

Seraph Consulting

57 MBP

135 MBP

INFINITI México

136 MBP

Subaru México

137 MBP

Volvo Car México

138

Nissha PMX Technologies

63 MBP

139

North American Lighting Mexico

64 MBP

140 MBP

141 MBP

MBP, Ferrari

66 MBP

142

Nissan Mexicana

67 MBP

151

SEDECO Jalisco

68 Tesla

152 MBP

69 Tesla

154

70 MBP

156 MBP

157 MBP

Scania México

Tachi-S RHQ

72 MBP

158 MBP

73 Daimler

160

Audi México

74 MBP

166

SEDECO Tlaxcala

168 CLAUZ

FOTON México

76 Honda

169 MBP

82 MBP

171 MBP

84 MBP

172 Faurecia

173 Sonavox

261 MBP

174

263 MBP

Eagle Tlaxcala México

175 MBP

265 SCHUNK

176 MBP

266 MBP

177

Bilsing Automation

267 MBP

178

Coats México

268 Tesla

179

Coats México

272 MBP

180

MISSING SOURCE

273 MBP

186 MBP

278 MBP

187

DuPont l

279 MBP

188

Robert Bosch México

280 MBP

190

281 MBP

191

Evonik Industries de México

282 MBP

192

Schunk Group

284 MBP

193 MBP

285

194

286-287 Tachi-S

BIG KAISER México

Pfeiffer Vacuum

197 MBP

289 MBP

198 MBP

290 Qualcomm

199 MBP

294 MBP

200

Colliers International

297

201

MBP MBP

298-299 DuPont

Waze México

202 GM

300

Uber México

207

KIA Motors México

301

DiDi México

210

SEDECO Nuevo Leon

302 MBP

211 CLAUT

303 MBP

212

304

Chihuahua Automotive Cluster

SSA México

215 MBP

310 MBP

217 MBP

311 MBP

219

312 MBP

Interpuerto Monterrey

220 MBP

313 MBP

222 VUHL

314-315 SSA México

227 MBP

316 MBP

228 MBP

318 MBP

229 MBP

321 MBP

232 MBP

322

Seraph Consulting Seraph Consulting

233

Auto Safe

323

Biz Latin Hub MBP

234

Auto Safe

324 GM

238 MBP

329 MBP

239 MBP

332 MBP

241 MBP

333 MBP

242 MBP

334 MBP

243 MBP

336

244

Audi México

337 KAVAK

249

Mitsubishi Electric Automation Mexico and

CHG Meridian

338

Car Fast

Latin America

339

Mercado Libre

250 MBP

349 MBP

251 Siemens

341 MBP

254 MBP

343 MBP

255

Universal Robots

344

256

OMRON Automation Americas

345 MBP

258 MBP

Marsh México

346 MBP

260 MBP

Acronyms Audi

261 MBP

Inside Back Cover BMW

| SPOTLIGHTS 68-69

Tesla: Redesigning The Meaning of Groundbraking

92-93 Stant: 120 Years of Leadership, Adaptability 178-179

Coats: 250 Years of Thread Expertise

286-287 Tachi-S: Competitiveness To Face Global Unrest 298-299 Introducing Ahead™ by Dupont 314-315

Lazaro Cardenas: Door to Mexico’s Automotive Trade

| INFOGRAPHICS 10-11

Results and Industry Expectations

148-149 State Profile: Western States

24-25

USMCA: New Rules for a New Era

165

State Profile: Puebla & Tlaxcala

40-41

Leaving Uncertainty Behind

185

State Profile: Mexico City & the State of Mexico

58-59

Covid-19'S Effects On The Industry

208-209 State Profile: Northern States

State Profile: Guanajuato

274-277 Automotive R&D and Design and Engineering

105

State Profile: Queretaro

Centers in Mexico

129

State Profile: San Luis Potosi

330-331 The End of a Sales Cycle

| ADVERTISING INDEX 4

Mexico Business News

36 Stant 56

Alian Plastics

COFOCE Guanajuato

102

Mexico Business Communication

122

SEDECO San Luis Potosi

144

SEDECO Zacatecas

155 Tachi-S 162

Mexico Automotive Summit

182

The Hidden Kitchen

192

Coats México

204

Expo Manufactura

214

Mexico Business News / Automotive

224 E2M 246

Mitsubishi Electric Automation México

250 E2M 270

Industrial Transformation México

284

Pfeiffer Vacuum

288 Rever 306

SSA México

326

Grupo Alden

335

Grupo IPS

342

MAS Seguros

347 TIP

ACRONYMS | AMDA Mexican Association of Automotive Distributors AMIA Mexican Association of the Automotive Industry ANPACT

National Association of Bus, Truck and Tractor Manufacturers

CONACYT

National Council for Science and Technology

CONALEP

National College of Technical Vocational Education

EPA United States Environmental Protection Agency ERP Enterprise Resource Planning EV

Electric Vehicle

FCA Fiat Chrysler Automobiles GDP Gross Domestic Product GM General Motors IMMEX Maquiladora Manufacturing Industry and Export Services INA National Auto Parts Industry INEGI National Institute of Statistics and Geography IPN National Polytechnic Institute ISO International Organization for Standardization KPI Key Performance Indicator MSME Micro, Small and Medium-Sized Enterprise NAFTA North American Free Trade Agreement NOM National Mexican Norm OEM Original Equipment Manufacturer R&D Research & Development ROI Return on Investment SME Small and Medium-Sized Enterprise SUV Sport Utility Vehicle UNAM National Autonomous University of Mexico USMCA United States-Mexico-Canada Agreement

| CREDITS JOURNALIST & INDUSTRY ANALYST: Alejandro Enríquez JUNIOR JOURNALIST & INDUSTRY ANALYST: Andrea Villar JUNIOR JOURNALIST & INDUSTRY ANALYST: Jan Hogewoning SENIOR JOURNALIST & INDUSTRY ANALYST: Luis Pesce SENIOR EDITOR: Mario Di Simine SENIOR WRITER: Alicia Arizpe SENIOR EDITORIAL MANAGER: Alejandro Salas PUBLICATION COORDINATOR: Franco Zuñiga PUBLICATION COORDINATOR: Rodolfo Vélez PUBLICATION COORDINATOR: Eduardo Machorro PUBLICATION COORDINATOR: Juan Manuel Ruíz COMMERCIAL MANAGER: Cagla Polat COMMERCIAL MANAGER: Bruna Brandão COMMERCIAL DIRECTOR: Jack Miller GRAPHIC DESIGNER: Tania Aguiñiga GRAPHIC DESIGNER: Marcela Muñoz SENIOR GRAPHIC DESIGNER: Mónica López DESIGN DIRECTOR: Marcos González WEB DEVELOPMENT: Omar Sánchez COLLABORATOR: Isabel Adame COLLABORATOR: Alessa Flores CIRCULATION MANAGER: Constanza Blanco DIRECTOR GENERAL: Jeroen Posma

| PRINTED BY Foli, Negra Modelo # 4 Bodega A Fracc. Cervecería Modelo, Naucalpan Estado de México T:. 9159 2100

$199.00 ISBN 978-1-7328256-7-3

19900>

9 781732 825673

Mexico Automotive Review 2019/20

Articles inside

FLEXIBILITY, INNOVATION SPELL GROWTH IN HEAVYWEIGHT SEGMENTS

HIGH QUALITY AND A SUSTAINABLE FUTURE

DESIGN, TECHNOLOGY KEY TO SOUTH KOREAN OEM SUCCESS

THE INDUSTRY WE ARE ABOUT TO LIVE IN

AUTOMOTIVE CLUSTERS PROTECTING SUPPLIERS AMID COVID-19

MEXICAN DEALERSHIPS HIT BY MARKET CONTRACTION

USMCA RATIFICATION WILL LEAD TO INVESTMENT CERTAINTY, GROWTH

GOOD TIMES AHEAD FOR MEXICO’S HEAVY VEHICLES

COVID-19 A TURNING POINT FOR THE INDUSTRY: AMIA

NEW ADMINISTRATION FACES SHIFT IN TRADE STANDARDS