The Following is an article written by Daniel Miranda of UPS
Quick, name the largest vehicle producers in the world. China,
Japan, Germany, and the United States are probably among the more
common answers. You might be surprised to learn that Mexico now
belongs in that group.
Mexico is the seventh largest car manufacturer in the world –
and the second largest exporter to the United States. By 2020, one
in four cars in the United States will be manufactured in Mexico.
With industry leaders and the Mexican government laser-focused on
the automotive industry, that footprint will only get bigger.
The reasons are twofold: Manufacturers are increasingly moving
to Mexico, shortening their supply chains and seeking out customers
in the nearby U.S. market. The more overlooked change is taking
place among the Mexican consumers who previously purchased used
American vehicles – or didn’t even consider buying a car at all.
Now they’re buying new cars made in Mexico.
The Mexican middle class is prospering, especially along an
industrial corridor running from the U.S. border to Mexico City.
Many of Mexico’s fastest-growing cities have become learning
laboratories for auto companies looking to reach new markets. Audi,
Ford and General Motors, among other auto titans, are expanding
into Mexico.
Some have dubbed Central Mexico the new Detroit (on a related
note, Detroit exports more goods than any other U.S. city to
Mexico). This uptick in production has fostered greater
infrastructure investments in Mexico, paving a path to a better
future for millions of people.
And gone are the days of simple mass production. Mexico is
building more specialized auto parts and growing the skilled
workforce necessary to create such items.
With that in mind, Mexican leaders are looking to manufacture 5
million cars per year by 2020. That ambitious goal is being fueled
by the rise in cross-border trade between Mexico and the
United States.
But on a broader level, this is a story about logistics driving
global markets.
The first and last stop
More auto suppliers will turn to just-in-time production,
enhancing the value of a lean supply chain. In this on-demand
economy, inventories will shrink and auto companies will be more
equipped to meet the needs of their customers.
UPS talks frequently about the benefits of trade. But the auto
pipeline between Mexico, the United States and Canada is even more
integrated than most other industries.
Up to 90 percent of U.S. auto-industry trade within North
America is intra-industry,showcasing a high level of vertical
specialization. The United States, Mexico and Canada each produce
and assemble auto parts, sending them back and forth as they work
together to build complete cars, with the goods – and economic
benefits – crisscrossing the continent.
Trade means big business
Mexico’s domestic auto market has taken off largely because of
the nation’s commitment to free trade – Mexico has 10 free trade
agreements with 45 countries, meaning its export ties rival almost
any Western nation.
Much of the growth in the Mexican auto sector over the past two
decades can be tied to the North American Free Trade Agreement
(NAFTA) and the elimination of tariffs. Expect additional
development if member countries secure legislative approval this
year on the Trans-Pacific Partnership, the largest free trade
agreement in history.
The challenge now is building on this progress. This is where
logistics partners come into play.
Original equipment manufacturers and aftermarket parts suppliers
can leverage the scale of UPS so parts won’t sit waiting to be
consolidated with other shipments at the border. And UPS this week
unveiled enhancements to its cross-border solutions and freight
portfolio, effectively streamlining shipments crossing the
U.S.-Mexico border.
Supply chain management is critical, but it’s equally important
to understand how auto customers are changing.
Smaller engines and greener cars
I love classic cars. I have to know every detail about every
vehicle. My son is the exact opposite. He doesn’t even care if his
car is clean. He just wants the vehicle to get him there.
Here’s why this matters: Mexico is skewing younger. Many
so-called Millennials don’t want cars with big engines. They see
transportation as a means to an end. This is creating an entirely
distinct auto market from years past.
The Mexico of today can handle this rapid change. We’re
producing the vehicles of the future, whether it’s a throwback for
a dad like me looking for a little nostalgia or a compact car that
screams efficiency. This diversity is a credit to nimble supply
chains and an innovative workforce.
In other words, Mexico is blending old and new. It’s thriving in
the on-demand economy. And finally, Mexico is taking its place
among global superpowers.
Daniel Miranda is Segment Manager for the Automotive Industry at
UPS Mexico.
Reprinted with permission of Longitudes, the UPS
blog devoted to the trends shaping the global economy.
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