Is Mexico the New Detroit?

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.