Mexico wants more Tier 2 suppliers
Effort aims to provide local sources for Tier 1s and boost economy
MEXICO CITY -- Mexico's auto industry has launched a long-term effort to develop a national network of Tier 2 suppliers.
Tier 1 suppliers, the global giants that ship parts directly to automakers, are well represented in Mexico. But they import a lot of parts and raw materials that they need.
While Tier 1 companies in Mexico produced parts valued at $76.8 billion in 2013, imports of the components they use totaled $38.8 billion, 7 percent higher than in 2012, according to INA, the national association of suppliers.
"It's a question of reducing this $38 billion total to $25 billion by 2019," said Oscar Albin, INA's executive president. "That's our goal."
If Mexico can source more parts and raw materials at home, that means more jobs and tax revenue.
Among the items imported in 2013, according to INA, were copper, aluminum and alloy cable and wire ($1.78 billion), tires ($1.63 billion), seats and parts ($1.22 billion), harnesses ($904 million), steering column parts ($554 million) and disc brake mechanisms ($534 million).
INA and other automotive trade groups launched the effort 18 months ago. Helped by several million dollars' worth of government funding, about 100 Mexican Tier 2 suppliers have improved their manufacturing processes to meet international standards, Albin said. "Attitudes and focuses are changing."
Whereas once, he said, U.S., German and Japanese automakers preferred to work with suppliers from their home countries when investing overseas, today "procurement offices are looking to regionalize."
Leo Torres, Ford Motor Co.'s director of purchasing and supplier technical assistance in Mexico, believes Mexican suppliers erred in the past by competing mainly with low labor costs.
"If you do this, there will always be someone in the world who can compete more cheaply than you," he said at an industry conference in December. "Now I bring harnesses from Honduras, Nicaragua and the Philippines."
Torres said Ford uses about 315 suppliers in Mexico and ships parts to 44 Ford plants around the world.
So the major suppliers are in Mexico. But they are mainly arms of overseas companies. And they are importing vast quantities of parts from outside the country.
Eduardo Solis, president of Mexico's association of automakers, said, "450 of the 500 biggest Tier 1 suppliers have operations in Mexico."
They include Magna International Inc., which employs 23,000 at 30 manufacturing sites, and Delphi Automotive, whose 54,000 employees work in 46 plants in 22 cities.
Few Mexican Tier 1s
But Albin pointed out in an Automotive News interview that only about 15 of the Tier 1s are Mexican. "The Tier 1 level in Mexico is complete," he said. "You can assemble a car with parts made in Mexico. The problem is [getting] the components for these Tier 1s."
The United States sells $20 billion worth of parts to the aftermarket and Tier 2 sectors in Mexico every year, he added.
"There are huge opportunities for Tier 2 and 3 suppliers, including Polish companies," Solis said in a speech at a conference here in mid-July aimed at encouraging Polish investment in the Mexican auto industry and vice versa.
Mexico's policy of exporting most of the light vehicles it produces -- 82 percent is INA's latest figure -- appears to be paying off. Most likely this year it will outproduce regional rival Brazil for the first time in a decade, U.S. industry consultant IHS Automotive reported. Solis said Mexico assembled 300,000 more light vehicles than Brazil did in the first six months of 2014.
Mexico expects to assemble 3.1 million light vehicles this year, up from 2.9 million in 2013, and to manufacture almost 4.6 million in 2019, according to INA.
You can reach Stephen Downer at email@example.com.