Pressure's on Mexico to boost production

Mexico continues struggling to bring its vital auto parts supply base back to normal production levels, creating a brake on the entire North American supply chain.

The labored restart from the pandemic shutdown comes as U.S. automakers are clamoring for Mexican-made parts to resume building popular vehicles such as pickups and crossovers needed to replenish falling inventory.

But now a new pressure is growing: The renegotiated U.S.-Mexico-Canada Agreement takes effect on July 1 and will require manufacturers to show higher levels of regional content in vehicles and parts to keep them free from tariffs.

Mexico's 1,500 supplier plants must help make that possible, for vehicles made in the U.S. and those built in Mexico.

Mexico supplies about $70 billion a year in parts, or an average of about $5,000 of content per U.S.-made vehicle.

At an online meeting of Mexico's industry leaders last week, Fausto Cuevas, head of the automotive association, said nearly all of the automakers in Mexico are preparing paperwork — due by July 1 — that would give them extra time to comply with the new regional content requirements of the agreement.

The higher-content rules go into full effect in 2023; that can be extended to 2025 on a case-by-case basis.

The USMCA launch is drawing near even as Mexican factories move tenderly back into business from the interruption of the pandemic.

Most of Mexico's supplier plants began calling back workers in late May to implement health and safety procedures such as physical distancing. But they did not start production until June 1, and even now, they are only at about 30 percent of capacity, Oscar Albin, president of the Mexican Auto Parts Industry Association, said at last week's meeting.

Some automakers were able to get their safety plans approved by the Mexican government in late May. The first to report a partial restart was General Motors, which is eager to replenish its pickup inventory after surprisingly strong sales during the coronavirus shutdown.

Ford, Fiat Chrysler, Nissan and others followed, but with a limited work force.

Some big industry players were not so lucky.

The state of Puebla — a hot spot for virus infections — balked at the federal government's reopening plan for key sectors on June 1. That meant Volkswagen, Audi and most supplier plants in the state weren't allowed to open until this week. The state government did allow some suppliers to restart on June 1.

There was some pushback to the industry reopening, as Ford reported four coronavirus infections among workers returning to its Ford Fusion and Lincoln MKZ plant in Hermosillo, Sonora. There were media reports of supplier factories with COVID-19 infections and several worker deaths.

Last week, Mexico as a whole was reporting up to 600 coronavirus deaths per day.

Ford said the infections at the Hermosillo plant were discovered as part of random testing for the virus as workers returned. Those who had contact with the infected employees were told to quarantine for two weeks, and the affected areas of the plant were cleaned and disinfected before production resumed.

Auto industry officials said safety protocols approved by the federal government allow for an orderly return to production after affected workers have been quarantined and work areas have been sanitized. That's meant to limit disruptions, but industry officials said a large outbreak likely would cause a broader plant shutdown.

Albin defended industry safety protocols during the meeting last week. "There are going to be infections in a lot of places, not just within our industry. We should not demonize the fact that a factory identifies an infected person," he said.

"We should applaud them, because that person can be isolated and probably their life can be saved. It's the opposite of what some people might think, that we are putting people at risk."

The Mexican auto industry was frozen for nearly all of May, data presented last week showed. Light-vehicle output fell 94 percent compared with May of last year to 22,119 vehicles, according to the Mexican Automotive Industry Association. GM was the production leader with 8,970 vehicles.

Auto exports fell 95 percent last month to 15,088, with nearly nine of every 10 vehicles shipping to the U.S. Last year, Mexico exported about 2.6 million vehicles to the U.S., accounting for about 15 percent of U.S. light-vehicle sales.