Auto Industry Structure

The Auto Parts Industry

Business Intelligence Unit

Research and analysis: Juan Carlos vila Pompa

Design and layout: Gibran Quiroga

2013, ProMexico Camino a Santa Teresa

No.1679

Col. Jardines del Pedregal Del. lvaro Obregn,

01900, Mexico D.F.

First edition (not for commercial sale) Mexico

City, May 2013

No part of this publication, including the cover

design, may be reproduced, stored or transmitted

in any fashion or by any media without express

written consent from ProMexico.

ProMexico is not responsible for any errors or

inaccuracies in the information contained herein

resulting from updates after the publication date.

Contents

1. Global Overview .............................................................................................................................................................................................21.1 Objectives .....................................................................................................................................................................................................21.2 Key Indicators 2012 ......................................................................................................................................................................................31.2 Main indicators of the industry in Mexico 2012 ..........................................................................................................................................32. Description of the auto parts industry ............................................................................................................................................................42.1 Supply chain of the auto parts industry ........................................................................................................................................................62.2. Major auto parts for light vehicles ...............................................................................................................................................................62.3. Minor Auto parts for Light Vehicles ...........................................................................................................................................................63. Global Outlook...............................................................................................................................................................................................73.1 Segmentation by line of business ..................................................................................................................................................................83.2 Global auto parts production ........................................................................................................................................................................83.2.1 Global consumption ..................................................................................................................................................................................83.2.2 Global trade ...............................................................................................................................................................................................93.3 Industry trends .............................................................................................................................................................................................93.3.1 Supply Development and local adaptation ................................................................................................................................................93.3.2 Life cycle reduction of automotive models ..............................................................................................................................................93.3.3 Hybrid and electric cars .............................................................................................................................................................................93.3.4 Car safety ...................................................................................................................................................................................................93.3.5 Lighter cars (new materials) ......................................................................................................................................................................93.4 Leading companies in the world ................................................................................................................................................................103.5 Certifications ..............................................................................................................................................................................................104. The Auto parts Industry in Mexico ...............................................................................................................................................................114.1 Production and consumption ......................................................................................................................................................................124.2 Auto parts trade in Mexico .........................................................................................................................................................................124.3 Transnational companies in Mexico ...........................................................................................................................................................134.4 Localization and specialization of auto parts production in Mexico ...........................................................................................................................144.5 Manufacturing costs ...................................................................................................................................................................................154.6 Supply capacity ...........................................................................................................................................................................................154.7 Foreign direct investment (auto parts) ........................................................................................................................................................174.8 Companies bet on Mexico; supply attraction and development of the national supply chain.....................................................................184.9 Chambers and associations ........................................................................................................................................................................204.10 Automotive engineering and design centers .............................................................................................................................................215. Investment opportunities ..............................................................................................................................................................................236. Export Opportunities ...................................................................................................................................................................................257. Legal framework ...........................................................................................................................................................................................277.1 PROSEC Automotive and Eighth Rule ....................................................................................................................................................287.2 Automotive decree ......................................................................................................................................................................................287.3 Drawback ...................................................................................................................................................................................................287.4 IMMEX .....................................................................................................................................................................................................287.5 Shelters ......................................................................................................................................................................................................287.6 Rules of Origin (automotive)......................................................................................................................................................................297.7 Standards and certifications ........................................................................................................................................................................298. Conclusions ..................................................................................................................................................................................................31Glossary ............................................................................................................................................................................................................33Map of auto parts companies ...........................................................................................................................................................................34

Graph, Figures and tables Index

Graphs

Graph 1. Aftermarket structure, 2010 .............................................................................................................................................................8Graph 2. Auto parts production share by country, 2012 ..................................................................................................................................8Graph 3. Consumption by country 2012 (md) ................................................................................................................................................8Graph 4. Main companies by origin ..............................................................................................................................................................10Graph 5. Global trade (md) ...........................................................................................................................................................................12Graph 6. Origin of companies established in Mexico....................................................................................................................................13Graph 7. Manufacturing costs, 2012 .............................................................................................................................................................15Graph 8. Auto parts FDI (md) ......................................................................................................................................................................17Graph 9. Total market value and investment opportunity in the supply chain in Mexico (billions of dollars) ....................................................................................24Graph 10. Total market value and investment opportunity in the supply chain in Mexico (billions of dollars) ..................................................................................24

Figures

Figure 1. Supply chain .....................................................................................................................................................................................6Figure 3. Localization and specialization of auto parts production in Mexico ..............................................................................................14Figure 2. Localization and specialization of auto parts production in Mexico ..............................................................................................14Figure 4. Supply capacity ...............................................................................................................................................................................16

Tables

Table 1. Autoparts manufacturing processes ....................................................................................................................................................5Table 2. Global production ..............................................................................................................................................................................8Table 3. Global trade .......................................................................................................................................................................................9Table 4. The top 100 auto parts companies ...................................................................................................................................................10Table 5. Production value ..............................................................................................................................................................................12Table 6. Mexicos main trade partners............................................................................................................................................................12Table 7. Companies operating in Mexico ......................................................................................................................................................13Table 8. Jobs created ......................................................................................................................................................................................13Table 9. Foreign direct investments by system or component ........................................................................................................................17Table 10. Investment projects .........................................................................................................................................................................17Table 11. Auto part supplier companies ........................................................................................................................................................19Table 12. Tariff structure of the automotive Prosec .......................................................................................................................................28Table 13. Rules of origin ................................................................................................................................................................................29

1I Overview of the industry

2Introduction

1.1 Objectives

The purpose of this do-cument is to provide an overview of the do-mestic and internatio-nal auto parts industry, as a tool to facilitate the identification of busi-ness opportunities for the industry in Mexico.

It includes a referen-ce framework of the industry on a global level with information on the production, sa-les, main trends, con-sumption, trade, inves-tment and regulations, among other topics.

The document pro-vides an overview of the domestic industry, focusing on market, trade, existing clusters, chambers and associa-tions, programs and the current legal fra-mework. It also inclu-des information aimed at identifying the tools to help project Mexico as a great destination for foreign investment and define its expor-ting potential.

31.2 Key Indicators 2012

1.2 Main indicators of the industry in Mexico 2012

Global production1,399,302 Million dollars (MD)1

North Americas share in the global production of auto parts 22.1%

Latin Americas share in the global production of auto parts 3.7%

The European Unions share in the global production of auto parts 13.3%

Rest of the worlds share in the global production of auto parts 5.4%

Asia-Pacifics share in the global production of auto parts 55.5%

Production of auto parts compared to the total production of the manufacturing industry worldwide 3.6%1

Economic units2,5598

Largest producer of auto parts worldwide1, 3

Largest exporter of auto parts worldwide7

Mexicos imports to the auto parts in-dustry, 201236,233 md7

Foreign direct investment in the auto parts industry, 2006- 20129,687 md5

Clusters of the auto parts industry, 2012 .Northeastern, northwestern southeastern and central-BAJIO region9

Mexicos exports from the auto parts industry, 201251,872 md7

Number of Jobs in the auto parts indus-try, as of December 2012583,7066

Consumption of auto parts in Mexico59,156 md4

Production of auto parts in Mexico74,795 md3

Global consumption: 1,363,647 MD1

1. Source: ProMexico with data by Global Insight2. Source: ProMexico with data by Global Trade Atlas3. Source: Industria Nacional de Autopartes (INA) and INEGI.4. Source: ProMexico with data by Global Trade Atlas and Global Insight5. Source: ProMexico with data by the General Directorate of the National Registry of Foreign Direct Investment, Ministry of Economy.

6. Source: INA and INEGI7. Source: ProMexico with data by Global Trade Atlas and INA8. Source: ProMexico with data by National Statistics Directory of Economic Units, INEGI9. ProMexico

Global exports843,351 MD2

Global imports807,696 MD2

$

5th 5th

4II Description of the Auto

Parts Industry

52. Description of the auto parts industry

The auto parts industry accounts for 3.6% of total production of the global manufacturing industry.10 The industry is very diver-se, covering final consumer goods used to supply Original Equi-pment Manufacturers (OEMs) known also as automakers, and supplying the aftermarket or used car replacement.

It is organized into three production levels:

Tier 1: Direct suppliers of OEMs. They develop compo-nents that include engine parts, steering and suspension sys-tems, air conditioning systems, electronic components, etc.

Tier 2: Suppliers of Tier 1. They manufacture equipment and products used in the most advanced and specialized components of the automotive industry: forged, stamped parts, die casting, plastic parts, machined parts, etc.

Tier 3: They provide inputs and raw materials to Tier 2 manufacturers complying with the highest quality require-ments of the automotive industry.

On the other hand, support processes to develop and manufactu-re components or parts that are included in the industry are also essential for the auto parts industry.

The following tables show the application of several processes used to manufacture various systems or components of the auto parts industry.

Buses in Russia use brake pads made in Mexico for their responsiveness in

conditions of extreme cold.

10. ProMexico with data by Global Insight

Suspension system Body Braking systems

MachiningForgingWeldingPressure injectionThermal treatmentSurface treatment

Die-cuttingSheet MetalElectrostatic paintSurface treatmentPlasticsWelding

MachiningDie-cuttingForgingWeldingSinteringThermal treatmentSurface treatment

..................................................................Transmission system Traction system Cooling system

MachiningForgingDie-cuttingPressure injectionSinteringMechanic assemblyThermal treatment

MachiningForgingDie-cuttingWeldingPressure injectionMechanic assemblyThermal treatmentSurface treatment

MachiningDie-cuttingSheet MetalWeldingMechanic assemblyThermal treatmentSurface treatmentPlastics

Steering system Safety system

Electric and electronic

components

Pressure injectionMechanic assemblySurface treatment

MachiningDie-cuttingMechanic assemblyThermal treatmentSurface treatmentPlastics

MachiningDie-cuttingWeldingMechanic assemblyPlastics

Exhaust system

Rims and tires Fuel consumption

MachiningDie-cuttingWeldingPressure injectionMechanic assemblyThermal treatmentSurface treatment

MachiningDie-cuttingSheet MetalThermal treatmentSurface treatment

MachiningExtrusionSheet MetalWeldingSurface treatmentDie-cuttingStampingPlastics

Table 1. Autoparts manufacturing processes

62.1 Supply chain of the auto parts industryThe supply chain of the auto parts industry is based on compa-nies which perform processes such as forging, machining, wel-ding, etc., because they supply material at various production levels of the industry, to produce major and minor components that will be supplied to assemblers or original equipment manu-facturers (OEM).

In addition, companies in charge of the various processes also supply distributors of the aftermarket or spare parts segment, in-cluding spare parts or garage chains.

The following figure shows the structure of the auto parts indus-try supply chain:

2.2. Major auto parts for light vehiclesMajor components require a high degree of sophistication. The companies that produce them base their production on advanced manufacturing, developed technology innovation and increased low cost production. These components include:

2.3. Minor Auto parts for Light Vehicles The production of small components does not require a high degree of sophistication; manufacturing is basic and requires a minimum of technology integration. As with major auto parts, these components must comply with quality standards to gua-rantee their operation. These components include the following:

Figure 1. Supply chain

Source: Created by ProMexico

Pumps Main harness Crowns and pinions Safety systems Bodies Suspensions Air bags Crankshafts AC systems Radiators Compressors Injection systems Catalyzers

Alternators Indicators Sensors Gears Dashboards Power window/ Windshield wipers Audio Video/Multimedia Tires Rims Transmissions Braking systems

Oil sump Engine valves Tank caps Hubs Accessories Rises Clamps Spark plugs Tracks Joints

Air filters Washers Pistons Gas tanks Torque rods Pins Hoses Forks Disk/drum brakes

The Cadillac ATS, auto of the year in the Detroit auto show, has

transmission and windshield made in

Mexico

Tiers T1Major

components

T2Major

components

After Market T1Major

componentsMinor

components

Spare partschain stores

Garage chainsProcesses

OEMs

7III Global Outlook

83.1 Segmentation by line of businessProduction of the auto parts industry is mainly destined to the OEMs, but also to the aftermarket.

The OEMs comprises the design, development and manufactu-ring of cars, light and heavy vehicles (light commercial vehicles, buses and trucks).

The aftermarket industry has the following structure:

1. Parts used to repair crashed cars.2. Wear parts.3. Mechanical parts.4. Equipment and accessories.5. Spare parts.

3.2 Global auto parts productionIn 2012, global auto parts production reached 1,399,302 md, Asia Pacific having the largest share with 55.5%, followed by North America and the countries of the European Union. Global pro-duction is expected to increase at an annual average rate of 6.5% between 2013 and 2020. Latin America is expected to record the highest growth of all regions, with 7.8%.11

Graph 1. Aftermarket structure, 2010

Graph 2. Auto parts production share by country, 2012

Table 2. Global production

Graph 3. Consumption by country 2012 (md)

Source: Created by ProMexico with data by DataMonitor

Source: Created by ProMexico with data by Global Insigth

11. For the information on Mexico, INA data were used; for the rest of the countries, Global Insight.12. The analysis considers the following countries: Mexico, Canada, United States, Germany, Russia, United Kingdom, China, Japan, South Korea and Brazil.13. ProMexico with data by INA y Global Insight.14. ProMexicos estimates with data by Global Insight, INA and Global Trade Atlas.

Region Production 2012 (md) %

Asia-Pacific 776,271 55.5%North America 309,328 22.1%European Union 185,625 13.3%Latin America 52,269 3.7%Others 75,808 5.4% Total 1,399,302 100%

Source: ProMexico with data by Global Insight

Source: ProMexico with data by Global Insight

Meanwhile, Japan and China are among the leading auto parts manufacturers.12 It is important to note that it is estimated that China will continue to be the leading producer in the industry in the next ten years. Globalization in the auto parts industry will generate more competitiveness in the industry, opening oppor-tunities for countries as Mexico, Brazil and South Korea.13

3.2.1 Global consumption

Global consumption of auto parts reached a total value of 1,363,647 md.14 China was the country with the highest consump-tion, at 307,606 md

Spare parts

Equipment and accesories

Mechanical parts Wear parts

Parts to repaircrached cars

28.9%

21.8%19.5%

15.8%

14.1%

Russia

United

Kingd

om

South K

orea

CanadaBra

zilMe

xico

Germa

nyJap

anUSA

China

307,606269,526

234,032

71,832 59,15641,790 39,61946,668 29,585 25,481

93.2.2 Global trade

Global exports for the industry reached a total of 843,351 md in 2012.15 Germany was the leading auto parts exporter globally, with a 14% share. It is worth noting that during the same year, the United States was the largest importer with 18% share.

15. ProMxico with data by Global Trade Atlas.16. It is very important to note that drug and alcohol abuse in drivers is one of the main causes and represents a high percentage of accidents reported

Country Exports 2012 (md) %

Germany 122,018 14%USA 90,771 11%Japan 84,247 10%China 74,141 9%Mexico 51,872 6%South Korea 39,849 5%France 37,666 4%Italy 29,660 4%Cezch. Republic 24,260 3%

Poland 22,651 3%Rest of the world 266,216 32%

Total 843,351 100%

Country Imports 2012 (md) %

USA 143,203 18%Germany 90,035 11%Canada 45,761 6%China 45,721 6%

Mexico 36,233 4%United

Kingdom 35,409 4%

France 33,653 4%Russia 26,516 3%Spain 26,105 3%Japan 23,664 3%

Rest of the world 301,396 37%

Total 807,696 100%

Source: ProMxico with data by Global Trade Atlas.

3.3 Industry trendsCar manufacturing has become more and more competitive; the innovation of the automotive industry and the greater level of sophistication of the products that are manufactured force com-panies to improve processes and generate technology that fulfills the requirements of the terminal industry. As a result, auto parts manufacturing has followed the same trend, and within the de-velopment of the industry companies focus on investing capital to ensure they have skilled staff and state-of-the-art machinery and equipment to supply assemblers.

3.3.1 Supply Development and local adaptationIn terms of supply, it is worth mentioning that global corpora-te offices of leading assemblers are slowly beginning to delegate some autonomy to regional offices, in a search of more immedia-te inputs sources; companies supply strategy involves not only inputs purchase orders or supply in the countries where they have their corporate offices, but local companies that can meet their requirements and are located through contacts between re-gional offices and local supply chains.

Localization is based on the quality of the industrys develop-ment in countries where the leading assemblers operate, due to demands related to improvements in design and product inno-vation to integrate into their vehicles. The existence of design centers that develop technology innovation in manufacturing

components and new components manufactured with specific quality standards demanded by the terminal industry is, therefo-re, extremely important for auto parts manufacturing countries, and also enables them to maintain competitive advantages in as-semblers supply chain.

3.3.2 Life cycle reduction of automotive modelsLike other products, vehicles tend to innovate in terms of design, technology, prices, etc. Vehicle models show constant changes when faced with consumers new requirements. Generally the model of a vehicle changes completely every 3 or 4 years, directly affecting the auto parts industry because to a great extent the parts of the vehicle are replaced, forcing companies to change production lines.

Furthermore, these changes are made to improve the design of the parts and materials used for their production and companies must therefore constantly improve and offer the best product available .

3.3.3 Hybrid and electric carsEnvironmental concerns and fuel savings are the main reason for vehicle assemblers to focus on supporting the development of hybrid and electric cars. These vehicles advance at low speeds by means of gasoline or electric engines, silent engines, greater fuel performance, reduced pollutant emissions and gases.

Hybrid vehicles use electric engines that are compatible with fuel, diesel, hydrogen, natural gas or biofuels such as ethanol and its mixtures.

More and more assemblers sell these cars and their production and sales are expected to increase over time, reducing the share of internal combustion fuel engine cars. That is why auto parts innovation must evolve to supply this new market.

3.3.4 Car safetyAccording to the WHO (World Health Organization), every year more than 800 thousand people die in road accidents16, making car safety systems essential. Technology development in these systems is increasing, and the integration of sensors, circuits and new designs can prevent traffic accidents. Assemblers are cons-tantly looking for new technologies to apply to the various sys-tems involved in safety (steering, braking, electrical, etc.

Car safety also refers to products and technologies to prevent car thefts (tracking and location systems and electronic immo-bilizers). This segment is very dynamic because innovation and the creation of new mechanisms can easily be introduced to the market with great acceptance from consumers.

3.3.5 Lighter cars (new materials)Manufacturing lighter cars creates significant advantages in terms of safety and fuel savings. Replacing metallic materials with other more resistant ones, such as plastics or fibers derived from natural compounds, is a topic that interests engineers and scientists. The creation of new components increases leads to more sophisticated, flexible, resistant and rigid components for use in the automotive industry.

Table 3. Global trade

10

3.4 Leading companies in the worldThe leading companies in the auto parts industry (based on sales) come from the main car producing countries and have their cor-porate offices in countries such as: The United States, Germany, Japan and France.

Table 4. The top 100 auto parts companies Robert Bosh GmbH

(Germany) NSK Ltd (Japan)American Axle &

Manufacturing (USA)

Denso Corp. (Japan) Mitsubishi Electric Corp. (Japan) CIE Automotive S.A. (Spain)

Continental AG (Germany) Tenneco Inc. (USA) Webasto AG (Germany)

Aisin Seiki (Japan) Behr GmbH (Germany) Nexteer Automotive (USA)

Magna International Inc. (Canada)

Brose Fahrzeugteile GmbH (Germany) Tower International (USA)

Faurecia (France) NHK Spring Co. (Japan) Stanley Electric Co (Japan)

Johnson Controls Inc. (USA) Koito Manufacturing Ltd. (Japan)Rieter Automotive Mgmt.

AG (Suiza)

ZF Friedrichshafen AG (Germany) TS Tech Co. (Japan)

Akebono Brake Industry Co. (Japan)

LG Chem LTD. (Korea) Plastic Omnium Co. (France) Linamar Corp. (Canada)

Hyundai Mobis (Korea) Takata Corp. (Japan) Leopold Kostal GmbH (Germany)

TRW Automotive Holdings Corp. (USA) Federal-Mogul Corp. (USA)

Royal Philips Electronics (Netherlands)

Delphi Automotive (USA) Hyundai-WIA Corp. (Korea) Martinrea International Inc. (Canada)

Yazaki Corp. (Japan) Bridgestone/Firestone Inc. (Japan) PPG Industries Inc. (USA)

Lear Corp. (USA) Michelin Group (France) Kautex Textron GmbH (Germany)

Sumitomo Electric Industries Ltd. (Japan) IAC Group (Luxemburgo)

Georg Fischer Automotive AG (Suiza)

BASF SE (Germany) Tokai Rika Co. Ltd. (Japan) Sanden Corp. (Japan)

Toyota Boshoku Corp (Japan) GKN Driveline (UK)

Freescale Semiconductor Inc. (USA)

CalsonicKansei Corp. (Japan)

Hella KGaA Hueck & Co. (Germany) F-Tech Inc. (Japan)

JTEKT Corp. (Japan) Goodyear Tire & Rubber Co. (USA) Clarion Co. (Japan)

Hitachi Automotive Systems Ltd. (Japan) Mando Corp (Korea)

Hayes Lemmerz Intl. Inc. (USA)

Valeo SA (France) Flex-N-Gate Corp. (USA) Dura Automotive Systems Inc (USA)

Visteon Corp. (USA) Nemak (Mexico) Eaton Corp (USA)

Autoliv Inc. (Sweden) Grupo Antolin (Spain) Pirelli & C.S.p.A. (Italy)

Magneti Marelli S.p.A. (Italy) Showa Corp. (Japan) Peguform GmbH (Germany)

Mahle GmbH (Germany) Bayer MaterialScience (Germany)Trelleborg Automotive

(Sweden)

Benteler Automobiltechnik GmbH (Germany) TI Automotive Ltd. (UK)

Alpine Electronics Inc. (Japan)

Dana Holding Corp. (USA) Harman Intl. Industries Inc. (USA) 3M Automotive(USA)

Toyoda Gosei Co. (Japan) Mitsuba Corp. (Japan) Pioneer Corporation (Japan)

Cummins Inc. (USA) Cooper-Standard Automotive (USA) Mark IV Holding Inc. (USA)

Du Pont (USA) Eberspaecher Holding GmbH (Germany) HBPO Gmbh (Germany)

BorgWarner Inc. (USA) TE Connectivity Ltd. (USA) Tomkins Ltd. (UK)

Schaeffler Group (Germany) Draexlmaier Group (Germany) Omron Corp. (Japan)

NTN Corp. (Japan) Asahi Glass Co. (Japan) Dow Automotive Systems (USA)

SKF Automotive Division (Sweden)

Source: Created by ProMxico with data by Automotive News: Top 100 Global Suppliers, June 13 2011.

The origin of these companies is distributed as follows:

Source: Created by ProMxico with data by Automotive News

3.5 Certifications1. ISO 9000 This is a set of quality and continuous quality management stan-dards that were established by the International Standardization Organization (ISO). ISO 9000 specifies the way in which an orga-nization operates, their quality standards, times of delivery and service levels. Its implementation offers businesses numerous advantages, including the following.

2. ISO/TS 16949 Commonly known as TS2, ISO/TS 16949 is a catalog of the requirements of the automotive quality system that is based on various international industry standards and requirements, such as AVSQ (Italy), EAQF (France), QS-9000 (US) and VDA 6.1 (Ger-many). ISO/TS 16949 enables suppliers and subcontractors of the automotive industry to use a single document to comply with these international quality management standards.

The goal of TS2 is to develop fundamental quality systems that provide continuous improvements with an emphasis on fault prevention, variation and waste reduction in the supply chain. It aligns international requirements of the automotive quality sys-tem to provide the following benefits.

3. ISO 14000 ISO 14000 is a set of environmental management documents that once implemented will affect every area of an organizations management of its environmental responsibilities and will help organizations to systematically deal with environmental issues, with the goal of improving environmental behavior and oppor-tunities for economic benefit.

The following are quality systems that are used in the industry: Six sigmaLean ManufacturingProduction part Approval ProcessAdvanced product quality planningBalance Scorecard5s

Graph 4. Main companies by origin

11

IV The Auto parts Industry

in Mexico

12

4. The Auto parts Industry in MexicoIn Mexico, the auto parts industry follows the same trend as the automotive industry as a whole. This has a positive impact, be-cause in 2012, light vehicle production reached a new historic record of 2.8 million units, 12.8% more than what was recorded in 2011.17

The automotive industry is expected to continue growing in the future and Mexico will produce more than 3.7 million light ve-hicles by the end of 2016, which will mean an increase of 28.5% compared to production levels reported in 2012

The growth of the automotive industry benefits the auto parts in-dustry because the market will demand a wide range of products for assembly companies production lines, while the number of vehicles sold will increase the demand from the aftermarket or spare parts market segments.

4.1 Production and consumptionIn 2012, auto parts production in Mexico reached a total of 74,795 md,19 that is a 10% increase compared to the previous year; meanwhile consumption reached 59,156 md.20

The following table shows production value by system or com-ponent:

17. Mexican Association of the Automotive Industry (AMIA)18. Global Insight19. INA20. Created by ProMxico with data by Global Trade Atlas y Global Insight.21. ProMxico with data by Global Trade Atlas.

Systems or components Amount (md) % share

Electrical parts 16,463 22%

Automotive fabrics, carpets and seats 8,597 11%

Engine parts 6,993 9%

Transmissions, clutches and their parts 5,809 8%

Accessories and automotive use parts 4,730 6%

Gasoline engines 3,986 5%

Suspension, steering and their parts 2,916 4%

Diesel engines 2,638 4%

Stampings and their parts 2,864 4%

Brakes and their parts 1,944 3%

Automotive rims and tires 1,575 2%

Bodies 1,256 2%

Automotive oils, lubricants and liquids

1,189 2%

Automotive rubber products 959 1%

Automotive windows, glasses and windshields 417 1%

Cooling 361 0%

Other 12,098 16%

Total 74,795 100%

Source: INA

Source: ProMxico with data by Global Trade Atlas

Source: ProMxico with data by Global Trade Atlas

4.2 Auto parts trade in Mexico

In 2012, Mexican auto parts exports amounted to 51,872 md and recorded an average annual growth of 11% in the last decade. Imports reached 36,233 md, recording a 9% average annual growth rate in the last decade.21

The main destination for Mexican exports from the auto parts industry was the United States, with 90% share. It is worth men-tioning that one third of the value of imported auto parts in the United States comes from Mexico, making it the main supplier to this market.

Trade partner Exports 2012 (md) %

USA 46,585 90%

Canada 1,795 3%

Brazil 583 1%

Germany 353 1%

UK 246 0%

Japan 202 0%

China 181 0%

Thailand 178 0%

Australia 141 0%

Italy 120 0%


Total 51,872 100%

Trade Partner Imports 2012 (md) %

USA 20,335 56%

China 3,805 11%

Japan 2,387 7%

Germany 1,856 5%

Canada 1,654 5%

South Korea 1,426 4%

Brazil 697 2%

Taiwan 538 1%

Italy 348 1%

India 337 1%


Total 36,233 100%

Table 6. Mexicos main trade partners

Graph 5. Global trade (MD)

Table 5. Production value

Exports Imports TradeBalance

13

22. National Statistics Directory of Economic Units 2013 (DENUE, INEGI)23. ProMxico with data by Automotive News, June 2011.

Source: ProMexico

Area Staff employed

Electrical and electronic equipment for automotive vehicles 215,432

Seats for automotive vehicles 74,744

Gasoline engines and their parts for automotive vehicles 40,867

Plastic autoparts 34,976

Transmission systems parts 23,923

Die-cut metallic parts for automotive vehicles 21,354

Steering systems and suspension parts for automotive vehicles 16,124

Brake system parts for automotive vehicles 14,551

Bodies and trailers 11,213

Glass 7,542

Rims and tires 6,399

Storage cells and batteries 4,414

Lubricant oils and greases 3,577

Other parts for automotive vehicles 108,590

Total 583,706

4.3 Transnational companies in MexicoThe Mexican industry is the main supplier to the North American market; nationally, there are more than 2,559 economic units22 of the three tiers of production, strengthening the industry and pro-viding it with a product diversification that benefits assemblers. This is why the industry production chain is competitive and reacts efficiently to market demand.

Some of the leading auto parts companies established in Mexico are:

Table 7. Companies operating in Mexico

It is worth noting that 89 of the top 100 auto parts companies23 mentioned in chapter 3.4 of this study are established in Mexico. The origin of the companies included in this list and their opera-tions in Mexico are as follows:

Table 8. Jobs created

As of December 2012, the auto parts industry created a total of 583,706 jobs.

Source: National Auto parts Industry and INEGI.

In 2010, average salaries in the manufacturing industry for transportation equipment production were 2.7 dollars per hour.

According to INEGI, average salaries in Mexicos vehicle termi-nal industry record double the value compared to the rest of the manufacturing industry.

Source: Created by ProMxico with data by Automotive News

Graph 6. Origin of companies established in Mexico

Others

France

Germany

USA

Japan

28%

28%20%

19%

5%

14

4.4 Localization and specialization of auto parts production in MexicoAuto parts manufacturers in Mexico are located in four regions:

1. Northeastern region - includes 198 plants distributed across Chihuahua, Nuevo Len, Coahuila and Tamaulipas. Pro-duction in this region focuses on air conditioning systems, automotive systems, plastic parts, electric system parts and engine and machined parts.

2. Northwestern region - includes 70 plants in the states of Baja California Norte, Baja California Sur, Sinaloa, Sonora and Durango. This region produces mainly air conditioning and heating systems, interior components, accessories and electric systems for cars.

Figure 2. Localization and specialization of auto parts production in Mexico

Figure 3. Localization and specialization of auto parts production in Mexico

3. Southeastern region. includes 101 plants distributed across Tlaxcala, Puebla, Tlaxcala, the State of Mexico, Morelos, Hidal-go and Mexico City. Production in the area focuses on seats, air conditioning, hydraulic bottle jacks, interior components, engine parts, electric systems, stampings and suspensions.

4. Center region. includes 142 plants in the states of Jalisco, Guanajuato, Quertaro, Aguascalientes and San Luis Potos. Pro-duction in this region focuses on stampings, electric components, brakes and their parts, rubber products, engine parts and trans-missions for cars.

Northeastern region:

70 PlantsProducts/systems: AC and heating systems, interior components, accessories and electrical systems for automobiles.

NorthwesternRegion:

198 PlantasProducts/systems:Air conditioning systems, automotive systems, plastic parts, parts for electrical systems, engine parts and machined parts.

Center region:

142 PlantsProducts/systems:Stamping, electric components, brakes and their parts, rubber products, engine parts and transmissions for automobiles.

Southeastern region:

101 PlantsProducts/systems:Seats, air conditioning, hydraulic bottle jacks, interior components, engine parts, electric systems, prints and suspensions.

15

Graph 7. Manufacturing costs, 2012

Autoparts

Plastics production manufacturing

Precision manufacturing

Metal components

4.5 Manufacturing costsAccording to KPMG, Mexico offers 13% savings in auto parts manufacturing costs and 19.4% in plastic and 19.5% in metal inputs used in the industry, compared to costs in the United States and eight other manufacturing countries.

4.6 Supply capacityMexico has a vast knowledge of the supply chain for companies in the automotive and auto parts industries, which is why there is development in metalworking industry processes, a industry that is directly linked to car and auto parts manufacturing.

Local companies are able to provide processes required by mul-tinationals, because they are diversified processes that comply with international quality standards.

The processes include the following: Smelting CNC (computer numeric control) machining Pressure injection/Die casting Stamping Welding Assemblies Surface treatments/Metal treatments Molding by plastic injection

Source: ProMxico with data by Competitive Alternatives 2012, KPMGs guide to international business costs

The FIAT 500 and Toyota Avalon

models have air conditioning system components made in

Mexico

Japan

USA 0.0%

Germa

nyCan

adaItal

yFra

nceUnited

Kingdo

mBra

zilMe

xico

-13.0%

-5.0%-5.4%-3.4% -3.1% -3.0%

0.1%

7.4%

Japan

Germa

ny

Italy

Canada

FranceUn

ited

Kingdo

mBra

zilMe

xico

-11.9%

-5.6%-6.0%

-3.5% -3.1%-2.9%

-0.4%

USA 0.0%

2.6%

Japan

Germa

ny

Canada

Italy

FranceUn

ited

Kingdo

mBra

zilMe

xico

-19.4%

-7.8%-8.9%-6.2% -6.0%

-2.8%-1.4%

USA 0.0%

10.0%

Japan

Germa

ny

Canada

Franci

aItal

yUnited

Kingdo

mBra

zilMe

xico

-19.5%

-7.6%-9.8%

-5.6%-5.5% -3.8%-1.0%

USA 0.0%

10.9%

16

Figure 4. Supply capacity

CNC machining

Foundry

StampingInjection molding (plastic)

Assemblies

Total de empresas 350


Pressure injection/die casting


Welding


Surface treatments


Estados con mayorproduccin

Estado de Mxico Nuevo Len ChihuahuaQuertaroTlaxcala

Total companies 96

States with the highest production

Nuevo Len Estado de MxicoDistrito Federal QuertaroChihuahuaCoahuilaBaja California

Total companies 350


Nuevo Len Distrito Federal Coahuila San Luis PotosChihuahua Quertaro

Total companies 274


Nuevo LenEstado de MxicoDurangoTamaulipasCoahuila

Total companies 214


Estado de MxicoNuevo Len Jalisco CoahuilaSan Luis PotosDistrito Federal PueblaTlaxcala

Total companies 55


Distrito FederalEstado de Mxico ChihuahuaQuertaro Nuevo LenTamaulipasTlaxcala

Total companies 68

Total companies 192


Nuevo LenEstado de MxicoCoahuilaDurangoTamaulipas

Total companies 21


Nuevo LenEstado de Mxico Distrito Federal Jalisco

17

4.7 Foreign direct investment (auto parts)Direct foreign investment in the auto parts industry has been very volatile in recent years, due mainly to the 2009 economic crisis.

Between 2006 and 2012, accumulated investments in this indus-try reached 9,687 md. This means that the auto parts industry accounts for 6% of the total amount generated by investments recorded in every industry during the referenced period on a na-tional level.24

24. Ministry of Economy, Director General of the National Registry of Foreign Investments.25. FDI Intelligence de Financial Times Ltd.

Graph 8. Auto parts FDI (md)

Source: Created by ProMxico with data by Ministry of Economy.

Source: ProMxico with data by Ministry of Economy

The following table shows the diversification of products made by the companies that invested in Mexico with their investment amounts during the period of reference.

Table 9. Foreign direct investments by system or component

Type or product Value .(md) %

Oils and greases 155 2%

Plastic autoparts 266 3%

Rims and tires 495 5%

Glass 104 1%

Iron and steel part molding 225 2%

Internal combustion engines, turbines and transmissions 464 5%

Storage cells and batteries 9 0%

Bodies and trailers 5 0%

Electrical and electronic equipment for automotive vehicles 1,205 12%

Steering systems and suspension parts for automotive vehicles 76 1%

Brake system parts for automotive vehicles 584 6%

Transmission systems parts 209 2%

Seats for automotive vehicles 85 1%

Die-cut metallic parts for automotive vehicles 80 1%

Other parts for automotive vehicles 5,725 59%

Total 9,687 100%

In the referenced period, 155 companies from the auto parts in-dustry announced 169 investment projects creating an estimated 62,356 new jobs.25

Table 10. Foreign direct investments by system or component

Year Number of proyects

2006 16

2007 19

2008 22

2009 26

2010 18

2011 30

2012 38

Total 169Source: Created by ProMxico with data by FDI Intelligence, Financial Times Ltd.

In this period, 155 companies announced investments. The Ger-man company Robert Bosch was the first, with a total of seven investments announced between January 2006 and June 2012. It is worth mentioning that the top ten companies to announce investments in Mexico account for 22% of investment announce-ments in the auto parts industry, with 37 projects.

Below are the ten leading companies that announced the largest number of projects in the referenced period25:

Robert Bosch Magna International DPH Holdings (Delphi) Meritor (Arvin Meritor) Haldex Behr Hitachi Automotive Systems American Axle and Manufacturing Mahle Nissan

Other investments that affected the auto parts industry were made by the following companies:25

Delphi: will expand its facilities in Chihuahua (Hidalgo del Pa-rral), where it will install two new production lines for electrical circuits and wiring

41 million dollar investment 350 direct jobs

Continental will build a plant to manufacture electronic compo-nents (sensors), the plant will begin opeartions at the begining of 2014. The location is not yet decided.

25 million dollar investment. 257 direct jobs

201220112010 2009 2008 2007 2006

1,9962,239

1,453

857

171

1,201

1,770

18

Hitachi Automotive Systems: will establish a plant in Santa Rosa Jauregui, Quertaro to manufacture initially its pensions and la-ter diversify its production line.

100 million dollar investment. 842 direct jobs.

Jatco: will establish a second plant in Aguascalientes to manufac-ture CVT and CVT8 transmissions.

220 million dollar investment. N.A.

Daimler Trucks: will build a new plant possibly located in the Bajo area, where it will manufacture a new line of transmissions for trucks.

300 million dollar investment. 2,473 direct jobs.

Koito Manufacturing: will build a plant that will begin operating early in 2014, where it will produce lighting systems for vehicles.

36 million dollar investment. 249 direct jobs.

Yutaka Giken: will establish a plant close to one of Hondas fac-tories to supply exhaust pipes, engines and brakes.

40 million dollar investment. 337 direct jobs

4.8 Companies bet on Mexico; supply attraction and development of the national supply chainAs a result of the automotive boom in Mexico, several vehicle manufacturing companies have decided to invest in the country to participate in the growth of the industry, which promises to strengthen even further in the future. An example of this is the number of important investments announced by companies such as Audi, Honda and Mazda, the latter in a strategic alliance with Sumitomo and Toyota.

To understand the positive impact that these projects have on the country, it is necessary to analyze the effects triggered by this type of investment in terms of supplier attraction and the develo-pment of national suppliers.

Honda decided to invest 800 million dollars in Celaya, Guanajua-to to open a new plant that will begin operating during the first quarter of 2014, to produce the subcompact Honda Fit. At maxi-mum capacity, the plant is estimated to produce 200 thousand units per year, generating 3,200 jobs.

Mazda, in Alliance with Sumitomo, decided to invest 500 million dollars in Salamanca, Guanajuato, to open a new plant that will begin operating during the first quarter of 2014, to manufacture the Mazda 2 and Mazda 3 models, known as Demio and Mazda

Axela in Japan. The plant will have a capacity to produce 140 thousand units a year.

Later, Mazda and Toyota announced that the latter will invest separately to expand the plant to manufacture approximately 50 thousand subcompacts.

The impact of an investment by an OEM unleashes a positive effect on the economy. In the case of Honda and Mazda/Sumito-mo/Toyota, the benefit is on a national level, but more specifi-cally in the Bajo region. Since these investment announcements were made, we have detected that several companies, mostly Japanese, have begun to show interest in investing in Mexico to supply parts and components to assemblers.

The Chevrolet Camaro Z28 has a six speed manual

transmission with short

throw shifter made in Mexico.

19

Company Origin Destination city

Estimated investment

(md)

Estimated jobs

Potential manufac-turing products in

MexicoComments

Setex Inc Japan Apaseo el Grande 30 1000Seats and interiors for cars

The company is a subsidiary of Tachi-S and will supply mainly Honda.

Kayaba Industry Japan Silao 57.8 N.D.

Hydraulic pumps, hydraulic shock absorbers and steering components

Expected to begin operating in September 2014 to supply the Mexican market.

Tsubakimoto Chain Japan Silao 3.5 30

Timed engines, chain systems and others products.

Expected to begin operating in January 2014 and supply the South American market.

Tigers Polymer Japan Silao 18 200 Plastic partsExpected to begin operating in January 2014 and supply the Mexican market.

Yachiyo Industry Japan

Apaseo el Grande 20 100 Fuel tanks

A subsidiary of Honda and will supply the Mexican market.

Ashimori Industry Japan Guanajuato 36.3 253 Seatbelts N.D.

Denso Mexico Japan Silao 57 400 Heating, ventilation and air conditioningThe company will supply the North American market.

Akebono Brake Industry Japan Silao 5.1 43 Brakes

Expected to begin operating in June 2013, and supply the Mexican market.

AccuGear United States Silao 12.7 100 Precision assemblies, differentials and gearsThe company is a subsidiary of American Axle and will supply its plants in North and South America.

Summit Polymers United States Silao 35.7 258

Plastic injection and components for car interiors

The comany will supply the Mexican market.

American Axle Manufacturing United States Silao 17.7 70

Transmissions and chassis

The comany will supply the Latin American market.

Rehau Germany Apaseo el Grande 6 100 Plastic extrusion Expansion of its plant.

Kromberg & Schubert Germany Irapuato 7.4 60 Electronic components Expansion of its plant.

GKN Driveline United Kingdom Celaya 11.5 150 Precision forged parts The comany will supply the Mexican market.

Source: Created by ProMxico with data by FDI Market

The following are companies in the auto parts industry that have announced investments that could be interested in becoming su-ppliers in the area.

Public transportation in the city of Las Vegas uses

brake pads made in Mexico.

Table 11. Auto part supplier companies

20

In the specific case of Mazda, there is now a supplier park made up of Japanese companies that will supply the assembler. Such is the case of Y-Tec Keylex which will invest 90 million dollars and create 360 jobs; the company will produce bodies and chassis. Daikyo Nishikawa will invest 30 million dollars and create 270 jobs; the company will produce dashboards. Aki Seat Manufactu-ring will invest 20 million dollars and create 300 jobs to produce car seats.

With these investments, Mazda will save on logistics costs, since its closeness to suppliers will cut component delivery times and goods transportation costs.

As a result of the investments identified in this section, the to-tal investment is estimated in excess of 400 million dollars with more than 3,000 jobs created, which in terms of investment is very similar to that announced by Mazda to build its plant.

On the other hand, as mentioned previously, the development of national supply is another benefit involved in the attraction of investment. In an effort to strengthen the countrys supply chain, ProMxico has set up a number of business encounters between assemblers and qualified suppliers. The suppliers are evaluated by ProMxico to ensure that they meet assemblers requirements and are the ideal candidates to attend the encounters and thus trigger a business opportunity.

As a result of these efforts, it is important to mention the case of Yamada Manufacturing, which is interested in investing in Mexi-co to manufacture various types of car pumps and their compo-nents, and which will allocate approximately 80% of its produc-tion to supply Honda.

ProMxico organized an event to find suppliers who can meet Yamada Manufacturings requirements and find companies es-tablished in Mexico, mainly Tier 2, to supply the Japanese com-pany.

Approximately 30 supplier companies have shown interest, most of them from the states of Nuevo Len, Mexico City, Coahuila and the State of Mexico, and another link in the supply chain is expected to be closed, undoubtedly leading to benefits for natio-nal supply. Audi is expected to replicate the same supply model in both attraction of investment and national development.

4.9 Chambers and associations There are several important players in Mexico that support the development of the auto parts industry, mainly:

National Auto parts Industry (INA)26The INA is the leading association of the auto parts industry in Mexico. Its main strategic lines include:

The integration of all levels of the automotive industries pro-duction chain.

The insertion of the automotive industry into the global eco-nomy.

The economic strengthening of the auto parts industry through the establishment of national and international sy-nergies.

National association of Rim Distributors and Renovating Plants (ANDELLAC)27 ANDELLAC caters to the needs of its associates by consolidating the union of the tire industry and renovation, providing consul-ting, training and certifications using its resources.

Some of its associates include: Bridgestone Continental Good Year Michelin Pirelli Tornel Cooper tires

Mexican association of the Automotive Industry (AMIA)28 AMIA represents the interests of car manufacturing companies. The group works to reconcile the interests of these companies jo-intly with regard to similar institutions, in practically every area, before chamber confederations and municipal, state and federal governments.

In addition, it supports the growth of Mexicos automotive in-dustry, surveys the standard framework that influences the in-dustry and analyzes the evolution and relevant data of affiliates:

Founding partners: Chrysler de Mxico, S.A. de C.V., Ford Motor Co., S.A. de C.V., General Motors de Mxico, S.de R.L. de C.V., Nissan Mexicana, S.A. de C.V., Volkswagen de Mxico, S.A. de C.V.

Affiliated partners: BMW de Mxico, S.A. de C. V., Honda de Mxico, S.A. de C.V., Toyota Motor Sales.

Cooperating partners: Peugeot Mxico, S.A. Renault Mxico, S.A. de C.V., Suzuki Motor de Mxico, S.A. DE C.V

Participating brands: Fiat, Subaru, Mercedes Benz.

National Association of Bus, Truck and Tractor-trailer Producers (ANPACT)29ANPACT represents heavy vehicle (more than 6.3 tons) and die-sel engine manufacturers, and fosters the development of the transportation industry in Mexico.

Its main strategic lines are: To be the institution that represents and promotes the de-

fense of the interests of transportation vehicle and engine producers and dealers in Mexico.

To represent the interests of diesel engine dealers and, if applicable, other companies related to transportation.

Some of its associates are: DINA ISUZU Kenworth Mercedes Benz SCANIA Volvo Freightliner International

26. Industria Nacional de Autopartes, www.ina.org.mx27. Asociacin Nacional de Distribuidores de Llantas y Plantas Renovadoras, www.andellac.com.mx28. Asociacin Mexicana de la Industria Automotriz, www.amia.com.mx29. Asociacin Nacional de Productores de Autobuses, Camiones y Tractocamiones, www.anpact.com.mx

21

4.10 Automotive engineering and design centersThe establishment of design centers in Mexico has helped to strengthen the industries existing capacities and the quality of products manufactured in Mexico. The following are a few examples of this type of center operating in Mexico:

General Motors Regional Engineering Centers30 Based in Toluca, in the State of Mexico, the General Motors Re-gional Engineering Center employs 700 engineers that design and conduct engineering research testing on various vehicles for General Motors. The center focuses on designing and developing new technology for cars.

Nissan Technology Development Center (CDT Nistec)31 Based in Toluca, in the State of Mexico, it is one of Nissans nine centers of this kind. It employs 366 people, most of whom are Mexican engineers.

The center focuses on reducing pollutant emissions from engines by 70%; it has special noise chambers to simulate roads and de-tect part and body wear due to vibration; and it simulates extre-me hot and cold weather conditions to certify the correct opera-tion of systems and plastics. It is part of Nissans global research and development (R&D) network, which works closely with si-milar centers in the US and Brazil. Mexico contributes with parts design, vehicle evaluation and bench testing.

Chrysler Automotive Research, Development and Engineering Testing Center32 Based in Mexico City, the center was built to develop and evalua-te new Dodge, Chrysler, Jeep, Mitsubishi and Hyundai vehicles. Some of the centers areas are: Vehicle testing, labs to measure pollutant emissions, materials and metrology engineering labs, engine and transmission dynamometers. It provides direct jobs to 30 engineers who specialize in process development and certi-fication, in addition to the indirect jobs required by each project. At the center, employees perform world-class engineering tests, study environmentally friendly raw materials and alternate fuel technologies, emission reduction and petroleum derived fuels.

The vehicle testing, research and development area occupies the largest space in the facilities and performs activities such as de-velopment, review and testing processes, including any type of operation from changing or modifying a part, to partially or to-tally changing the body, chassis, engine, transmission, etc. To do so, current models are used as well as the concepts of the vehicles that will be launched for sale in the future.

Technical Research and Assistance Center of the State of Quertaro. (CIATEQ) 33Based in Quertaro, the center is built with the participation of the federal government, represented by CONACYT and LANFI, the state government of Quertaro and state industrials, headed by executives from Grupo ICA and Grupo SPICER.

CIATEQ performs technology development projects for the au-tomotive and auto parts industry, from basic engineering to the manufacture of purpose-built machinery and equipment, tools, test benches, control and measurement systems, creation of pro-totypes and development of specialized vehicles for airports. The centers projects include the following:

Wind tunnel for car radiator testing Design and production of thermo cycling test bench to eva-

luate charged air coolers Mechanical design of the new ranges of seven agricultural

tractor models Design and production of an aluminum tractor mold Angle cutting machine for rubber profile Inspection and laser labeling machine for engine rings Thermo cycling testing machine for car radiators Device to inspect the position of head lights Car tire testing machine Crane to assemble car powertrain Machines for secondary operations in the production of door

seals Drill for rubber extrusion line Zero-gravity arm for suspension assembly line Analysis and simulation of car structures Machines to test truck dashboards Welding template for the car seat structure Assembly table for seat frames Measurement and verification devices for car window eleva-

tors Redesign of cooling systems, molds and auxiliary elements to

manufacture aluminum auto parts Design and production of cabin to apply water-based paint Design and construction of a set of machines for secondary

operations in the production of car door seals.

Strategic alliances and innovation networks (AERIS)34

AERIS is a mechanism promoted by CONACYT that supports companies in the planning and constitution of alliances and in-novation networks with other companies and academic institu-tions.

Its goal is to position Mexico as a viable global option for auto-motive research and development and to promote the develop-ment and application of new technologies in the industry which increase the technical capacity of Mexicans for the development of new automotive products and technologies

The following are the networks strategic lines: New materials: ultra-light plastics Nanotechnology applied to automotive systems Development of mathematical simulation models (CAD,

CAE, CAM) Innovation in fuel performance and alternative fuels (electric

hybrid) Vehicle adaptation to Mexicos specific characteristics R&D in electric systems and components Technology development for HVAC New technologies applied to manufacturing.

30. General Motors company information, http://www.gm.com.mx/content_data/LAAM/MX/es/GMMGM/flash/corporate/_informacion/conozca/planta_centroregional.html31. Media information (press).32. Chrysler corporate information, http://www.chryslerdemexicoonline.com/company/ingenieria/index.htm33. CONACYT, http://www.ciateq.mx/

22

Vehicle Electronic Technology Center35 This is an initiative that results from the agreement between ITESO and Soluciones Tecnolgicas. The center develops and integrates electronic systems for automotive applications, in the following areas:

Testing and systems integration services for testing modules and systems for assembly companies and their suppliers.

Engineering, design and electronic systems integration ser-vices.

Technology research and development in electronic systems.

Users are assembly companies that export vehicles to North America and Europe and their suppliers; electronic component and automotive systems software manufacturers and designers; as well as university and other research institutes related to sys-tem design for cars, airplanes, boats, electronics and software, particularly firmware.

Delphi Technical Center36 Headquartered in Ciudad Jurez, Chihuahua, this component engineering center designs and develops products and employs close to three thousand people of whom almost half are engi-neers and technicians. It has been operating for 8 years, during which it has obtained 50 patents, 35 defensive publications and 8 industrial secrets based on components, systems and applica-tions for the automotive industry.

Center for the Development of the Automotive Industry in Mexico (CEDIAM)37 The Center for the Development of the Automotive Industry in Mexico gives nationwide coverage of advice, training, technolo-gy research and development services to the automotive indus-try. It was created with the support of various players, such as companies, institutions, chambers and govern-ment, with the purpose of expanding information and reducing the gap between them to achieve greater support for the national industry.

The center has more than 300 researchers, labs, equipment and a network of national coverage. It has presence in Coahuila, Mon-terrey, the State of Mexico, Quertaro, Guanajuato, Jalisco, Pue-bla, Aguascalientes, Morelos, San Luis Potos and Sonora.

Nuevo Len Automotive Cluster (CLAUT)38 The Nuevo Len Automotive Cluster is a civil association com-prising tier 1 automotive industry manufacturers and related academic and government institutions.

CLAUT seeks to develop the integrated chain from vehicle as-sembly companies to tier 1, 2 and 3 suppliers, as well as compa-nies that support the automotive industry, such as logistics and consulting service companies, among others.

Industrial Engineering and Development Cen-ter (CIDESI)39

The CIDESI was founded on March 9, 1984 and is part of the Sys-tem of Centers of the National Science and Technology Council.

CIDESI is ISO 9001:2008 certified and is the first Center of the CONACYT System that is AS9100 B certified as a supplier for the aviation industry.

It was granted the National Technology Award in 2003 and the State Exportation Award of the State of Quertaro in 2004. It is a reliable supplier to PEMEX, authorized supplier to BOMBAR-DIER, Member of the Alliance with National Instruments and the Texas Instruments Design House. It contributes to the develop-ment of the countrys production industry with two main offices located in the states of Quertaro and Nuevo Len, inside the Monterrey Technology Research and Innovation Park. In addi-tion, it has labs in San Luis Potos and in important companies in Mexico

Advanced Materials Research Center (CIMAV)40 The Advanced Materials Research Center (CIMAV) is an institu-tion that is part of the National System of Public Centers CONA-CYT. It was founded in the city of Chihuahua in October 1994, and its creation is the result of an agreement between the Federal Government, the State Government of Chihuahua and Canacin-tra Chihuahua Chapter, which has given it special features that have positively affected its development.

It has highly specialized staff that do basic oriented and applied research as well as technology development with the goal of meeting the countrys scientific, technological and academic de-mand, based on eleven research lines and two institutional aca-demic programs.

34. CONACYT, http://www.conacyt.mx/fondos/institucionales/Tecnologia/Avance/Paginas/Avance_AERIS.aspx35. ITESO, http://portal.iteso.mx/portal/page/portal/ITESO/Informacion_Institucional/ITESO_Empresa/Centro_de_tecnologia_electronica_vehicular36. Infomaquila, http://www.youtube.com/watch?v=-yy3kHIhbOM37. ITESM, http://www.itesm.mx/rzc/CeDIAM/cediam1/index.htm38. CLAUT, http://claut.com.mx/39. CONACYT, http://cidesi.com/joomla/index.php40. CONACYT, http://www.cimav.edu.mx/

23

V Investment Opportunities

24

5. Investment opportunities

Mexico has a solid auto parts industry that makes it a good glo-bal market. In addition, it has direct access to the NAFTA region, expanding companies potential market. Opening a plant in Mexico is an excellent opportunity for internationally renowned companies since they can expand their production and exporta-tion capacity to the NAFTA zone and Latin America.

Another advantage of establishing in Mexico is the solid presence of the automotive industry, which has 19 light and heavy vehicle assembly companies that manufacture approximately 40 models and produce 2.8 million units, strengthening the auto parts in-dustry to supply this market.

Mexico must promote investments in major components because they are in high demand by assemblers and are mostly imported. Components identified as missing from the production chain are:

In terms of support processes, foreign companies that work on these activities can invest in processes that are missing, lacking or have are under-developed in Mexico, such as:

Cold and hot forged parts, Polymer extrusion with metal in-serts, Flocking finishing, Die casting aluminum over 450 tons, High Strength Steel, Stainless Steel, Steel Casting, Stainless Ste-el Casting, Precision stamping, Deep stamping, External Plastic Chroming, High volume sintering, Dies and mold-holders (Body parts), Sequential dies, Manufacturing of plastic molds, Manu-facturing of die casting molds, Fiberglass parts, Blow molding (with or without paint) and Assembly or manufacturing of elec-tronic sensors and components.

71% of total demand for processes is imported, therefore, there are huge investment opportunities for foreign compa-nies.

Some of the most demanded processes are stamping, cas-ting, forging and machining.

The following graph shows the opportunity described in the top ten supply processes for the automotive industry, which account for 85% of the opportunity identified by ProMxico.

What does the graph represent?

Using the bar that refers to die-casting and/or stamping process as an example, we can observe the following:

According to calculations, the total market demand is 18.1 billion dollars made up of the sum of national supply (6.3 billion dollars) and the import (11.8 billion dollars) of parts and components used in the manufacturing process.

This means that national supply is 6.3 billion dollars, that is, national suppliers satisfy 34.8% of demand in the auto-motive industry.

In addition, the market opportunity is 11.8 billion dollars since the terminal and auto parts automotive industry have to import final parts based on this manufacturing process.

Below are the 11 remaining processes, which account for 15% of processes identified by ProMxico as an investment opportuni-ty.

Graph 10. Total market value and investment opportunity in the supply chain in Mexico

(billions of dollars)

Transmissions Fuel engine Bodies Safety systems

Injectors Sensors Dashboards Pumps

ProMxico has identified an opportunity for Tier 2 and Tier 3 process suppliers that engage in materials processing and add value to final products.

Currently, ProMxico is seeking to attract foreign companies that can contribute to supplier development or even share their knowledge and technology with Mexican companies.

The following are investment opportunities in the supply chain that ProMxico has identified:

Graph 9. Total market value and investment opportunity in the supply chain in Mexico

(billions of dollars)

Source: ProMxicos calculations

Source: ProMxicos calculations

25

VI Export Opportunities

26

Nationally, assembly and Tier 1 companies seek to develop stra-tegic alliances with suppliers abroad that guarantee performan-ce, quality, durability, price and innovation. There are companies in Mexico that offer quality and a capacity to export products and processes that are fundamental for the automotive industry.

Exports of minor components must be promoted within the auto parts industry because Mexican companies have the experience and quality required to supply this type of component, which includes:

Oil sump Gear boxes Tank caps Hubs Accessories Rises Clamps Spark plugs Tracks Joints Air filters Washers Pistons Gas tanks Torque rod Pins Hoses Forks Disc/drum brakes

6. Export Opportunities

We recommend to channel export products to Latin America because the automotive industry in countries such as Argentina and Brazil is increasing, and the demand for this type of pro-ducts follows the same positive trend. These products can also be exported to the aftermarket in the United States, because spare parts chains seek quality products at low costs, which could po-sition Mexican companies in this market segment.

Exports of basic processes such as stamping, forming, die-cas-ting, plastics injection and machining, are also a window of op-portunity for Mexican companies that comply with the quality required by international markets. This could be an opportunity for Tier 2 companies to position themselves abroad

The Top-Coat of the Ford Focus brake system

is a process made in Mexico.

27

VII Legal Framework

28

7. Legal framework

7.1 PROSEC Automotive and Eighth RuleSectoral Promotion Programs (PROSEC) are aimed at manufac-turers to help them import inputs with preferential tariff, in order to maintain their competitiveness, particularly in globalized in-dustries like the automotive.

This way, most of Automotive PROSEC inputs can be imported with tariff exemption.

Number ofTariff

Fractions(2007)

Number ofTariff

Fractions(current)

Tariff (%)

1,837 602 0420 136 353 21 52 2 10

2,312 761

Table 12. Tariff structure of the automotive Prosec

Source: Created by ProMxico with data by the Ministry of Economy.

However, when PROSEC does not meet companies needs, they use the Eighth Rule, with a 0% tariff rate. Companies with Auto-motive PROSEC registration can access the automotive Eighth Rule (tariff fraction 9802.00.19)41 when they meet the following criteria:

To diversify supply sources and maintain competitiveness To meet the needs of new investment projects For no national production or shortage of supply

7.2 Automotive decreeOn December 31, 2003, the Federal Official Gazette published the Decree to support the competitiveness of the terminal automo-tive industry and support the development of the domestic car market42 aimed at supporting investment in the manufacture of light vehicles in the country by granting various benefits.

The following are benefits granted to registered manufacturing companies43:

To be considered manufacturing companies for the pur-poses of provisions on automotive tax deposit and other provisions of the Customs Law.

To be able to import with zero ad-valorem tariff any vehicles of the segments which produce in Mexico, under the tariff/quota, for an annual volume equal to 10% of production of the immediately previous year.

41. Goods for the Sectoral Promotion Program for the Automotive and Auto Parts Industry, when companies are approved as per the 8th complementary rule, for the interpretation and application of the Fee of the General Import and Export Tax Law based on the criteria established by the Ministry of Economy. SIAVI.42. Amended on April 15, 2010.43. Ministry of Economy, Monograph of the automotive industry.

To be automatically considered manufacturing companies un-der the Sectoral Promotion Program of the Automotive and Auto parts Industry.

The decree establishes three registration modes to access its be-nefits; however, only one of them is worth mentioning for the auto parts industry: article 4 of this decree, which description supports that companies that perform or will perform manufac-turing, assembly and even bulletproofing processes that increase the value of the vehicle by 50% can obtain the benefits, only if BMW is registered as a participating company under this article.

7.3 DrawbackIt provides beneficiary exporters the possibility of obtaining a re-turn on general import tax paid for goods that are returned in the same state or which have been altered or repaired.

7.4 IMMEXThis instrument simplifies processes and requirements for the maquila regime. It allows the temporary import of goods requi-red in an industrial or service process aimed to create, transform or repair foreign goods that are imported temporarily for later exportation. The beneficiaries of the program are selected by the Ministry of Economy (SE) which can authorize resident legal en-tities to be taxed on a single IMMEX Program under Title II of the Income Tax Law which considers a reduction of up to 50% in tax rates.

7.5 Shelters The shelter service streamlines of the process of setting up a bu-siness.

With this program a Mexican operation establishes a Mexican maquila company, provides industrial space, operators, techni-cians and engineers for production and administrative staff to manage the maquilas particular operations.

The advantage of this scheme is that companies begin operations without having to worry about customs, legal and/or administra-tive procedures that delay the opening process.Services offered include:

Staff management Licenses and permits Accounting and fiscal services Customs procedures Operation and maintenance services Transportation and logistics services, among others

29

FTA/Economic

CooperationAgreement

Automotive rules of origin

NAFTA

The required regional content value (VCR) must be 62.5% (for transportation vehicles of less than 15 passengers) or 60% (for transpor-tation vehicles of 16 passengers or more) under the net cost method

European Union

To confer the status of original, the value of all the materials used to manufacture the product must not exceed 40% of its manufac-turing price.

EFTA Member States

To confer the status of original, the value of all the materials used to manufacture the product must not exceed 40% of its manufac-turing price.

Mercosur

Brazil and Argentina: Index of regional con-tent (IRC) not lower than 60%; Uruguay: IRC not lower than 50%; Mexico: IRC not lower than 30%.

Colombia* VCN between 35% and 50%

Chile VRC of at least 32% using the transaction value method, or VRC of at least 26% using the net cost method

Bolivia VRC of at least 32% using the net cost methodCosta Rica y Nicaragua

VRC of at least 32% using the net cost method

Guatemala, Honduras and El Salvador

VRC of at least 50%.

Israel "40% of the transaction value or 30% using the net cost method."

Per** VRC of at least 35%.

Japan VCR of at least 65%

7.6 Rules of Origin (automotive)A free trade agreement benefits countries that are part of a trade zone. Rules of origin are used to determine which goods from countries outside the trade zone can benefit from preferential ta-riff treatment.

The following table shows rules of origin related to the automo-tive industry that result from the various free trade or economic cooperation agreements.

Table 13. Rules of origin

*/ In April 2011, Mexico and Colombia reached an agreement to modify the rules of origin that are applied to certain vehicles.**/ In April 2011, Mexico and Peru signed a Free Trade Agreement that is in the process of being approved.Source: Created by ProMxico with data by the Ministry of Economy.

7.7 Standards and certificationsFor the automotive industry there are two types of internatio-nal guidelines to establish standards and certifications focused on vehicle manufacturing: the World Forum for the harmoniza-tion of vehicle regulations (WP.29) and rules established by the WTO. The first was established by the European Union, while the second was established together with the Department of Trans-portation, and both regulate vehicle imports to the United States.

The Case of the European Union:

WP.29 was established on June 6, 1952 as part of the Committee of Interior Transportation, through resolution number 45 of the Subcommittee of Road Transportation (SC.1) of the United Na-tions Economic Commission for Europe.

Its first report specified the types of issues at the time, for exam-ple, if it was best to install one or two red lights in the rear of a ve-hicle, etc. Slowly, the working program was shaped and concerns regarding accident prevention began to manifest.

WP.29s meetings are public; any government or interested party may attend the meetings and observe their work.

The official procedure to participate is very simple: a letter is sent, signed by the officer authorized in the relevant country or in the relevant regional organization of economic integration, no-tifying the secretary of the WP.29 of the country or organizations desire to send representatives to the meetings and participate in the WP.29s activities.

Usually, the WP.29 meets three times a year. The subsidiary ex-pert working groups each meet twice a year. The Forum issues standards in the following areas: Active safety in vehicles and their components (accident

prevention) Passive safety of vehicles and their components (collision

resistance) Environmental considerations General safety considerations Special technical considerations

30

The Case of the United States:

The World Trade Organizations Agreement on Technical Obsta-cles is a document that establishes the characteristics of a product or the production processes or methods related to them, inclu-ding applicable administrative provisions, and whose observan-ce is mandatory. It can also include prescriptions for terminolo-gy, symbols, packaging, marking or labeling that are applicable to a product, process or production method, or deal exclusively with them.

The principles followed and defended by the WTO are:

Most Favored Nation Treatment, which establishes that the Members will ensure that, with respect to technical regula-tions, any products imported from the territory of a Member are treated no less favorably than similar products from any other country.

National Treatment, which establishes that the Members will ensure that, with respect to technical regulations, any products imported from the territory of a Member are trea-ted no less favorably than similar products of national ori-gin.

Complementing the above, the standards and guidelines that a vehicle imported from the United States must follow are establis-hed by the countrys Department of Transportation, which has a list of safety regulations and standards for vehicles in general.

Effects in Changes to Standards and Certifica-tions by the United States.

An example of measures that affect the car manufacturing/ex-portation platform in Mexico was President Barack Obamas announcement in July 2011 when he revealed the agreement bet-ween the Presidency and 13 light vehicle manufacturers (Ford, GM, Chrysler, BMW, Honda, Hyundai, Jaguar/Land Rover, Kia, Mazda, Mitsubishi, Nissan, Toyota and Volvo). The brands that signed the agreement currently account for 90% of vehicles sold in the United States.

For the 2012-2016 period vehicles are expected to have a fuel effi-ciency of 15 km/l (35m/gal), while by 2015 it is expected to increa-se to 23 km/l (54.5 m/gal).

The cut would involve a reduction of 1.7 trillion dollars, an ave-rage of eight thousand dollars per vehicle for 2025.

This is part of a consensus established by assemblers to invest in R&D of new vehicles and clean technologies; however, the impact on Mexicos automotive platform did not create big concerns be-cause the industrys design and technology in our country have the infrastructure and progress required for the new production of vehicles, and even offer Mexico the opportunity to become a relevant producer of environmentally friendly vehicles.

According to Car and Driver, new environmental standards could place Japanese car manufacturers like Toyota, Honda and Nissan, and the Korean Hyundai and Kia, in an advantageous situation because the improvements needed to comply with the imposed standards are substantially lower than those facing the rest of automotive companies.

Ford will have to improve the fuel performance of its cars by 22.4%, while General Motors will have to optimize it by 24.1%. Finally, although Chrysler faces the challenge of improving the fuel performance of its manufactured cars by 25.3%, Fiats (a company that currently owns 53.5% of Chrysler) incursion will surely facilitate the ach

Date post:	05-Jan-2016
Category:	Documents
Upload:	coolprashant22
View:	19 times
Download:	0 times

Auto Industry Structure

Documents