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Mexico’s expanding automotive sector - opportunities for suppliers in the foundry industry

With the next generation of premium compact vehicles for Mercedes-Benz and Infiniti about to be built in Aguascalientes, the rise of the automotive industry in Mexico appears inexorable.
Work has started on the central Mexican plant, which is a joint venture between Daimler and the Renault-Nissan Alliance, with the first Infiniti branded vehicles expected to roll off the production line in 2017, followed by Mercedes a year later.
Investment from such premium brands underlines the view of Mexico’s Secretary of Economy Ildefonso Guarjardo Villarreal that the country is about to experience further rapid growth in its automotive sector, both in quality and quantity.
Future growth will be founded on the country “advancing in technological sophistication to get into the production of premium vehicles”, Villarreal told the Automotive Logistics Mexico Conference. 

Mexican workers are upskilling. Audi has been training Mexican workers in Germany to prepare for producing the Q5 in San Jose Chiapa. BMW plans to start production in 2019 in San Potosí; Toyota is to build Corolla compact cars in Guanajuato and Kia Motors has entered Mexico for the first time with a factory at Nuevo León. 
Mexico is now the seventh largest producer of vehicles in the world, having overtaken Brazil in 2014. It produced 3.4 million vehicles in 2015, and its ambition is to reach 5 million by 2020. For automotive parts it is the fifth largest. Its automotive sector has attracted nearly £14 billion of investment that is expected to have created an extra 50,000 jobs by 2018, compared with 2013.

Geographical advantage
Nearly all of the world’s major automotive OEMs and 89 of the 100 leading auto parts companies have a presence in Mexico, including BMW, Audi, Mercedes, Toyota, Volvo, Nissan, VW, Chrysler, Ford and GM.
Sharing a border with the United States, one of the world’s largest automotive markets, is a clear advantage for Mexico. After China and Canada, Mexico is the third largest supplier to the United States of castings, mostly engine blocks and automotive castings. That advantage is compounded by the benefits of the North Atlantic Free Trade Agreement between the US, Canada and Mexico.
“The North Atlantic Free Trade Agreement makes a big difference as it takes away market restrictions,” said Stephen Hynes, marketing director of Ultraseal International, a leading provider of solutions to the problem of porosity in cast metal parts, which can undermine the pressure-tightness of parts such as engine blocks. 
“Ultraseal has been a long established player in the Mexican market and we have seen it grow significantly and it is still expanding. Manufacturers are focusing on quality - for example in our field, casting impregnation, all of our customers are opting for modern recycling technology rather than traditional methods.”

Quality enhancement
As a pioneer of casting impregnation equipment and recycling porosity sealants, UK-headquartered Ultraseal International exports to more than 38 countries worldwide and has joint ventures in China and India, as well as an operation in Germany, the United States, an office in Japan and a global network of agents/distributors. 
“Another signifier that quality is top of the mind is that manufacturers in Mexico are using casting impregnation as a routine quality enhancement for parts that have to remain pressure-tight, primarily engine blocks and powertrain components,” said Hynes.
“In Mexico, the trend generally is towards recycling technology. Recycling sealants such as Rexeal 100™ conserve water, use less chemicals and produce less wastewater than traditional casting impregnation - all qualities that are extremely critical in a country like Mexico which has many naturally arid areas.”
While initially investment in Mexico was concentrated in the northern areas bordering the United States, more recently the automotive industry and its supply chain have been establishing bases in central Mexico, around Aguascalientes, Guanajuato and San Luis Potosí.
Quite apart from its proximity to the United States, Mexico’s twin coastlines on both the Atlantic and Pacific mean it is well placed to export both to the East and to the West. It is the fourth-largest exporter of vehicles worldwide, behind Germany, Japan and South Korea.
The country is also becoming more competitive with China on costs, and with the added advantage of offering shorter lead times to customers in North America.
Among the automotive suppliers that have recently announced further investment in Mexico is GKN Driveline, which is developing a state-of-the-art manufacturing facility in Villagran, Guanajuato, and Bosch, which has invested £112 million in a new production hall at Cuidad Juarez, Chihuahua that was officially opened last month.
“Put simply, in the automotive supply chain, everyone wants a presence in Mexico and for the foreseeable future, that trend won’t change,” Hynes told Foundry Trade Journal.