¿No Va? ¡Si va! Investing in Mexico’s Auto Industry
Mexico, our neighbor to the south, is growing every day as a leading producer in the automobile industry. Presently, Mexico is the world’s largest producer of light vehicles and the second largest in Latin America. Companies in Mexico in the light vehicle industry have approximately 18 production complexes located in 11 states in Mexico. These complexes consist of activities ranging from assembly to stamping and bodywork.
Currently, the Mexican Auto Industry (MAI) accounts for 4% of the national GDP and 20% of manufacturing production and the MAI is only expected to continue increasing in the future.
Mexico’s connection with the United States is particularly relevant to the automotive industry because over 80% of Mexico’s total auto production is exported to the U.S. As such, Mexico’s auto industry is tightly linked to the U.S. economy and any disequilibrium in the U.S. has an immediate effect on Mexico’s industry performance. Given the importance of exports in the MAI to the U.S., the majority of manufacturing presence is concentrated in the center and northern regions of the country. This facilitates access to domestic, U.S., and other international markets. In the region, collaborations such as CLAUT, the Nuevo Leon Automotive Cluster, a civil association comprised of automobile companies, universities, and government bodies, demonstrate the deep synergy between industry players and the importance of the MAI for Mexican economy. The key element of CLAUT is that it is an association where businesses and organizations work together systematically so that the automotive industry can move forward and transition from manufacturing to engineering, and design and innovation projects with higher added value.
As the MAI continues to grow, many leading players in the global market have recently revealed plans to enter into the Mexican market, invest in Mexico, and/or expand their current operations there. This is in part attributable to the fact that Mexico has diverse programs to support the automotive industry. Mexico is an attractive place for investors because the MAI has a world class manufacturing and export platform that includes in its network, 12 free trade agreements that provide preferential access in over 49 countries. Additionally, Mexico’s extremely experienced human capital which consists of world class engineers and technicians as well as the highly skilled suppliers, together, provide a competitive advantage in terms of skilled labor (and low salary levels), product quality and industrial processes. Lastly, and most attractive to foreign investors, Mexico’s business environment consists of a stable economy, low inflation and stable exchange rate which is an ideal framework to invest in.
As a result of the MAI’s growth, Mexican Foreign Investment Law has increased openness to foreign investment in the sector. According to the World Bank, Mexico is ranked 48th in the world for doing business. Only nine days and six procedures are required to start a new business, which makes it much easier than setting up a business in the BRICs. Nevertheless, foreign investors would be wise to understand the reporting requirements and regulations that may govern any investments they decide to make in Mexico.
For U.S. auto companies considering investing in the MAI, Foley & Lardner has a comprehensive Latin America practice and is here to help. Foley was recently shortlisted for the Chambers Latin America Awards for Corporate & Finance – Florida-based (International Counsel in Latin America) Law Firm of the Year.