Components made in Mexico - made right first time

Óscar Albín, Executive President of the Mexican Association of Automotive Parts Manufacturers (INA) tells Simon Duval Smith about the challenges faced by the supply base and its pride in its enviable quality record

The Mexican supply base has a very strong and developing relationship with OEMs, not only in Mexico but also in the US going back some 25 years, since the first free trade agreement was signed. Today, with the new rules that are going to be implemented if the new NAFTA is approved, the relationship between tier ones and OEMs in NAFTA will become stronger than ever. What the OEMs are asking right now of the supply base is to really verify their tier 2s and tier 3s in order to be sure that they are going to achieve the new rules of origin requirements in the new NAFTA. What is clear is that, more than ever, the OEMs in NAFTA will have to work with NAFTA tier 1s. 

Production for domestic and export markets - a narrowing gap

Mexico is producing 4 million vehicles per year at present and only 600,000 to 700,000 vehicles stay in the country. The Mexican market is 1.4 million vehicles annually. Half of those are imported, the other half are made here. This, and developments in vehicle specification through legislation are having a profound effect on the balance of vehicles, as Óscar Albín tells me. “For the OEMs' Mexican plants, I would say that in many of them, 80% of their production is going for export so they are not really focused on specific Mexican market specifications. They produce the same vehicle, such as a Mazda, Kia, Audi etc for the global market and for the Mexican market.

“There are some other OEMs, namely Nissan and Volkswagen, who build a good proportion of their output specifically for the Mexican market. They are making vehicles that just two years ago did not need, for example, airbags. The two brands used to produce vehicles for the domestic market without airbags and without ABS to keep the cost down and because the legislation here allowed this. Since 2018, all new vehicles sold in Mexico have to have ABS, airbags, and general internationally standard safety systems fitted so there is now no difference between the global market and the market here.”

Electrifying Mexico - EV and hybrid component production

EVs and hybrids are greatly in demand mainly in Asia and Europe, in the US, vehicle buyers still see gasoline as king, the fuel is very cheap and today, the preference for NAFTA is still for gasoline-powered vehicles. The only real market in the US so far for EVs and hybrids is in California. This is a big market and the state is the leader in mandatory CO2 emissions control and legislation, as Albin says: “EV and hybrid are not really as important here in Mexico, and in the US, as in Asia and Europe. Obviously the gasoline supply base is very extensive in Mexico. Mexico is producing 5 million gasoline engines from different brands. We have a large and extensive forging, casting and aluminium supplier community in Mexico, supplying the engine plants. Going to electric vehicles, there will be winners and losers [in the supply base]. EVs will need more wiring, more sophisticated cabling and harness technology. The wiring harness business is going to grow a great deal. Mexico is the king in the NAFTA region at producing wiring harnesses. With this growth in mind, I believe that the overall volume of business is not going to change but because NAFTA is the last region to take up EVs and hybrids, we will continue to focus on gasoline engine technology.”

The balance of domestic versus global suppliers

I wondered if Albin had observed a shift in the balance of suppliers, from global vendors to more local, Mexican-owned companies. Interestingly, he says that the shift is the opposite way. “No, the situation is the complete reverse of this; in the last five years, we have received a lot of foreign direct investment, especially from Japan. With the greenfield manufacturing sites of Mazda and Honda and new and Toyota Nissan plants, there are many Japanese suppliers coming into Mexico, following their customers, the OEMs. Also, Korean vendors are coming, to follow Kia and Hyundai factories here.

“In addition to this, there are some German suppliers, who work with Audi and BMW as well as Mercedes-Benz, who have started making vehicles here; BMW just two months ago, Audi and Mercedes-Benz last year. The mix of suppliers is definitely moving towards more foreign suppliers than Mexican-owned companies. Mexican-owned suppliers are more concentrated in the tier 2 supply base, supporting the tier 1s. There are some good examples of Mexican tier 1 but they are in the minority.”

Raw material challenges and solutions

Albin says that his members do not have any major supply issues with steel and aluminium, as they have have Ternium, Posco and Nippon Steel producing automotive steel since 2016 and this gives them more availability than previously when more steel was imported. “Added to these, Nucor is starting a new steel plant in Mexico. On other materials such as aluminium, polypropylene and some other more specialised commodities, we are very lucky to be 'border to border' with the US and Canada, who are very large producers of aluminium and plastic resins. We are importing some specific resins from Asia and Europe but most of them are coming from the US. We have a very efficient supply chain between the US and Mexico. A lot of plastics and other raw material is coming from the US and is being processed in Mexico, transformed into auto parts and is being exported to the US.” 

Logistics - bottlenecks and borders

I ask Albin if he and his members would you welcome better logistics connections between Mexico and the US and ask him where are the bottlenecks - are the border crossings still an issue, not being open 24 hours a day? He says that there is one major issue: “We are facing one major problem with the border, this is the United States Border Patrol; it is an immigration problem at the border. The US is placing more inspection activity on the border between the US and Mexico. We are resolving this problem by holding the immigration on the south side of the border. Most of the immigration of people into the US is coming from Central America and South America so what we are doing, in accordance with the US's wishes, is holding that immigration on our border. With this, we are decreasing the congestion at the border and resolving the free transit between the two countries, especially for the outbound, going North.

“Also, in the new NAFTA agreement, there are modernised rules for customs between the countries. I think we will see better conditions and more efficient borders than we have seen in the last eight months, when it has been badly congested and inefficient during some weeks. Southbound, from the US to Mexico, is really not a problem.”

Security of loads - auto is not a major target

Mexico is often reported, some would say aligned, as being a dangerous country to do business. Hijackings and theft from trucks and trains are often quoted as being just part of the business atmosphere in the country. Albin says there are problems but automotive is not the major target for theft etc. “There are problems with the safety of loads on the roads, yes, but I would say 90% of the cases of theft are in other industries' transport, not the automotive industry. The industries that are most targeted are food, beverages and white goods, products that are easy to resell. The best statistic that we have is that 3% of the cases of hijacking etc are automotive parts-related. We are lucky that we are not the primary target."

Just-in-time and suppliers’ proximity

I ask Albin for his take on how his members' just-in-time 'windows'/schedules compare to other regions, and how would he like to see them improve. He says that due to the proliferation of greenfield sites and supplier parks, distance is not an issue. “Of course, just-in-time [JIT] and sequenced components for vehicles are concentrated on certain areas of the vehicle; I would name seats, front end modules, suspension modules, headliners; parts like this are usually at 20 minutes' distance from the OEM assembly line here in Mexico, often in a supplier park nearby. Under normal circumstances, the OEMs here do not have any buffer stock of those JIT parts. There is also a very lean supply chain between tier 2s and tier 1s. Tier 1s do need to have buffer stock for their production scheduling to support the tier 2 raw material or component supply chain. When we consider that the complete production line is going to be in sequence and also JIT, that is not how it should be but it is the case between some tier 1s and some OEMs. Here, in the US, in Europe and in Japan some buffer stock is the reality. I think that Mexico is no different to other regions in this respect." This is partly due to there being so many greenfield sites available for supplier parks and locally-located suppliers in general; distance is not the issue that one might imagine.”

Counterfeiting in OEM and aftermarket supply

Wherever in the world the domestic market is not the most wealthy, and even in more prosperous regions, counterfeit or fake parts is a constant problem. Mexico is no exception but Albin says that INA and the supplier community is working hard to establish mandatory quality standards. "Fake parts are a problem, yes. There is little difference in this area to any other part of the world. We are working to introduce quality standards for aftermarket parts. What we need is a set of quality specifications, especially for safety-critical parts such as brake parts, shock absorbers, suspension components and even lighting parts, such as bulbs. We must establish specific quality norms for these parts in order to ensure that we allow only parts that have been tested and approved on to the market. We are working with the government to implement those standards. At present we have 10 components with quality standards but these standards are not mandatory, they are advisory. This is not ideal but at least we have some standards established.

“The next step is to make these norms mandatory. The big brands, such as TRW, Akebono, Federal-Mogul, Bosch and Continental etc., will then be able to advertise and encourage the market to only buy approved products. This is the only way to maintain quality and safety for the consumer. INA is working hard to persuade the government to implement these standards - we are the 'arrowhead' of the push for this."

Zero defect - an achievable goal

While the automotive world has always held zero defect up as the ultimate goal - comparing itself to the pharmaceutical industry where faulty goods can be fatal, it is rare to achieve it and Albin says that INA is working hard to bring its members up to better than global standards. "80% of all auto parts that are made in Mexico will end up in a factory of new vehicle production in the US or Canada. The remaining 20% is divided between domestic vehicle production - 10% - and 10% for aftermarket use. Of course, the OEMs have a very strict policy of zero defect, we are very aware of this and we work to that and we promote courses and seminars to AIAG and VDA standards. We hold these seminars and other training sessions for the supply base to help them comply with TSO, FMEA and other production line quality standards, working to the classic Toyota Total Production System principles." 

I wondered whether ISO TS and similar standards are as popular in Mexico as in the rest of the world, Albin says that they are not just popular but essential: “The new automotive-specific ISO TS is mandatory for tier 2s and tier 1s; there is no way to be in the auto industry here in Mexico without compliance with these quality standards."

A young and very proud industry

It could be said that Mexico has a certain advantage over much of the longer-established 'automotive world' as it is starting from a lower base and thus can take on quality standards and thus the pride in its products, without the legacy issues of some older auto manufacturing regions and Albin's message to the supply base, and to the industry generally is that: "Vehicles produced in Mexico are in the top sector of global customer quality surveys, such as J D Power. “We have excellent quality in our Mexican manufacturing systems and products and the cars made in Mexico are excellent because they have excellence in their components parts, made by our members - this is a fact! There is no question that as an auto parts manufacturing nation we are one of the best, if not the best, in the world! 

Automotive Purchasing and Supply Chain Magazine - Issue 32

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