Mexico manufacturing

Investment in Mexico: it’s the real thing. Coca-Cola’s announcement that it will pour $1bn into the country every year until 2020 is just the latest in a string of recent big-ticket spends in a country where manufacturing is leading the country out of an untimely economic slump.

The US beverage maker, whose operations in Mexico include eight bottling groups in Mexico, juices and dairy as well as sodas and water, said it would invest more than $8.4bn from 2014-2020, bringing the total invested in Mexico during the decade to $12.4bn. 

The US shale gas boom is shaping up to be an important competitive advantage for manufacturers – in Mexico.

US natural gas exports to Mexico hit a record last year, helping hold down the country’s energy costs as its industry grew rapidly.

 

Japanese carmakers have been pouring money into Mexico in recent years.

Squeezed by higher production costs as a result of the weak yen, many have set up production lines in Mexico, lured by the country’s inexpensive labour and easy access to the key North American market.

In fact, so modern and cost-effective are their Mexican operations that General Motors, the leading US carmarker, this week tapped Nissan to help it build small cargo vans to sell in the US and Canada. 

Mexico on Friday posted its worst monthly industrial production figures since the 2009 recession brought on by the US financial crisis.

The figure shrank 0.3 per cent in seasonally adjusted terms compared with February, and by a spine-chilling 4.9 per cent compared with the same month of 2012. Analysts had expected the March number to fall a far more modest 1.4 per cent. 

The newest figures from the Mexican auto industry association, AMIA, point to continued powerful growth not only from the car makers themselves but from associated industries.

Mexico has almost doubled car production since 2009, and will be producing 4m cars by 2017, up from 2.9m last year, AMIA reckons, thanks to new investments from Nissan, Audi, Mazda and Honda. 

The auto industry’s love affair with Mexico seems to know no bounds these days.

Just days after Japan’s Honda announced the creation of a $470m transmission plant in the country, it was the turn of Audi to laid the foundation stone for a $1.3bn assembly plant in Mexico over the weekend.

Aimed at challenging BMW’s global leadership of the international luxury SUV market, the new factory is expected to come on stream in 2016, building 150,000 Q5 SUVs a year. 

The central Mexican region known as El Bajío is known as the nation’s colonial heartland, its grain belt and a hotbed of fervent Catholicism. Now Japanese auto production can be added to the list.

While Barack Obama and the Mexican president, Enrique Peña Nieto were talking in Mexico City about jobs, Honda was announcing the creation of 1,500 of them in an $470m transmission plant to be built in Celaya in El Bajío. 

It is no secret that the wage gap between Mexico and China has been narrowing in recent years. While labour costs in Mexico were roughly 200 per cent higher than China’s a decade ago, wage inflation in China and wage stagnation in Mexico have combined to close the gap to nearly zero .

But could labour in Mexico now actually be cheaper than in China? Yes, according to Carlos Capistran, an economist at Bank of America Merrill Lynch. Not only are average hourly manufacturing wages in Mexico now lower than those in China in constant dollar terms, they are 20 per cent less. 

If Mexico’s strong economic recovery since the 2009 recession has been about manufacturing and exports, the latest data suggest that from now on it is going to be about consumption.

That is the message from figures for the last three months of 2012, which show that growth between October and December was 0.8 per cent in seasonally adjusted terms compared with the previous three months (in the third quarter, the figure was just 0.4 per cent). 

As Mexicans gear up for this weekend’s celebrations of “El Grito” — “The Shout” — of independence, those who keep a close watch on the economy are puffing up their chests thanks to more good news.

The July industrial production figures published by the government on Tuesday showed a 4.9 per cent year-on-year increase. In seasonally adjusted terms, they also grew by 0.5 per cent on June.

Both figures exceeded most analysts’ expectations. They also compared favourably with those of Brazil, where industrial production fell by 1 per cent over the last four weeks and has been slipping faster since then. 

A few years ago, anyone seriously trying to suggest that Mexico had the edge on China in the realm of manufacturing exports would probably have been ridiculed and then invited to keep all future arguments strictly to themselves.

But since 2010, a growing number of academics, trade experts, bankers and economists has begun to entertain the once seemingly-implausible idea that Mexico is actually holding its own.

The latest voice in the chorus is Marco Oviedo from Barcalys, who this week published a fascinating research note that concludes, “after lagging Chinese manufacturing exports for a decade, Mexico has taken the lead post-2008-09. We believe this change is likely to be structural and persistent”. 

And the winner is…San José Chiapa. This small Mexican town in the southern state of Puebla is to be the location of Audi’s first production facility in Latin America’s second-biggest economy.

Audi will use the Mexican plant to build the successor to its current Audi Q5 SUV, with planned annual output of 150,000 units. Construction work on the plant is expected to begin by mid-2013 and the first vehicles are expected to roll out of the factory gates by the start of 2016. 

Manuel Sánchez, deputy governor of Mexico’s central bank, has been musing about the potential impact on the Mexican economy should the United States fall off its “fiscal cliff”.

In a conversation with US bankers, Sánchez highlighted the near-umbilical link between the economies of the US and Mexico “in terms of industrial integration, trade and investment.” About 80 percent of Mexico’s exports go the US, he added.

But is Sánchez right to be worried? 

Mexico may not be breaking records at London’s Olympic Games but back home it is racking them up. On Monday, the country’s vehicle manufacturer’s association, Amia, reported that production in July reached 238,146. That is the largest number of vehicles Mexico has ever produced during that month. It is also 17.7 per cent higher than last July’s figure. 

When presenters of the BBC’s popular Top Gear automobile show used the launch of a Mexican-made sports car earlier this year to mock the national character, they probably should have checked their facts first.

If they had, they would quickly have realised that Mexico has become one of the most efficient and competitive automobile producers in the world.