Our first impressions of a country often come from sensational and lurid newspaper and TV reports, but strip away these headlines and we’re just as likely to find vibrant cultures and flourishing economies. U.S. and world perceptions of Mexico often center around stories of drug cartel turf wars and illegal immigrants, and there’s no doubt that Mexico has its share of domestic problems, but this is only a small part of the story of this enigmatic country.
With the U.S. and Mexico sharing a 2,000-mile long border it’s hardly surprising that they also share strong cultural and economic ties. The following facts emphasize this historical U.S./ Mexico bond. In 2011 the Hispanic population of the U.S. was estimated at 52 million, some 17 percent of the total, making Hispanics the largest ethnic minority in the country. Of these 60 percent were of Mexican origin. In 2007 there were 2.3 million Hispanic-owned businesses in the U.S. generating a $350.7 million turnover. This fiscal boost to the U.S. economy is not confined to Mexican ex pats living in the states; the country of Mexico also has a vital role to play for many U.S. businesses.
These are tough times for businesses worldwide, including those in the automotive sector. Consumers are always looking for value for their money when their vehicles need repairs, sometimes sacrificing overall quality in favor of a low price. Automobile owners on a tight budget will often opt for inexpensive imported aftermarket parts and accessories instead of purchasing more expensive but higher quality aftermarket or OE parts. In order to compete with inexpensive imports, quality aftermarket and OE equipment manufacturers have to strike a balance between maintaining quality and ensuring value for money.
A major part of production costs relate to the labor-intensive processes involved in manufacturing. Labor costs in China and India are a fraction of those in the U.S. enabling these countries to produce automotive aftermarket parts and accessories at much lower costs. The U.S. has an advantage of having a country with lower rates in Mexico, on its southern border; a country that has excellent road links with “El Norte” combined with Pacific and Atlantic seaports. With these geographical advantages combined with a Free Trade agreement with the U.S., Mexico is ideally located to act as a satellite production area for U.S. aftermarket parts and accessories.
U.S. car production in Mexico has a long history dating back to 1921 when Buick first set up production there, closely followed in 1925 by Ford. They remain the longest running car manufacturers in the country. Traditional U.S. car producers in Mexico include Ford, General Motors and Fiat-owned Chrysler, together with their subsidiary companies. In their turn these car manufacturers support a vast network of companies who supply the automotive parts used in automobile construction. An example of this is Delphi Automotive, the former parts unit of General Motors that employs more than 100,000 people in its 46 Mexican plants.
To facilitate and encourage U.S. and other foreign countries wishing to set up production in Mexico, the Mexican government allowed the formation of Maquiladoras. These are free trade zones mostly located in the U.S. Mexico border regions where factories can import materials and equipment on a duty free and tariff free basis for assembly, processing and manufacturing, and then export the finished items back to their country of origin. There are approximately 3,000 located in Mexican cities such as Tijuana, Ciudad Juarez and Matamoros employing more than 1 million Mexicans.
Mexico has free trade agreements with 44 countries compared to the U.S. total of 20. These Mexican free trade agreements combined with the Maquiladoras, low labor rates and close proximity to the U.S. open the door for U.S. aftermarket companies to set up cost effective production facilities within Mexico and then to export finished products to the U.S., Latin American and worldwide markets.
Mexico now has strong trading ties with Cuba, a country normally off limits for U.S. based companies wishing to trade there. At 112 million the Mexican population is the second largest in Latin America with the highest regional per capita income of around $15,000. This higher income is reflected in increasing new car sales for the last three years. Some 50 percent of these new cars are purchased on credit but because of the difficulty in obtaining this credit many consumers opt to keep their old vehicles for a longer period of time.
The large number of used cars in Mexico, many of them having been imported from the U.S., provides potential opportunities for the sale in Mexico of U.S. repair equipment and replacement aftermarket parts and accessories. In the U.S. many well-maintained 10-year-old cars are still reliable, but in Mexico poor road conditions, especially outside of the major towns and cities combined with large speed bumps and erratic driving put a massive strain on vehicles with inevitable results. Tires, suspension parts, axles and body parts all suffer excessive wear under these extreme conditions.
Repairs can be expensive and in outlying areas parts may have to be shipped in from regional cities leading to increased costs and longer repair times. Not surprisingly, SUV’s are a popular vehicle in more rural towns and villages where road conditions can be especially bad. In larger urban areas sub compact European and U.S. cars from makers such as GM, Volkswagen, Renault, Peugeot, Nissan and Fiat are popular.
When vehicles need repairs owners on a tight budget often turn to local repairers rather than the dealer network to carry out the necessary work. With the underground economy in Mexico employing more than 29 percent of the available workforce, vehicle repairs are often carried out by small local garages operating under the radar. In Mexico, as in many other countries worldwide, aftermarket parts are especially sought after by car owners operating on a limited income.
Media reports indicate that Mexico has security problems in certain areas of the country especially in the cities and towns of the U.S./Mexico border region. Ironically, it is in these same areas where the economically vital Maquiladoras are located. However, much of the reported crime involves turf wars between various drug cartels with the industries of the Maquiladoras being very largely left untouched by the nearby violence.
For many years Mexico has been a vital part of the U.S. automotive industry and continues to offer great potential for automotive aftermarket entrepreneurs.
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