Automakers moving to make Mexico a major manufacturing hub

It means “Made in Mexico,” and the term “Hecho en Mexico” is being stamped on components and completed cars at an ever-increasing clip. In just the past six years Mexico’s automotive output from global OEMs and their suppliers has zoomed from ninth place to fourth place, and the pace continues to accelerate.

“Mexico’s auto business is on fire thanks to a phenomenon that’s being called ‘near sourcing,’” CNBC’s Jim Cramer recently told his Mad Money viewers. “Near sourcing allows global companies to manufacture goods in Mexico and sell them in the U.S.”

Citing a lowered crime rate and a stabilizing economic engine, in addition to automotive investment opportunities there is money to be made by backing ancillary enterprises, according to Cramer.

Touting the stock of Kansas City Southern, an American railroad with thousands of miles of networked track in both the U.S. and Mexico, Cramer says the line is poised to take advantage of the expansion of major Mexican vehicle plants because the newly manufactured cars are shipped into the U.S. via rail.

A closer proximity to all three continents in the Americas has automakers increasingly shifting overseas operations to a favorable Mexican regulatory environment that comes with a vast and economical workforce able to adopt advanced manufacturing technologies. The nation’s burgeoning role as a production hub puts vendors within closer reach as well.

Honda de Mexico’s third Mexican facility is set to employ 3,200 people producing 200,000 vehicles per year when it opens in 2014.

“With growing demand for fuel-efficient vehicles, this plant will increase Honda’s ability to meet customer needs for subcompact vehicles from within North America,” reports Tetsuo Iwamura, a divisional president and chief operating officer. “This new plant will further strengthen the foundation of Honda’s North American business by enabling Honda to more flexibly respond to changing market conditions from within the region.”

At the beginning of this year Volkswagen brought online a $550-million Mexican engine plant to serve existing assembly lines in Mexico and Chattanooga, Tenn. Able to annually produce 320,000 motors from a workforce of 700, the site is “a strong symbol of our uninterrupted growth trajectory,” says VW Chairman and CEO Dr. Martin Winterkorn.

“With this new plant we are driving our ambitious major North American offensive forward,” representing a $5 billion investment over the next three years, he notes. A new Mexican Audi facility is scheduled to begin production in 2016.

High-tech production

The Ford Cuautitlan Assembly Plant in Mexico is among three North American Ford facilities currently utilizing the company’s innovative 3-Wet paint process in which three layers of paint are applied one after another prior to earlier coats having cured. It eliminates stand-alone primer applications and the need for a dedicated oven while reducing CO2 volatile organic compound (VOC) emissions.

“The 3-Wet paint process is significantly more advanced than conventional technologies in applying durable paints in a high-quality, environmentally sound and cost-efficient manner,” says Bruce Hettle, the automaker’s director of manufacturing engineering.

Supplier SANLUIS Rassini’s operation in Puebla, Mexico has been selected as one of the “100 Best Managed Companies” by executives at Ford’s Cuautitlan plant. Providing suspension and brake components, the Rassini operation is the largest vertically integrated brake rotor manufacturing center in North America.

With more than 1,000 employees, the facility has foundry capacity for more than 130,000 tons of gray and ductile iron and is able to machine 8.4 million rotors each year. The supported Ford vehicle platforms include the Fiesta, Flex, Focus, Taurus, Explorer, Edge, Escape and Lincoln MKT.

Treading new ground

In April Pirelli began supplying all of the P Zero Nero factory fitment tires for the Lincoln MKZ from its recently inaugurated $300-million facility in Silao, Mexico.

Equipped with the company’s most advanced technology and production processes, it is expected to generate about 1,000 new jobs by the end of this year.

“The opening of the new factory in Mexico represents an important step in our international development plan,” says Chairman and CEO Marco Tronchetti Provera.

“This is a country that offers excellent opportunities, both because of the positive dynamic of local demand and its strategic position, making it an ideal industrial base to serve the entire NAFTA (North American Free Trade Agreement) area, which we think is one of the most promising (regions) for the success of our ‘premium strategy,’” he says.

Production is mainly concentrated on “high-end and very high-end” tires for cars and SUVs, according to Provera. About 30 percent of the output is destined to serve the growing Mexican market; the remaining 70 percent will be shipped to the U.S. and Canada.

“Right from the planning stages, environmental and energy themes were given great attention at the Mexico plant, which led, among other things, to the creation of a center for the treatment of residual water to optimize consumption,” Provera reports. “A series of state-of-the-art sensors have also been installed throughout the factory to reduce to a minimum the wastage of water and electrical energy.”

Yokohama recently established a Mexican subsidiary in Silao as well. “We have ambitious growth goals,” says Takayuki Hamaya, the tire maker’s chief operating officer, who says the new location will meet an expanding demand for tires for high-performance, light truck, car, commercial truck and bus and off-the-road mining and construction applications while delivering “critical sales, distribution and business logistical advantages.”

Lighting up the market

Michelin, TRW Automotive, Meritor, Tremec, Dana, Hitachi and Valeo Sylvania are among the numerous multinational corporations with presence in Querétaro. Lighting producer Valeo Sylvania has a laboratory and manufacturing site in the bustling central Mexican metro region, which has been ranked by América Economía magazine as one of the “Best Cities to do Business in Latin America.”

A June opening was set by HELLA for a new $97-million, 215,000-square-foot plant in Irapuato, also in central Mexico, to annually produce 1.2 million headlamps and 1.5 million rear lighting systems.

The company also is expanding its facilities in Guadalajara, Mexico with a new 9,000-square-foot design and development center for lighting technology and a 15,000-square-foot expansion of its Guadalajara manufacturing complex.

“We’re expanding in Mexico to meet a rapidly growing demand for our products from our customers in Mexico and elsewhere throughout the Americas,” says board member Ignacio Moreno, CEO of the firm’s North American and South American divisions.

He adds that the company’s production sites in Guadalajara and Irapuato will serve as its primary manufacturing facilities for the Americas while also supplying exports throughout the world.

“Our new plant in Irapuato is strategically located in one of Mexico’s primary automotive regions,” Moreno explains. “Irapuato provides us with easy access to many of our OEM customers as well as to borders and main ports. HELLA sees tremendous growth potential in the Americas.”

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