Automobiles Made in Mexico: Leveraging USMCA for a Stronger Supply Chain

A strong supply chain is the foundation for the expansion of any industry. It allows companies to manufacture and deliver products on time while keeping costs down and customers satisfied.

This is one of the key advantages of the Mexico auto industry, where the USMCA contributes to the development of the value chain in North America. Though Mexico has been an important player in the global automotive industry for decades, the regulations, which were updated in 2020 require more parts to be made in the region. This change benefits automakers in Mexico, Canada, and the United States, as it reduces dependence on distant suppliers, leading to greater resilience and shorter lead times.

Automobiles Made in Mexico: The Impact of Increased Regional Value Content Requirements

The regional value content (RVC) requirement, which increased from 62.5% under NAFTA to 75% under the USMCA, incentivizes automakers to invest in the region, promoting the production of more cars made in Mexico and the United States. As automakers work to meet these thresholds, they are forming and strengthening partnerships with local suppliers for the components needed. This has led to a surge in investments in the Mexico auto industry. According to Mexico’s Secretariat of the Economy, in 2023, the automotive sector accounted for 19.9% of all FDI, totaling US 77.5 million between 2006 to 2023.

Several of the world’s largest automakers, including Toyota, KIA Motors, and Continental AG, have established new plants or expanded existing ones in Mexican states like Guanajuato, Nuevo León, and Querétaro. These investments improve Mexico’s capacity for producing high-quality automobiles and auto parts, create jobs, and stimulate economic growth. The influx of investment has greatly contributed to Mexico's position as a key player in the global automotive industry. This trend benefits not only the automakers and manufacturers involved but also the overall economic landscape of Mexico and North America as a whole.

How the Mexico Auto Industry Enhances Supply Chain Stability for US Automakers

According to Mexico’s National Auto Parts Industry (INA), in 2023, Mexico supplied 42.5% of all auto parts imported by the United States. This high percentage illustrates a strong, integrated supply chain that minimizes the need for parts from more distant, less reliable sources. Mexico's proximity to the US market allows quicker and more dependable access to essential components, enhancing supply chain stability.

For example, during recent global disruptions, such as the COVID-19 pandemic, US automakers with established supply lines to Mexico experienced fewer delays and shortages than those relying on suppliers from Asia or Europe. Companies like Ford and General Motors benefited from Mexico's proximity, as their Mexican facilities could quickly adapt and continue supplying parts, ensuring that production schedules in the United States remained on track. This close integration within North America, bolstered by the USMCA, helps automakers in Mexico maintain steady production rates and reduces the risks associated with long-distance supply chains.

While the USMCA will undoubtedly continue strengthening the North American automotive supply chain, automakers still face significant challenges. Meeting the increased regional value content requirements requires further investments in local production and supplier development.

Additionally, ensuring a stable supply of critical components remains a complex task. The rapidly evolving automotive landscape, characterized by the rise of electric vehicles and autonomous technologies, presents new challenges and opportunities for supply chain management.

Leveraging Mexico Auto Production for a Stronger North American Supply Chain

According to the International Organization of Motor Vehicle Manufacturers (OICA), North America is the number two producer of vehicles in the world, producing 16.2 million units in 2023. Of these, Mexico produced 24.8%, the United States 65.6%, and Canada 9.6%.

This significant contribution from Mexico demonstrates its vital role in the regional automotive market. The close geographic proximity within North America allows quicker and more reliable transportation of parts and vehicles, enhancing overall agility and streamlining logistics. This enables automakers in Mexico to respond swiftly to market demands and reduces the risk of disruptions caused by long-distance logistics.

For instance, Ford has leveraged its manufacturing facilities in Mexico to significantly reduce lead times. By producing key components and assembling vehicles closer to the US market, Ford has maintained a steady flow of products, even during global supply chain disruptions.

Similarly, General Motors has benefited from its operations in Mexico, which enable faster turnaround times and more flexible production schedules. These efficiencies improve production rates, help manage inventory more effectively, reduce costs, and increase competitiveness.

Another example is Tristone, a German company and a client of American Industries since 2011, located in Delicias, Mexico. The facility specializes in producing advanced engine cooling, battery cooling, and air charge hose systems with plastic over-molding for global automakers like BMW, General Motors, Ford, and Chrysler. With 1,800 staff members, Tristone is poised for further expansion due to strong market demand. This growth underscores Tristone’s seamless integration into Mexico’s value chain and highlights the benefits of partnering with American Industries for shelter services.

Partnering with American Industries Group through our shelter program ensures companies fully capitalize on the Mexico auto industry and the benefits of the USMCA. We streamline the establishment process, offering speed and compliance in legal setups and comprehensive administrative support services, including HR and logistics. We also have a large industrial real estate portfolio with robust infrastructure near Mexico’s automotive hubs. We help companies find the specialized personnel needed and ensure labor stability, all essential for growth in the automotive industry.

Maximizing Benefits of the Mexico Auto Industry Under USMCA

The USMCA has played a pivotal role in increasing regional value content, reducing dependency on distant suppliers, enhancing supply chain resilience, and presenting new opportunities for automakers in Mexico and North America. For US automakers, these changes translate to reduced lead times, more diverse and agile supply chains, and the strategic advantage of having production facilities in Mexico. The proximity and integration within North America foster a robust and efficient automotive supply chain, which is crucial for meeting global market demands.

To fully leverage these benefits, US automakers should consider optimizing their supply chains under the USMCA framework. Partnering with experts like American Industries can facilitate this process. We have a proven track record of success in the automotive sector. We have decades of experience supporting companies like Ground Effects and Zhongding Group in establishing and expanding their operations in Mexico. Our deep understanding of the Mexican market and our comprehensive suite of shelter services enable us to provide tailored solutions that drive growth and efficiency for our automotive clients.

Reach out to American Industries to discover how you can enhance your operations and remain competitive in the global market.