According to Reuters, VW plans to invest about $1bn in its Puebla facility in Mexico. Already the second largest facility after its plant in Germany, VW’s Puebla facility is the largest auto factory in North America producing almost 500,000 cars a year, representing almost 15% of Mexico’s total production.
It is certainly not the only automobile company investing in Mexico. Within the past couple of years, Nissan opened a $2bn facility in Aguascalientes and in 2014 BMW announced it would build a plant in San Luis Potosi that will produce 150,000 vehicles a year starting in 2019.
Mexico has surpassed Japan as the biggest exporter of cars to the US and is the world’s fourth-largest automobile exporter, behind Germany, Japan and South Korea.
Mexico’s infrastructure, costs and free-trade agreements bode well for this Latin American country. But, it is not the only Latin American country that is a major producer of automobiles.
Brazil also figures in the global top ten of automobile producers. However, an economic slowdown and currency valuations have resulted in auto imports becoming cheaper and thus caused a slowdown in domestic production. In fact Mexico has now surpassed Brazil as Latin America’s biggest car producer after Brazil posted its first annual trade deficit in 14 years in 2014.
In 2012 Mexico agreed to limit car exports to Brazil for three years. According to Reuters, the agreement imposed tariffs of up to 35% on exports above an annual limit of about $1.5bn, with free trade of vehicles allowed after its expiration on March 19, 2015. As of March 8, Reuters has noted the agreement has been extended for another four years. Details of the latest agreement including the quota amount and other details will be released Monday, March 9.
Along with Brazil, Argentina has also experienced a decline in automobile production thanks in part to its protectionist moves as well as its dependency on Brazil as a trade partner. Uruguay’s and Colombia’s automobile manufacturing has also noted declines.
How are logistics providers adapting? In Mexico, cross-border solutions are highly desirable and there is some evidence of acquisition of domestic transportation/ logistics providers occurring, an example of which is Wallenius Wilhelmsen Logistics’ division Vehicle Services America’s acquisition of Mexican vehicle logistics provider, Carlogistics. In South America, among the numerous services, spare parts logistics and transportation services are important. Because of the slow-down in automobile production, logistics providers are also working to provide specialized solutions for their customers as well as expanding into other industries.
Ti will be publishing its Latin America Logistics and Transportation report covering all logistics activities in the region later this month, including automotive logistics. For more information or to register your interest please contact Michael Clover here.
