As 2011 comes to a close, a look back upon automotive investment in Mexico can provide insights into North America’s evolving production landscape.

A November 29, 2011 report issued by Scotia Economics, characterized Mexico as the “auto industry’s North American growth leader.” The report stated that over the previous six months, the auto industry had “announced investments of nearly US$3 billion geared to expand existing facilities or building new plants in Mexico.”

One example of this was Honda’s August announcement that it plans to build a third plant in Mexico in order to produce “fuel-efficient subcompact vehicles for the Mexican and North American markets.” The plant’s $800 million in capital investment will increase Honda’s North American production by 200,000 units when it comes online in 2014 in the state of Guanajuato.

Earlier, in March, fellow Japanese automaker Nissan began production of the hatchback Nissan March in Aguascalientes.  The Aguascalientes plant, including suppliers, represents a $1.05 billion investment, making it part of the picture of recent automotive investments in Mexico that is not included as part of the $3 billion in investments alluded to above.

The implications of these and numerous other recent investments are significant. The Scotia Economics report found that:

“[R]ecent announcements indicate that over the next several years, investment in Mexico’s auto industry is set to approach the record pace of US$1,600 per assembled vehicle set in 2004 and 2005… During those two years, Mexico’s auto sector was the recipient of 17% of the industry’s overall investment in North America, nearly double its share of vehicle production at the time. This enormous capital influx expanded assembly capacity in Mexico by 20%, and has enabled it to consistently produce more vehicles than Canada since 2008.”

Ongoing investments in new automotive plants or expanded operations in Mexico reflect the increasing strategic importance of Mexico to overall auto production in North America.  Additional plant capacity should create corresponding supply chain growth and offer greater logistical and operational efficiencies to plants within the sphere of Mexico’s industrial clusters. Other advanced manufacturing operations such as heavy industry and aerospace will also benefit.

Some of these benefits should extend to the TMASC cluster as well, as far as plants in Central Mexico draw from supply chains and logistics activity that connect to the substantial, yet smaller automotive clusters located in northeastern Mexico. Nevertheless, the possibility exists that recent rapid growth of the automotive industry in Central Mexico may continue to compound, as automakers and suppliers choose to locate subsequent investments around the largest concentration of incumbent operations.  This possibility highlights how important it is for the TMASC region to continue to communicate the opportunities available in Northern Mexico and Texas for future automotive investments looking to best leverage the production and market advantages of both Mexico and the US.

TMASC has developed a list of economic development contacts in the region to assist companies seeking the most competitive locations. Please visit here for a compiled list of resources.

In 2002, in partnership with Royal Oak Industries d.b.a. Texas Machining Enterprises, Caterpillar broke ground on a San Antonio manufacturing plant to produce C7 and C9 Series cylinder blocks. In 2004 and in 2008, the plant expanded for additional capacity.  Since these first steps taken in San Antonio, Caterpillar has subsequently made a series of investments in manufacturing and logistics operations both in and around Bexar County and throughout the TMASC region, in order to competitively and efficiently serve North- and Latin American markets.

• Seguin plant – In June 2010, Caterpillar opened a new heavy duty diesel engine manufacturing and testing plant in Seguin, Texas. The plant’s engines are used in Caterpillar products serving the truck, marine and electric power industries.
  • $169.7 million in new capital investment
  • 1,500 new jobs at full capacity by early 2013
• Schertz plant – In 2010, Caterpillar began construction of a new engine blocks and components manufacturing plant in Schertz, Texas. The plant will supply the Caterpillar engine plant in Seguin.
  • $35 million in new capital investment (for 1^st phase of facility, with room to expand)
  • 60 new jobs

These plants in the San Antonio MSA are part of a larger Caterpillar commitment to the region including a new hydraulic excavator manufacturing facility in Victoria, Texas; distribution centers and a precision work-tools manufacturing plant in Waco, Texas; and a large mining truck manufacturing plant in Acuña, Mexico.

Caterpillar’s growing presence has created a critical mass of industry and opportunity in our region. Caterpillar’s pattern of investments in manufacturing and logistics operations generate not only additional regional employment, but potential new supply chain opportunities as well.  In Seguin, for example, local supplier Continental Automotive Systems has become a supplier of components to the Caterpillar engine plant.

Caterpillar’s corporate strength and future growth prospects will support manufacturing and trade activity in Bexar County and the TMASC region. Caterpillar’s 3Q 2011 sales and revenues were a record $15.7 billion, up 41% from 3Q 2010. Meanwhile, Caterpillar’s 2010 product exports from the US were nearly $13.5 billion. The recent passage of US free trade agreements with Panama and Columbia may also support Caterpillar’s operations in the region as the elimination of tariffs on exports to these countries promote the sale of Caterpillar products related to mining activity in Columbia and to the expansion of the canal in Panama.

Last week, Georgia Tech University hosted the first regional meeting of the Advanced Manufacturing Partnership (AMP).

The AMP is a national innovation initiative bringing together executives from prominent US manufacturers, some of the nation’s leading research universities, and the federal government in order to support advanced manufacturing as the basis for high-quality US jobs and competitiveness.

The AMP was announced in June of this year following recommendations made by The President’s Council of Advisors on Science and Technology (PCAST), an advisory group comprised of leading scientists and engineers. The PCAST Report recommended the following strategies to ensure that the US attracts manufacturing activity and remains a leader in knowledge production:

(1)    Create a fertile environment for innovation so that the United States provides the overall best environment for business. We believe this can be accomplished through tax and business policy, robust support for basic research, and training and education of a high-skilled workforce

(2)    Invest to overcome market failures, to ensure that new technologies and design methodologies are developed here, and that technology-based enterprises have the infra-structure to flourish here.

According to the AMP announcement, the federal government will invest more than $500 million dollars in the following areas in order to launch the effort:

• Building domestic manufacturing capabilities in critical national security industries;
• Reducing the time needed to make advanced materials used in manufacturing products;
• Establishing U.S. leadership in next-generation robotics;
• Increasing the energy efficiency of manufacturing processes; and
• Developing new technologies that will dramatically reduce the time required to design, build, and test manufactured goods.

Meanwhile, the AMP, through a Steering Committee representing leading universities and companies, will advise the federal government on how to spur investment in and implementation of those emerging technologies that have the potential to transform U.S. manufacturing.

To develop this advice and to help identify collaborative approaches needed to realize related opportunities, the Steering Committee is holding a series of regional meetings to hear public ideas about:

• Technology development
• Education and workforce development
• Facility and infrastructure sharing, and
• Policies that could create a fertile innovation environment

The next regional meeting is tentatively scheduled to take place on November 28, 2011 in Massachusetts (MIT).  Two more regional meetings in 2011 are tentatively set for December 5^th in Northern California and December 12^th in Michigan.

To receive additional public input for its deliberations, the Steering Committee has also set up a web page to invite interested stakeholders and the public to 1) submit ideas, 2) identify expertise found in key industry or regional resources, and 3) summarize existing regional collaborative efforts that could contribute to the following four AMP workstreams:

• Technology Development identifies emerging technologies with transformative potential with the express intent that they be commercialized and deployed in the United States.
• Policy makes recommendations to the Administration on economic and innovation policies that can directly impact the ability to improve research collaboration and the pathway to commercialization.
• Education and Workforce Development identifies tangible actions that will support a robust supply of talented individuals to provide human capital to companies interested in investing in advanced manufacturing activities in the United States.
• Shared Facilities and Infrastructure assesses opportunities to de-risk, speed up, and lower the cost of accelerating technology from research to development through unique capabilities and facilities that serve a large base of small- and medium-sized manufacturers.

We will monitor ongoing developments with the AMP to identify opportunities for TMASC manufacturing firms, universities and other partners to add to the dialog and to any federally supported regional efforts in order to strengthen advanced manufacturing in the U.S.

Meanwhile, we welcome your feedback and recommendations. What do readers of this blog think TMASC should recommend for the AMP’s consideration?

A copy of The President’s Council of Advisors on Science and Technology (PCAST) report is available here. Related links for further reading on advanced manufacturing are provided here.

The September announcement that Reyes Automotive Group was entering into a joint venture with International Automotive Components (IAC) Group marked good news for the TMASC region’s growing industry connections.

The new company, Reyes Automotive Group II (RAG II), will operate out of the existing 90,000 square foot facility on-site at San Antonio’s Toyota Motor Manufacturing, Texas, Inc. (TMMTX) assembly plant. RAG II will maintain its existing number of approximately 200 employees as it supplies injection and blow molded interior trim components, as well as sequence and assembly services, for TMMTX’s Tundra and Tacoma pickup trucks. RAG II is owned 51% by Reyes Holdings and 49% by IAC, and the joint venture will apply for Minority Business Enterprise certification.

While the RAG II joint venture is officially IAC’s first facility in Texas, Reyes Automotive Group has been an on-site supplier to TMMTX from the beginning when it began as a 51/49 joint venture with Tier I automotive supplier Lear. Lear’s presence at TMMTX provided a root to the most recent relationship with IAC Group, as IAC had acquired the North American Interior Systems of Lear in 2007 as part of IAC Group’s expansion into North America.

Before IAC Group entered into the JV with Reyes Group last month, it was already the top ranked North American injection molder for the automotive industry as measured by sales. IAC Group is headquartered in Luxembourg and has a Who’s Who of global customers, including such brands familiar to the TMASC region such as Toyota; GM, Cadillac and Chevrolet; Chrysler, Dodge and Fiat; Navistar, and Saab.

IAC Group’s North American offices are in Southfield, Michigan, and headed by James Kamsickas. As IAC Group’s Co-CEO & President North America & Asia, James Kamsickas brings a reach and perspective well-matched to a TMASC automotive region with important ties to Asia, NAFTA and the greater North American markets.

Bright Automotive has announced it will host a series of informational forums for suppliers interested in working on their IDEA plug-in electric hybrid vehicle (PHEV) project.  The IDEA vehicle is aimed at fleet customers and has attracted $5 million of investment capital from GM as well as development contracts from the U.S. military. The IDEA concept car will continue its development at Bright Automotive’s Rochester Hills, Michigan and Anderson, Indiana R&D facilities.

Suppliers are sought that can help bring the IDEA into production quickly. For more information, or to register for a forum, contact Bright Automotive at supplierinfo@brightautomotive.com.

Links:

Bright Automotive

Press Release

Earlier reporting from Edmunds.com on initial IDEA suppliers and partners

As Bexar County Commissioner Kevin Wolff stated in an article published in today’s San Antonio Express News, San Antonio is poised to become a new center for U.S.-Chinese commerce.

A visit by Chinese business representatives to San Antonio early next month will mark the latest step towards the establishment of a critical pilot venture that would entail a multi-million-dollar apparel and warehouse complex opening in 2011. This opportunity is the outgrowth of discussions begun over a year ago, after Chinese officials responded positively to the regional message Bexar County had been promoting about the global advantages of the Texas-Mexico Automotive SuperCluster (TMASC).

Following a series of reciprocal trade missions to and from China, the Bexar County Commissioners Court and the Chinese Counselor’s Office of the State Council (COSC) formed the West-East Bilateral Economic Regional Collaboration Council (WEBERCC). The COSC is an institution of the national Chinese government that develops and provides government officials at the national, prefecture and local levels with policy advice and guidance to benefit privately-owned corporations that are entering the global market.

WEBERCC’s purpose is to promote trade with government, industry, and trade-related entities in China and the U.S. It focuses on trade and investment, market strategy and cluster development. WEBERCC assists companies with developing and executing North American and Asian market growth strategies. It also collaborates with a diverse number of public and private sector partners to develop key industries.

Within the automotive industry, WEBERCC is promoting a Texas-Northeastern Mexico strategy for Chinese companies. Just last month, at the AAPEX Auto Show in Las Vegas, WEBERCC and the China Association of Automobile Manufacturers (CAAM) signed an agreement on economic collaboration to assist Chinese and North American automotive companies with market expansion and development.

Progress to date on the apparel project, and a demonstrated readiness to collaborate on future projects, represents very good news for TMASC and WEBERCC. Success with this first venture could mean multiple subsequent Chinese foreign direct investment projects in the TMASC region.

(“T minus 10…9…8…”)

Imagine that a spaceship landed right here in Texas, promising to leave behind not only advanced technologies and related production resources, but also a group of 1,200 highly intelligent, skilled, and (let us assume) benevolent visitors.

The spaceship alluded to is as real as you are. It represents any one of the spacecraft from NASA’s Space Shuttle Program (now scheduled for retirement). The E.T.s in this case are Engineers & Technical personnel recently separated from the program on October 1st.  The question is: What can be done by Texas communities to employ the skills, workers and resources being released by NASA before someone else does?

Bexar County and the Greater San Antonio area are home to numerous firms in aerospace, advanced manufacturing, and biomedical engineering. We also have excellent institutions engaged in biomedical and other specialized research. Many of these entities could benefit either from employing some of the highly skilled workforce about to be released, or from the commercialization of newly available NASA resources via strategic partnerships.

No one in Texas would wish for NASA to dissolve a program with so many talented positions and high tech assets.  However, it is incumbent upon Texas communities to retain and redeploy these highly valuable resources, so that other innovations and industries may advance. If we are strategic and creative enough, we can use these resources to help take us to a better future.

The spaceship will indeed be leaving shortly. Will we do all we can to hitch a ride to the stars?

For more information, contact:

Bob Mitchell, President of the Bay Area Houston Economic Partnership
(Bob@bayareahouston.com, 832.536.3255)

Grady Giffin, Employer Initiatives division of the Texas Workforce Commission
(grady.giffin@twc.state.tx.us, 512.936.2390)

Talent development and retention;

Working to stimulate economic growth

Bexar County is connecting local college students with local private sector jobs.  Who knew?  Bexar County is home to over 14 universities and colleges serving 116,000 undergraduate students.  These institutions generate enormous potential for the area, but when 80% of students surveyed indicate they plan to live somewhere other than San Antonio when they graduate, it makes it difficult for the region to compete with other Metropolitan Statistical Areas such as Austin, Denver, and San Francisco to name a few. 

In April of this year, the County kicked off a new initiative called BUILD (Building Unique Internships for Leadership Development) to retain homegrown talent and support local businesses.  The program is a result of relationships with San Antonio universities and businesses which allows BUILD to connect job seekers to job opportunities and reduce the likelihood of “brain drain,” similar to what Detroit suffered in 2008, as depicted in the image below.

Source: Forbes.com; Internal Revenue Service data. The IRS only reports inter-county moves for more than 10 people, so some moves are not shown on this map.

The mass exodus of Detroit is an economic developer’s worst nightmare; Wayne County, where Detroit is located, had its population decrease by 23,176 in 2009, 32,214 in 2008, and has lost more people (135,313) than any other U.S. County since 2000. Detroit’s decline can be tracked to its dependence on the struggling automotive industry and illustrates the importance of having a diverse and robust economy and multiple tools in place to support it. 

Bexar County’s BUILD Program is well positioned to serve that support role by leveraging relationships, outreach, and market knowledge of the region; and recent successes show that it’s working.

The program, which began earlier this year, was recently contacted by Avanzar Interior Technologies to find several candidates needed to assist in the development of continuous improvement processes.  Avanzar’s previous success in finding engineering talent with BUILD was reason enough for the manufacturer to seek the same assistance in filling these positions.

Mr. Carlos Martens, a partner at Avanzar, said, “You (Bexar County) were the first ones I thought of when this need came up, my partner and I are very interested in getting local organizations and institutions involved.” 

Mr. Martens and his colleagues were working with a 14 day time line, so BUILD quickly leveraged relationships with university career centers to provide Avanzar with 18 applicants from schools such as St. Mary’s, UT-San Antonio, University of the Incarnate Word, and Trinity, in a matter of days.  Seven candidates were eventually selected for the interviews held at UTSA on Monday, September 20^th.

The students who interviewed were excited about the program and grateful for the opportunity with Avanzar.  Masashi, a St. Mary’s graduate, said, “I am very appreciative of BUILD, because of this program I now have the opportunity for a position at the Toyota Motor Manufacturing facility, which is what I have been looking for.” 

Jessica, a St. Mary’s student echoed the sentiment by saying, “This is a great initiative, without BUILD, I may not have known about this great opportunity.” 

The candidates participated in two short interviews with Avanzar personnel and many felt confident about their sessions, while Avanzar representatives indicated that they were pleased with the candidates and expect to make offers to several of them soon. 

In the end, five of the students were offered positions (including Masashi and Jessica), a huge success for all parties involved.  A local business filled a need with qualified candidates, students and recent graduates were provided a career opportunity, and universities were able to work with a new business where relationships had not previously existed; exactly the kind of services and relationships the program works to foster. 

Bexar County understands that sustained economic growth requires local initiatives, and Commissioners Court and the Economic Development Department believe that the BUILD Program is a great tool to further local growth.  Businesses, students, universities, et al are welcome and encouraged to provide feedback and suggestions, or to just check in for any new opportunities.  Much like Avanzar, BUILD incorporates continuous improvement processes and plans to grow along side the businesses and students it helps.

To stay plugged into the latest developments and opportunities coming from BUILD, check out www.bexarbuild.org, and let us know what you think!

Of course, none of this would have been possible if it weren’t for our great partners at the San Antonio Colleges and Universities Career Centers Association (SACUCCA) and our relationships through LinkedIn and Twitter.  Thank you, all!

The increasing attractiveness of Mexico

Why journey across the Pacific when you could simply drive across a border?
U.S. and multinational companies are realizing they don’t have to go further than Mexico to find the manufacturing solutions they need to competitively supply North- and Latin-American markets.

Import trends show Mexico winning back a share of the U.S. market it had been losing to China for several years. According to the U.S. International Trade Administration, Mexico produced 12.2% of U.S. imports through June 2010 (up 1% from year before), while China produced 17.7% (down 1%).

Source: ITA, U.S. Department of Commerce, Trade Stats Express, http://tse.export.gov

For automotive-related trade during the first half of this year, Mexico accounted for 25.8% of U.S. imports (up 2.7% from year before), and China for only 4.3% (down 1.2%).

Given the time and costs required to relocate manufacturing production, this indicator could easily be lagging a larger move of new foreign direct investment. Watch this space for future U.S. import figures tracking the magnitude and persistence of this trend.

Analysts and Businesses Agree on the Attractiveness of Mexico

Separate 2010 studies by the KPMG and Alix Partners consulting firms rank Mexico as the top destination for manufacturing investment, above China, Brazil and India. KPMG’s study, for example, identified the TMASC region’s own Monterrey, Mexico, as the most cost-competitive city in the world for business. Based upon costs for labor, facilities, transportation, utilities and taxes, the report found Mexico’s major cities to have an 18.2% business cost advantage over the U.S.

A Bloomberg article earlier this month (“Mexico Beats China as…Wages Converge with Shipping”) noted that, as the wage gap narrows between China and Mexico, companies are increasingly coming to appreciate Mexico’s competitive advantages, especially during difficult economic times.  The combination of benefits Mexican locations offer includes lower wages, stable labor relations, lower landed transportation costs, favorable currency exchange rates and reasonable tariff costs.

Regarding labor costs, Chinese manufacturing wages are on average just less than $2 an hour, or only 14% less than Mexican wages, according to Mexican Finance Ministry estimates given in the Bloomberg article. As for shipping, the Alix Partners study compared different countries’ full landed costs as a percentage of U.S. costs and found that China has from about 5% to more than 10% higher full landed costs than Mexico for products not characterized by higher labor/value added and low shipping costs.

The article quoted the advanced device manufacturer Flextronics’ CEO Michael McNamara putting it this way: “Every year that goes by, we’re going to see Mexico becoming more and more attractive as an alternative to China.”  Global auto maker Volkswagen endorsed the advantages of Mexico just this week with its announcement that it will be building a new engine facility in Silao, Guanajuato, capable of producing 330,000 engines annually for VW assembly plants in Puebla, Mexico and Chattanooga, Tennessee.

Mexico’s Gains Enrich the Region

With each additional new production facility or expansion of operations in TMASC, the region gains jobs, capital investment, logistics assets, and the conditions for innovation. Moreover, the arrival and expansion of manufacturing creates larger markets for labor, skills, education, and professional services.

Economic development teams in the region are in a special position to capitalize on growth in Mexico because they are able to market a larger portfolio of corporate customers for upstream supplier prospects, and they will have new opportunities to find strategic markets for their own local small and medium enterprises.

Moreover, communities in Texas who are able to attract a manufacturing facility or other operation connecting to one of the supply chains in the region will have additional opportunities.  New industrial operations allow communities to align local educational institutions and human capital development with a greater variety and sophistication of industrial activities, and to mobilize public and private resources to upgrade infrastructure, logistics and other assets which support these activities.

Looking Ahead

How will you participate in the manufacturing growth occurring in the region?

Find out more about U.S. trade flows to follow which countries’ and which states’ products are winning which markets.  Consider what’s on the minds of manufacturers weighing the trade-offs of low-cost country manufacturing strategies for their respective industry. Monitor dispatches from this blog about new facilities or expansions announced for the TMASC region and neighboring areas. Most of all, successfully market your community or business to prospects by leveraging your knowledge of the region’s full range of manufacturing capacities, industrial activities and related assets.

Allow us to help.  Contact Bexar County Economic Development at (210) 335-0872 for market and industry details, and for connections to regional partners, to begin evaluating ways to collaborate with TMASC for development.