The Future of the Mexican Automotive Industry

INDEX

• Current Position of the Auto Industry

• New Investments Increase Capacity

• World Automotive Market

• Challenges and Future Vision

Current Position of the Auto

Industry

The automotive industry has had a very good performance

2006 2013

2.0

2.9

Vehicle Production (Million of units)

2006 2013

1.5

2.4

Vehicle Exports(Million of Units)

• From 2006 to 2013, vehicle´s production and exports grew 5.8% and 6.7% annually in average, respectively.

• During this period, the value of autoparts production showed an annual growth average rate of 12.9%.

2006 2013

20.6

48.2

Autoparts Production (Thousands of Million Do-

llar)

Source: AMIA and INEGI

There is still a positive trend in 2014

Ene - Jul 2013 Ene - Jul 2014

1.7

1.9

Vehicle Production (Million of Units)

Ene-Jul 2013 Ene-Jul 2014

1.4

1.5

Vehicle Exports(Million of Units)

Ene-jul 2013 Ene-jul 2014

27.8

30.0

Autoparts Produccion (Thousands of Million Do-

llar)

• From january to june 2014, vehicle production and exports grew 7.5% and 11.2%, respectively.

• Value of auto parts production increased 7.8% in the same period.

Source: AMIA and INEGI

Rank Country

2013

1 Japan 4.87 2 Germany 4.75 3 South Korea 2.14 4 Mexico 2.42 5 Spain 2.10 6 Canada 2.06 7 USA 2.05 8 France 1.39 9 UK 1.22

10 Czech Republic

1.01

Rank Country Jan-July 2014

1 China 13.5

2 USA 6.6

3 Japan 5.1

4 Germany 3.6

5 South Korea 2.8

6 India 2.1

7 Mexico 1.9

8 Brazil 1.7

9 Canada 1.3

10 Thailand 1.1

Mexico's automotive industry improves ranking in the world

MAIN COUNTRIES VEHICLES PRODUCERS

(Million of Units)

MAIN COUNTRIES VEHICLES EXPORTERS

(Million of Units)

• Up to july 2014, Mexico is the 7th most important vehicles producer in the world, which means a higher level compared to 2013. As well, we are the 4th most important export.

Source: OICA, AMIA, Ward´s Auto

Mexico diversifies its auto exports destination

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Resto del Mundo Brasil Europa Canadá Estados Unidos

• Although United States is still the main destination of Mexican exports, during latest years, a diversification has been evident.

Vehicle Exports by Destination

Source: AMIA.

In Mexico, there are some auto facilities ranked among the most efficient of the world

• There are some facilities in our country, that are ranked among the top ten in engines production, as well as in stamping processes.

Chry

sler D

unde

e GE

MA

(USA

)

GM S

prin

g Hi

ll (U

SA)

Toyo

ta G

eorg

etow

n (U

SA)

Toyo

ta W

est V

irgin

ia

(USA

)

GM F

lint S

outh

(U

SA)

GM F

lit N

orth

(USA

)

GM T

onaw

anda

(U

SA)

Chry

sler M

ark

Av. I

I (U

SA)

Chry

sler S

altil

lo

(Méx

ico)

GM R

omul

us

(USA

)

1.84

2.53 2.60 2.663.07 3.09 3.19 3.32 3.45 3.46

Toyo

ta G

eorg

etow

n

(USA

)

Toyo

ta C

ambr

idge

(C

anad

á)

Chry

sler B

elvi

dere

(U

SA)

Ford

Dea

rbor

n (U

SA)

GM S

ilao

(Méx

ico)

Chry

sler T

oluc

a (M

éxico

)

Num

mi

(USA

)

Toyo

ta P

rince

nton

Wes

t (U

SA)

GM P

arm

a, O

hio

(USA

)

Hyun

dai M

ongt

gom

ery

(USA

)

1.84

2.53 2.60 2.663.07 3.09 3.19 3.32 3.45 3.46

More Efficient facilities for the Production of Engines

(Hours/Engines)

More Efficient facilities for Autoparts Satamping(Parts/Hour)

Source: The Habur Reporrt

Mexico offers significant competitive advantages in the automotive industry.

0

20

40

60

80

100

120

140

Me

xic

o

Au

stra

lia

US

A

Ca

na

da

Fra

nce

Un

ite

d K

ing

do

m

Ne

the

rla

nd

s

Ita

ly

Ge

rma

ny

Jap

an

Advantage in automotive assembly costs(Index 100 = USA)

1 2 3 4 6 7 818 19

63

8390

101

Re

yn

osa

, M

exic

o

Ag

ua

sca

lie

nte

s, M

exic

o

Pu

eb

la, M

exic

o

Mo

nte

rre

y, M

exic

o

Sh

rev

ep

ort

, U

SA

Gre

en

vil

le-S

pa

rtan

bu

rg, U

SA

Mo

ntg

om

ery

, U

SA

Ad

ela

ide

, A

ust

rali

a

Me

lbo

urn

e, A

ust

rali

a

Pa

ris,

Fra

nce

De

tro

it, U

SA

Ma

nch

est

er,

UK

Ha

ma

ma

tsu

, Ja

pa

n

Position in automotive parts assembly by city(Position of 102 considered cities)

• Some cities in our country, where automotive clusters have been established, are identified as those highly competitive in parts assembly costs. Puebla, Aguascalientes and Monterrey are good examples.

• At the same time, Mexico offers low assembly costs compared to other 9 important vehicles producers. Difference between México and USA, shows that in our country average costs are around 20% lower than in that country.

Improvement in mexican automotive industry is evident

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

29.6%

Alemania México Japón Canadá

• Mexico increased its contribution in automotive imports of USA. In 2014* reached 29.6%

Source: Census Bureau * Data to July

New Investments in Mexico will

Increase Production Capacity

• From 2009 to 2014, new investments for 17,571 million dollars have been

announced in the automotive sector; more than 40% (7,088) correspond

to current federal administration.

• With these new investments, automotive industry production capacity

will grow in 1.8 million vehicles annually, when all facilities operate fully.

• Additionally, more than 30 thousand employees will be generated in

assembly plants with all mentioned investments. As a consequence, well

trained people will be required by the industry.

OEM´s investments announcements have been a constant in Mexico

Inversiones anunciadas, 2009-2014.(millones de dólares)

• The investments of the OEM´s boosted FDI in the auto parts sector.

• From 2009 to June 2014 FDI in auto parts sector accumulated more than 10 thousand million dollar.

Foreign Direct Investment in autoparts industry has shown a good performance

2007 2008 2009 2010 2011 2012 2013 Ene-Jun 2014

1,787.2

1,259.1935.2

1,207.6

1,398.91,580.2

1,158.0

812.3

Auto parts FDI,(Thousand Million Dollar)

Source: Secretaría de Economía

World Automotive Market Trends

• Demand in North America is expected to grow by 30%.

• The increase in the productive capacity of Mexico could increase the participation of our exports to the United States by 3%.

Global demand for vehicles by 2017 is estimated in more than 104 million of units

Europa Asia Pacífico Norte América América del Sur

19.0

30.3

15.6

5.3

23.8

52.2

20.4

8.6

New Vehicle Demand by Region2011 2017

Source: KPMG.Note: includes heavy trucks

Changes is Location of automotive manufacturing

• From 2000 to 2011, vehicles production in developed countries reduce 24%, while in developing countries production grew by 200%.

• Mexico has remained among the top 10 producers of vehicles worldwide. In 2013, our country was ranked in the number 8. As mentioned, currently our country is the 7th most important producer.

• Due to the changes in the global automotive manufacturing, Mexico has the opportunity for structural transformation, considering the following elements:

Innovation

Human capital

New technologies

New environmental, security, connectivity and comfort

Global environment:

o Countries regulations aimed at protecting the environment.

o New requirements of consumers related to safety vehicle, sustainability (efficiency in the performance of fuels and reduced emission of pollutants), connectivity (interconnection between different mobile devices and internet) and comfort.

Considering this environment, to play a good roll in long term, it is important for Mexico to be among the main destinations of investment in research, development and automotive design.

“Inventario de capacidades nacionales para el desarrollo tecnológico automotriz”

Main findings

There are technology development capabilities along all vehicle systems.

The level of technological development in Mexico offers opportunities to improve; only a third part focuses on innovation development.

more than 5,000 employees focused on R & D, those which have a high number of years of experience.

Automotive industry spends a higher percentage of time in training, even though there are more than 700 relevant programs for the automotive sector offered by the Academy.

The Academia and Research Centers have more staff prepared the industry and devote significant time to research, but productivity has opportunity to be improved.

In Infrastructure, 360 facilities and more than 2,000 relevant teams in the country covering all vehicle systems were identified.

The equipment utilization levels are low and 95% of the organizations surveyed are willing to providing his team to other companies.

There are opportunities to expand the inventory of specialized equipment

In projects, there is an important link between Industry-Academy-Government, but a significant percentage of them are not focused on product innovation.

“Inventario de capacidades nacionales para el desarrollo tecnológico automotriz”

Challenges and Future Vision

Challenges and Future Vision for Automotive Industry in Mexico

The U.S. International Trade Commission estimated that the added value of Mexican exports is 26.9%, which represents a high potential for the Mexican automotive industry.

This means that Mexico has an opportunity area in increasing the national content of the automotive goods, that is why it is necessary to reinforce the automotive value chain and incorporating Tier 2 and Tier 3 producers.

New trends like those focusing new and stricter standards on energetic efficiency and emissions, represent an opportunity for the development of new technologies and structural changes in the automotive sector at a global level.

As most of Mexico´s production goes to foreign markets; and being part of the global chain of many of the biggest OEM’s, Mexico could take advantage of these new global trends in the future and be able to insert in the development of the new products that fulfill these new standards.

Moreover, a positive relation is observed between trade and the development of industries with high added value.

23Source: INEGI Economic Census and UN COMTRADE (NAICS code)Note: in red those industries classified as "high technology" according to The World Bank

Exports vs added value (Average annual growth 99 – 09)

Imports vs added value (Average annual growth 99 – 09)

• As shown in the chart, higher levels added value sectors are related to higher trade. Transport equipment manufacturing is ranked at the top, however there is still opportunity to improve if innovation and design investment increases.

Ttransport equipmentTtransport equipment

Strategies for Automotive Industry Development

• Main aspects that are being considered by Secretaría de Economía to improve automotive industry's competitiveness are:

Human Capital Training Investment Attraction Support to Innovation Supplier development

Federal Government has some supporting programs to help automotive industry to improve its global position, among which there are the followings:

Federal Supporting Programs

Program FeaturesSE/PRODIAT Training, Certifications and technological innovation

Software"Startup" NAFIN full projects Internacional promotionSeed capitalTraining and technical asisitenciaSeed capitalInnovation supportFINNOVA

BANCOMEXT Suppliers FinancingNAFIN Financiamiento a ProveedoresMEXICO FIRST Certifications in TI

CONACYT

SE/PROSOFT

INADEM

PROMEXICO

Automotive Industry Vision

2011 2017

2.6

4.0

Producción*(millones de uni-

dades)

2011 2017

2.1

3.5

Exportación*(millones de uni-

dades)

2011 2017

3.2

4.5

Valor Agregado**(Porcentaje del PIB)

*/ Light vehicles**/Participation of Automotive Industry in GDP.