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Mexico to grow role in vehicle design and development

Construction in the Magna plant in Puebla, Mexico, Wednesday, January 22, 2015.

Brett Gundlock/ Boreal Collectiv/The Globe and Mail

Mexico is taking aim at highly skilled research and development jobs in the auto industry to match the growth of vehicle assembly, a senior Mexican auto-industry official says.

Expanding Mexico's role in vehicle design and development is part of the country's plan to become an even stronger automotive powerhouse than it already is, Oscar Albin, president of Industria Nacional de Autopartes told the Automotive Parts Manufacturers' Association of Canada at its annual conference in Windsor, Ont., on Wednesday.

Mexico has already surpassed Canada in annual vehicle production and parts shipments, and boasts a buoyant trade surplus in excess of $40-billion (U.S.) annually compared with Canada's auto trade deficit of $1.5-billion (Canadian) last month alone.

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The low-wage advantage that has contributed to that growth and Mexico winning tens of billions of dollars worth of new vehicle assembly plants extends to engineers, who earn about $25,000 (U.S.) annually, Mr. Albin said.

Comparable jobs at auto parts makers in Canada and the United States carry salaries of two to three times that level.

Mr. Albin pointed to Germany-based auto-parts maker Continental Corp., which has opened a research and development centre in Mexico that employs about 800 engineers whose average age is 27. The average age of automotive engineers in Detroit is 55, he noted.

The cost advantage to auto makers of lower wages in Mexico compared with Canada and the United States has been well-documented, but he maintained that location and the presence of 93 per cent of the world's top 100 auto-parts makers are more important to auto makers.

Shipments that depart by train from Monterrey arrive in Chicago in four to five days and cost $3,058, compared with a 22-day journey at a cost of $5,239 for shipments from Shanghai.

"Definitely, we are in the centre of the map," Mr. Albin said.

The growth of vehicle assembly in Mexico, South Carolina, Alabama and other U.S. states is pulling the industry's centre of geography southward, Michael Robinet, managing director of consulting firm IHS Automotive's global advisory practice, told the conference.

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"This is a major issue in Ontario," Mr. Robinet said.

Most auto makers are trying to reduce their logistics costs, he said, so they want their suppliers within an hour's drive, which means the growth of parts manufacturing will occur close to the new assembly plants.

"I think you've got to move south for sure, but that strengthens your business in the north," said Joe Leon, co-president of Toronto-based automotive stamper and plastics company AGS Automotive Systems.

Auto makers "would like us to be within an hour and that's a big push by every auto maker," Mr. Leon said.

AGS Automotive Systems has made what he called significant investments in Michigan and is considering expanding to Mexico.

If parts companies want to supply components for vehicles made in Mexico or the U.S. South and they aren't located near customers' assembly plants, there's a danger the will lose the business in Ontario, he said.

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The start of production at new assembly plants now under construction by Audi AG, BMW AG and Nissan Motor Co. Ltd., will push vehicle production in Mexico to about 5 million annually by 2020 or about double Canadian vehicle output.

With a report from David Parkinson

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