Economy for business creation

Automotive sector in Nuevo León

Monterrey, México.
May 2​nd​, 2017
Index

Objective……………………………………………………………………………………2

Introduction………………………………………………………………………………...2

Theoretical Framework…………………………………………………………………...2

Development………………………………………………………………………………3

Analysis…………………………………………………………………………………….6

Conclusion………………………………………………………………………………….7

Appendix 1…………………………………………………………………………………8

Appendix 2………………………………………………………………………………….9
References………………………………………………………………………………….10

Objective

This project's objective is to analyze the evolution and importance of the automotive
sector in Nuevo Leon, the productive chains, its economic demand and
opportunities, also how this industry affects the state’s economy.

Introduction

Economy refers to the science which studies the creation of wealth and production,
distribution and consumption of goods and services, for the satisfaction of human
beings. This science helps the world to understand how wealth is managed. In this
case, we’ll use economics to analyze the automotive industry in Nuevo León.

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The state of Nuevo León is a really important contributor to the national PIB,
contributing with the 7,5% which is equivalent to 62.328 million dolars, only behind
CDMX and Estado de México. The most productive industry in this state is the
manufacturing industry, where the automotive industry takes part.

The automotive industry, at a global level, has an important role for the development
of high added value sectors, making countries wanting to develop and strengthen
this sector industry. México, with its high share of automotive exports, is no
exception, as it has developed thanks to this industry. Nuevo León, one of the 32
Mexican Federal Entities, stands out for its big assembler industry and fabrication of
auto parts which on the last decade, has won more than 10% and today represents
more than a third of the foreign sales. This state was the first state to support the
signing of NAFTA and is one of the entities in the country with best benefits of
globalization. Nuevo Leon’s automotive industry is the number one exporter and
employer in the country with its large truck assemblers and the manufacturing of
auto parts such as aluminum monoblocks, tanks and filters for gasolines. Nuevo
Leon’s automotive industry represents the main economic income for a continuous
improvement of its own.

Theoretical Framework

To analyze the evolution and importance of the automotive sector in Nuevo Leon, we
will research in official data sites, such as AMIA, INEGI, Nuevo Leon’s government
website, and also in local statistics or articles published in newspapers or trustworthy
sites.

Some of the important concepts presented in this essay will be defined:

● Automotive industry: Set of companies and organizations related to the

design, development, manufacturing, and sales of cars.
● SEDEC: Secretaría de desarrollo económico de Nuevo León, it is in charge of
the economic development in Nuevo León.
● INEGI: Instituto Nacional de estadística y geografía, in charge of producing,
integrating and publishing the statistic and geographic information of México.
● Exports: The action of selling national products to foreign countries.
● AMIA: Asociación mexicana de la industria automotriz, in charge of publishing
and research all about the automotive industry in Mexico.
● NAFTA: Also known as TLCAN (Tratado de libre comercio de América del
Norte) is an international trade between Mexico, USA and Canada.
● Manufacturer: In charge of the fabrication of a product which needs handwork
or machinery.
● Employability: The potential that a person has for being hired in a company.

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 ● Trade: Document in which an agreement is agreed between countries or
states.

Given some data from ​Secretaria de Desarrollo Economico,​ in 2015 there were 146
providers from registered auto parts, which produced 134 different parts for cars,
structure, A/C system, electric system, motor, etc.. The impact of this companies has
given a big rise up for Nuevo Leon’s economy given that it is one of the main
industries in Mexico. The auto parts sector of Nuevo León occupies the first place at
the national level as supplier of first line for the companies, also known as Tier 1
companies.

Development

Since the beginning of the 1990’s, cluster associations started to concentrate

companies with academics and government to find more ways to be competitive in
specific industrial sectors. That was the case for Nuevo León, as in 2005, the
Government of the State of Nuevo León decided to organize citizens' councils of
industries strategies with the intention of helping the Government Of the State to
have a vision to promote development based on its high potential. The automotive
industry was one of the selected and this council was organized by ​Secretaría de
Desarrollo Económico del Estado (SEDEC). This council formed the Cluster
Automotriz de Nuevo Leon, AC (Claut) that was formally constituted on July 10, 2007
and was founded by seven companies, two universities and two government
agencies. The committees' work strategy started by sharing information and
practices from each one of the participating organizations. In the six years of
operation of the cluster, different projects were generated in each one of the
committees: specific training programs for industry, market research and supply,
training and consultancy to second and third level providers, research projects and
technological improvement, etc.

Between the year 2007, when the Claut started its activities and 2012, the
automotive industry grew in the State of Nuevo Leon. Exports from this sector
increased from 2.9 billion to 7.58 billion dollars, going from 13% to 25% of the total
exports. Employment in companies of the sector went from 43 thousand jobs to
something more of 60 thousand jobs. Among the companies that are part of the
Automotive Cluster are: International, Metalsa, Katcon and Sisamex, which have
research centers and develop new products for the automotive industry.

Nuevo Leon is a state with a significant growth number in automotive exports

nationwide. This sector includes cars and auto parts. Nuevo Leon’s automotive
industry is the number one in exports and employability in the state. It represents

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11.9% of the state’s GDP and 27% of exports in the state with more than 7,500
millions of dollars a year. (El financiero, 2014).

Also, the autoparts sector in the state occupies the first place nationwide as a
provider in first line for manufacturers. In 2014, the Mexican Association of
Automotive Industry (AMIA) said that car production nationwide was of 774,731
unities which was 6.5% more than the unities made on 2013. This meant that this
sector kept growing year by year in a considerable way. In the same year, exports
were of 606,204 vehicles which represented 8.6% of growth in relation of last year.

Nuevo Leon’s automotive industry provides 80% of manufacture in Mexico. It is said

that this industry is one of the greatest strengths of the state, 28% of companies of
this industries are located in the area of Monterrey-Saltillo, Ramos Arizpe in a 100km
radius (El Economista, 2016). This is a great advantage because of its location near
the United States which is the main client. After 2008’s crisis, this industry grew in
an outstanding way. In 2012 it reached a growth in production by 7%, in
employability by 5.1% and exports by 12.4%. 30% of exports in this sector come
from ​Navistar, ​a truck assembler company which has shown considerable growth in
the last years.

Nuevo Leon has a 10.3% impact nationwide in production of autoparts, this sector of
the industry reached 86,000 millions of dollars by 2015, having an expectation of
growth by 2016 to 89,000 millions according to INEGI.

Exports in this sector also reached 15,579 millions of dollars by 2015 which
represented a growth of 3.6% in comparison of last year.

GDP of this industry is of 4.2 billions of dollars and it employs 60,000 persons
directly and 65,000 indirectly. Nuevo Leon’s GDP represents 27% of Mexico’s GDP.
statewide, economy in auto parts represents 20% of exports, 19.3% in manufacturer
GDP and 4.6% of total GDP.%.

Influence of the automotive sector causes growth in Mexico's GDP

In 2013, the sector entered 425 million pesos and the participation reached another
692 billion, an increase of 61%. The Mexican industry became one of the most
important drivers of the Mexican economy, so economic analysts at Deutsche Bank
said it contributed between 4% and 5%, of gross domestic product between 2013
and 2016.

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Mexico Strategy report, experts explained that the support came from the huge flows
of FDI (Foreign Direct Investment) which came from companies that took advantage
of trade agreements such as the North American Free Trade Agreement.

Foreign ship-owners take an important role because they make new investments in
productive projects in Mexico. This was the case of Germany's Audi, which started
production in the country by the end of 2015. Also, KIA Motor installed a plant in
Monterrey which made Monterrey a target for foreign investment which helped to
raise the state’s economy. Not only the industry itself helps economy grow but the
migration of foreign workers and investors are a main factor that helps.

Mexico's automotive trade balance reached a historic figure in the first quarter of the
2014, recording a surplus of 9.546 billion dollars, driven by a 7.1% increase in
exports. In 2013, the Mexico's automotive sector received about $ 3 billion in FDI,
which was 8% of the nationwide total and 11% of the capital injection in the
manufacturing sector.

In the long run, the Economy Ministry expects vehicle production to grow at an
annual rate of 8.7% supported by the ongoing capacity additions of major
automakers.

Mexican exports from the automotive industry outweigh the oil companies, which is
beneficial for the entity. Nuevo Leon is a key factor not only for the automotive
industry, but an icon in the manufacturing industry that contributes heavily to the
national economy.

Analysis

Nuevo León has some regional companies and groups with sales in the world
markets such a Grupo ALFA. This group has a share of 60% of foreign sales with
respect to total sales, integrated by five business units, among them Nemak. Nemak
is the world's largest manufacturer of heads and monoblocks made from aluminum
for the automotive industry, with 27 plants in 12 countries and more than 18
thousand employees. Other regional group is Grupo Proeza, which includes in its
companies METALSA that produces auto parts for trucks, vans and cars from plants
in the United States, Mexico, Venezuela, Brazil, Argentina, India and Australia and is
in the process of settling in Thailand. Metalsa inaugurated in 2012 its Center for
Innovation and Advantages (CIDeVeC), with which it seeks to expand its portfolio of
products and conquer new markets worldwide.

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Among the other most relevant companies that make up this sector are:

Manufacture of trucks and tractors.

Navistar, Blue Diamond Truck, Polomex (Mercedes Benz).

Manufacture of bodies and trailers

Manufacturas Industriales Gami

Manufacture of gasoline engines and their parts for motor vehicles

Forja de Monterrey, Nemak, Troqueles y Matrices, Vege de México, Coavis México

NAFTA in the Automotive Industry

Right now, USA is in the middle of the process of renegotiating NAFTA, and because
of the uncertainty of possible tariffs or duties to the exportation of México to US,
Right now in Nuevo Leon 84% (see appendix 1) of the exports are to the United
States, and these dependency with USA can affects multiple sector of the industrial
activity.

Nevertheless, the automotive industry is a special sector. In these sector, the

production chain can´t be damaged, or that are very difficult to separate. Many of the
beneficients of these products are the final buyers in the US and can't be very
affected because of the necessity of US, for this reason this industry will behave
different and will be affected less than others.

Also, Nuevo Leon is one of the leaders in the investment of science and technology,
occupying the third place in the country. Nuevo Leon is constantly investing in
technology and research and this also reinforce the automotive sector in the state,
making it stronger and more capable to adjust to export/import changes.

The changes that are being talked right now by Donald Trump are saying that
NAFTA may be cancelled if it doesn’t benefits US, but Roberto Reyes Rico,
president of IMEF (Instituto Mexicano de Ejecutivos de Finanzas) says that the
possibility of the United States to cancel NAFTA are minimum, and if it happened,
the automotive sector in Nuevo León will continue solid and strong as it is right now.

Conclusion

Nuevo León is one of the most important states in Mexico, in economic field. This
state contributes with 62.328 million dollars to Mexico´s PIB. According to a lot of

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research presented in this essay, the automotive industry is, together with other
manufacturing industries, the most contributing industry to Nuevo Leon´s PIB.
During the last years the automotive industry has grown in Nuevo León, it has
become the number one exporting industry in the state. It´s important to mention that
this industry has grown so strong that nowadays Nuevo Leon’s automotive industry
provides 80% of manufacture in México.

Automotive industry in Nuevo Leon, provides 60,000 employments directly and

65,000 indirectly. Demonstrating one more time, that the impact of this industry in the
state is amazingly positive.

Regarding international trades and this industry in this state, the 84% of Nuevo León
exports are from the automotive industry to the US, nowadays there's some
uncertainty about what will happen with NAFTA with the new presidency of the
United States, but most of the assumptions about NAFTA´s destiny, are still favoring
the exports between this countries.

Finally, the automotive industry in México is the principal contributor to the country’s
economy. This industry is not only important and depopulating in Nuevo León, but
also in most of the states in México. Therefore, this country's economy depends on
the manufacturing industry which is a ripping aspect, because there is always
manufacturing demand, instead of the countries that depend on goods exports.

Appendix 1

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This graph shows the percentage of the total exports that go to the US in each
state.

*NL = Nuevo León

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 Appendix 2

In this table, the sells of automobiles in Nuevo León is shown.

*It last actualization was in 2014 because of an agreement with AMIA that
agrees that this information will not be shown for individual states.

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References

[1] Juan Antonio Lara. (2014). Destaca Industria Automotriz en NL .

Recuperado en Abril del 2017 , de El Financiero Sitio web:
http://www.elfinanciero.com.mx/monterrey/destaca-industria-automotriz-en-nl.html

[2] Lourdes Flores. (2016). En Nuevo León, 80% de las autoparteras son
de origen local. Recuperado en Abril del 2017, de El Economista Sitio web:
http://eleconomista.com.mx/estados/2016/06/16/nuevo-leon-80-las-autoparteras-son
-origen-local

[3] Instituto Nacional de Estadística y Geografía (México). (2014). La

industria automotriz en México 2014 / Instituto Nacional de Estadística y Geografía.
Recuperado en Abril del 2017, de INEGI sitio web:
http://internet.contenidos.inegi.org.mx/contenidos/Productos/prod_serv/contenidos/e
spanol/bvinegi/productos/integracion/sociodemografico/Automotriz/2014/702825062
552.pdf

[4] Montoya Ortega, M. (2014). Análisis del aporte al desarrollo empresarial

regional del clúster automotriz de Nuevo León México. Cuadernos Latinoamericanos
de Administración, X(19), 7-22. Recuperado en Abril del 2017, de
http://m.uelbosque.edu.co/sites/default/files/publicaciones/revistas/cuadernos_latino
americanos_administracion/volumenX_numero19_2014/03_Art-cluster-automotriz_V
ol-X-Num-19.pdf

[5] Lara, J. A. (2014, May 15). Destaca industria automotriz en NL.

Retrieved May 1, 2017, from
http://www.elfinanciero.com.mx/monterrey/destaca-industria-automotriz-en-nl.html

http://eleconomista.com.mx/industrias/2017/04/16/sector-automotriz-gana-terreno-la
s-exportaciones-totales

​http://sg.nl.gob.mx/DataNL/files/DNL00000802.pdf

[6] Axel Sánchez . (10.06.2014). Crecerá influencia del sector automotriz en el

PIB de México. 10.06.2014, de EL FINANCIERO Sitio web:
http://www.elfinanciero.com.mx/empresas/crecera-influencia-del-sector-automotriz-e
n-el-pib-de-mexico.html

Juan Antonio Lara. (16.05.2014). Destaca industria automotriz en NL. 16.05.2014,

de EL FINANCIERO Sitio web:

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http://www.elfinanciero.com.mx/monterrey/destaca-industria-automotriz-en-nl.html

Axel Sánchez. ( 01.05.2017). KIA quiere récord en venta de autos con

financiamiento. 01.05.2017, de EL FINANCIERO Sitio web:
http://www.elfinanciero.com.mx/empresas/kia-quiere-record-en-venta-de-autos-con-fi
nanciamiento.html

Sonia Coronado, Jesús Gustavo García. (09.12.2014). ...Y fortalece economía

mexicana: Itaú BBA. 09.12.2014, de EL FINANCIERO Sitio web:
http://www.elfinanciero.com.mx/monterrey/y-fortalece-economia-mexicana-itau-bba.
html

Flores, L. (01 de May de 2017). ​El Economista.​ Obtenido de Comercio exterior de

NL peredría competitividad:
http://eleconomista.com.mx/estados/2017/05/01/comercio-exterior-nl-perderia
-competitividad

INEGI. (s.f.). ​Venta Total de Automoviles por Menudeo en Nuevo Leon.​ INEGI,
Monterrey, Nuevo Leon.

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