IHS Automotive SAMPLE. Regional Report. SupplierBusiness. The Mexican Automotive Supplier Report edition supplierbusiness.

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1 IHS Automotive Regional Report SupplierBusiness The Mexican Automotive Supplier Report 2014 edition supplierbusiness.com

2 Contents Executive Summary... 7 Chapter 1: The advantage... 8 Key economic indicators... 8 GDP... 8 Consumer demand... 9 Consumer confidence... 9 Remittances from US Industrial production...11 International Trade Infrastructure Inflation...17 Political environment Business atmosphere Legal framework Tax system Stock market Chapter 2: Mexican automotive industry Vehicle parc and density Light vehicle sales Leading automakers Vehicle segments Vehicle production gathering momentum An export-oriented market Auto parts exports Weak Mexican Peso giving impetus to exports Investments by automakers Investments by Japanese automakers Investments by European automakers Investments by US automakers Chapter 3: Supplier industry in Rising exports and imports Foreign suppliers dominates auto parts production based suppliers Investments R&D capability in OEM-Supplier relations Continuing focius on localisation Increasing powertrain production Customer and competition Fuel price and economy IHS Automotive SupplierBusiness COPYRIGHT NOTICE AND LEGAL DISCLAIMER 2014 IHS. No portion of this report may be reproduced, reused, or otherwise distributed in any form without prior written consent, with the exception of any internal client distribution as may be permitted in the license agreement between client and IHS. Content reproduced or redistributed with IHS permission must display IHS legal notices and attributions of authorship. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it, and to the extent permitted by law, IHS shall not be liable for any errors or omissions or any loss, damage or expense incurred by reliance on information or any statement contained herein. For more information, please contact IHS at customercare@ihs.com, IHS CARE (from North American locations), or +44 (0) (from outside North America). All products, company names or other marks appearing in this publication are the trademarks and property of IHS or their respective owners edition IHS

3 Urbanisation Evolving emission regulations Supplier parks in Automotive clusters Growth in central Chapter 4: Policies and regulation Maquiladora programme Temporary import programme for export (PITEX) Maquiladora manufacturing industry and export services (IMMEX) Sector promotion programme (PROSEC) Automotive decree International trade agreements NAFTA Mercosur FTA Emission norms in Programme to incentivise OEMs Vehicle safety Chapter 5: Outlook and challenges Vehicle sales in to grow marginally amid high used car imports Suppliers poised for growth Powertrain production to become largest vehicle exporter to US New international trade agreements Growing protectionism Labour cost to remain competitive in short term Availability of skilled labour Chapter 6: Interviews Thomas Karig, vice-president, Corporate Relations, VW de Mike Jackson, Director, IHS Automotive Alejandro Furas, technical director of Latin NCAP Eugenio Madero, CEO SANLUIS Rassini North America Herman Morfin, director, Corporate Communications, Nissan Corporate Communication - Gestamp Sachin Lawande, president, Infotainment, Harman International Oscar Albin, executive president, Industria Nacional de Autopartes (INA) Chapter 7: Supplier survey Has an increase in investments made by several automakers and suppliers put strain on s available infrastructure? Many global automotive suppliers are following their OEM clients and opening plants in. Are local suppliers taking enough measures to improve their efficiencies and R&D expertise to keep pace with the global ones? Is political instability affecting automakers and suppliers decision to expand their manufacturing and R&D footprint in? Do you think that private investment is not growing enough to support economic development in? drew a record USD35.2 billion in foreign direct investment (FDI) in Do you think the country will continue to attract huge FDI in the mid-term? Vehicle emission norms in are at par with the US but mandatory safety norms are not. What impact does this have on vehicle demand in the domestic market? Is the Mexican government taking sufficient steps to implement the mandatory safety norms for vehicles? By when do you anticipate cars sold in the Mexican market to have mandatory safety norms? Vehicle sales returned to pre-recession levels in 2013 of 1.09 million units, three years earlier than previously expected edition IHS

4 IHS Automotive forecasts total market sales in will reach 1.14 million units in Do you think this is attainable? IHS forecasts the Mexican automotive market to continue with modest growth between % for the next five years. Do you agree with this? Mexican vehicle production broke through the 3 million milestone in Production in 2014 is forecast to increase 9.1% y/y. In quarter 1 this year, production was up 6.5% y/y. Do you agree with this projection? Mexican exports and production are expected to see positive gains in 2014, given the massive influx of FDI in the country from Japan in particular. Do you agree with this prediction? Demographics of respondents: Poisition in the supply chain Demographics of respondents: Area of operation Supplier Profiles ABC Group Aisin Seiki Alcoa Alfa Autoliv Benteler BorgWarner Bosch Brembo Bridgestone Brose Calsonic Kansei CIE Automotive Condumex Automotive Contiental Cooper-Standard Dana Delphi DuPont Dura Automotive Faurecia Ficosa Flex-N-Gate Gestamp GKN Grammer Grupo Bocar Grupo Industrial Armas Grupo Industrial Saltillo Grupo Quimmco GST Autoleather HBPO Hella Hutchinson Iochpe-Maxion Johnson Controls Key Safety Systems Lear Le Belier Leoni Linamar Magna edition IHS

5 Mahle Martinrea Meritor Metaldyne Metalsa Michelin Mitsuba Modine Molex Montupet PEASA Autopartes Plastic Omnium PPG Industries Progress-Werk Oberkirch Remy International SABIC Innovative Plastics Sanden SANLUIS Rassini Schaeffler Stoneridge Takata Tenaris Tenneco ThtyssenKrupp TI Automotive TMD Friction Toyoda Gosei TRW Automotive Valeo Visteon Vitro Webasto Yazaki ZF Figures Figure 1: s GDP Per Capita and GDP Growth... 8 Figure 2: 's Per Capita Income... 9 Figure 3: Consumer Confidence Figure 4: Remittances from Mexican Nationals Working in United States Figure 5: Industrial Production in Figure 6: US Industrial Production and s GDP Figure 7: Total FDI in Figure 8: FDI by Origin Country Figure 9: FDI by Sector Figure 10: Global Exports and Imports Figure 11: Major Export Partners Figure 12: Major Import Partners Figure 13: s Infrastructure Figure 14: s Population versus Unemployment Rate Figure 15: Movement of Bank Interest Rate with Inflation edition IHS

6 Figure 16: Movement of peso with US dollar and euro Figure 17: Parameter Rankings for Ease of Doing Business in Figure 18: Comparative Movement of MEXBOL and Dow Jones Figure 19: NAFTA Light vehicle parc Figure 20: NAFTA Light vehicle density Figure 21: Annual light vehicle sales in Figure 22: Annual light vehicle sales by country Figure 23: Light vehicle sales market share by automaker, 2009 and Figure 24: Light vehicle sales by automaker Figure 25: Light vehicle sales market share by segment, 2009 and Figure 26: Light vehicle production in Figure 27: Light vehicle production in and BRIC countries Figure 28: Light vehicle production market share by automaker, 2009 and Figure 29: Share of light vehicle sales and exports in total production Figure 30: Exports by automakers Figure 31: Country/region share in total LV exports from Figure 32: Auto parts exports from Figure 33: Mexican peso, Brazilian real, Japanese yen and euro against the US dollar Figure 34: Auto parts production value in is expected to reach USD94.7 million by Figure 35: Higher auto parts production is resulting in greater employment opportunity in Figure 36: Breakup of auto parts production by segment Figure 37: s export markets for auto parts Figure 38: s import markets for auto parts Figure 39: Auto parts export and import in in Figure 40: FDI in s auto parts industry Figure 41: Engine Production in Figure 42: Tranmission production in Figure 43: s three major automotive clusters Figure 44: OEM Cluster Map Figure 45: Supplier Cluster Map Figure 46:, Canda and Rest of World s vehicle/parts import and export with the US Figure 47: s vehicle export to Brazil and vehicle imports from Brazil Figure 48: s vehicle export to Argentina and vehicle imports from Argentina Figure 49: Deaths by road-user category in Figure 50: Forecast for LV sales in US, LV production in Figure 51: Light vehicle sales and production outlook for Figure 52: Market potential of some key process in Figure 53: Engine production in Figure 54: Transmission production in Figure 55: Source of Vehicle Imports for US by Country Figure 56: Average Annual wages by Country Figure 57: Number of Graduates in Tables Table 1: Ease of Doing Business Rankings Table 2: Recent Investments by OEMs Table 3: Supplier Presence by Location Table 4: Recent investment by suppliers Table 5: Mercosur member countries (as of June 2014) Table 6: Passenger vehicle emission targets (CO 2 g/kg) Table 7: Light-duty truck emission targets (CO 2 g/kg) Table 8: Credit values for model year 2013 through 2016 listed in NOM-163: CO 2 emissions in grams / km (equivalent in km/l) edition IHS

7 Chapter 2: Mexican automotive industry The automotive industry is at the core of s manufacturing prowess and economic prosperity. The automotive industry currently accounts for around 4% of the country s GDP and 20% of all manufacturing. The increasing investments by vehicle manufacturers and parts suppliers in reflect the country s growing importance as a frugal and efficient automotive production base for exports. s automobile industry dates back to 1925, when Ford set up assembly lines in the country. In 1935, GM entered the country followed by the Automex Company in 1938, which later became Chrysler. Nissan opened its first manufacturing plant in in VW and Chrysler also invested in manufacturing facilities in the country in the same year. In 1986, Ford and Mazda jointly opened a plant in the country. Toyota entered in early 2002, with the Camry and Corolla. Suzuki arrived in in 2005 due to the free trade between Japan and. Chinese automaker FAW was introduced in in January 2008 through Grupo Salinas store called Elektra. GM was the sales leader in until 2009, but Nissan overtook the US carmaker since then. accounted for about 18% of North American automotive production in 2013; this share is expected to increase to 25% by 2020 driven by increased investments by automakers in the country. Automotive production in is driven by the country s free-trade agreements and export push to Europe, the United States and Latin America. The country also boasts of a highly skilled workforce, automotive parts supply chain, and a stable economic and political environment. The country s location makes it an ideal manufacturing base to serve key markets in North and South America. s 44 key free trade agreements (FTAs) with major countries and regional trading blocs enable hassle-free access to almost all major automotive markets worldwide. Currently, the Mexican auto industry boasts presence of as many as 19 automakers who produce both light vehicles (LVs) and medium and heavy-duty commercial vehicles (MH&CVs). Besides, more automakers are considering options for setting up manufacturing facilities in the country to cater to surging vehicle demand in North America, especially in the United States, the biggest vehicle market in the region. Compared with 2012, Mexican light vehicle sales rose about 7.6% year-on-year (y/y) to 1.06 million units in 2013, and from 756,555 units in Light vehicle production came closer to the three million units milestone in 2013, at 2.92 million, an increase of 2% over 2012, due to a recovery in the key US export market. In 2013, light vehicle production more than doubled from 1.49 million units in The new assembly plants built by automakers such as Nissan in Aguascalientes, Honda in Celaya and Mazda in Salamanca in will further increase vehicle production in in the coming years. In terms of annual light vehicle sales in, Renault-Nissan has increased its market share in from 22% in 2009 to 27% in 2013, and has been able to maintain its market leadership since 2009 (see Figure 19 and 20). GM and VW have also been able to maintain their strong sales positions in the country over the past five years. Vehicle parc and density Vehicle parc refers to the total number of registered vehicles in a region or market. Parc is usually used to estimate the capacity within a market or region for aftersales and tells the number of currently owned and operated vehicles. Vehicle density is used to assess penetration rates of vehicle ownership among specific population density, and is expressed in the number of vehicles per thousand of a country s population. Areas with high growth ownership rates are attractive markets for automakers. In vehicles are generally driven and maintained for a longer time in the country. This means that the average age of the Mexican vehicle parc is among the highest in the world. This scenario is unlikely to change as long as a large number of used cars continue to be imported into the country from the United States. At 31.8 million units, s light vehicle parc is much lower than United States million units or Brazil s almost 40 million units, but higher than Canada s 23.1 million units edition IHS

8 Figure 19: NAFTA Light vehicle parc , ,000 Units 200, , ,000 50, Year Canada US Notes: Figures in thousands units for year ended 31 December Source: IHS Automotive Figure 20: NAFTA Light vehicle density Units Year Notes: Figures are number of light vehicles per 1,000 population for year ended 31 December Source: IHS Automotive Canada US 2014 IHS 2014 IHS In 2013, s light vehicle density at 271 units (per thousand population) was much lower than Canada s 658 units and United States 766 vehicles. s low vehicle density makes it an attractive market for automakers. In comparison, Canada s passenger car market is highly mature, with the passenger car density among the highest in the world. Light vehicle sales s light vehicle sales increased 7.7% y/y to one million units in 2013 from 988,000 units in Vehicle demand was boosted by availability of credit and an aggressive push by the OEMs. Year 2013 was a significant year for the Mexican automotive industry considering light vehicles sales crossed the 1 million units mark for the first time after 2008 light 2014 edition IHS

9 vehicle sales had fallen to 756,555 units in 2009 and remained under the one million mark for the following three years. Guido Vildozo, automotive analyst, IHS Automotive, says, Particularly reflecting what we have seen in the United States, there is a close relationship between both the markets as we had a US economic recovery; industrial production in has a high co-efficient with US GDP. And that feeds into the Mexican economy and has helped to boost vehicle demand back to pretty much normal levels at this point of time. Figure 21: Annual light vehicle sales in Units units 1,400,000 1,200,000 1,000, , , , ,000 0 Source: IHS Automotive Historically, while vehicle sales in have not recorded a consistently high growth rate, sales reached the one million units mark in 2004 and remained above that level until 2008, before the global financial crisis caused a steep y/y decline of 26.9% to 756,556 units in 2009 (see Figure 21). One reason for higher sales in 2013 was higher taxes on imports of used cars. Joining the NAFTA opened up the Mexican market to imports of used vehicles from other NAFTA members. As a result, used vehicle imports lured consumers away from new vehicles. To provide a background, Mexican President Felipe Calderón issued an Automotive Decree in March 2008 stating that at least 62.5% of the imported vehicle s components should be manufactured in a NAFTA country. It also said that an imported model had to be exactly 10 years old. In July 2011, Calderón brought new guidelines to regulate the used vehicle imports from the United States. Under the new rule, any car newer than eight years old and assembled in the United States or Canada was allowed to enter without paying duties. Vehicles that were eight or nine years old paid a 10% duty, in addition to a value-added tax. Ten years or older cars paid a 50% duty. With this decree, came into compliance with NAFTA s provisions on imports of used cars. Under the provisions of NAFTA, starting from 2009,, on a staggered basis, had to permit used automobiles from the United States and Canada to enter without restrictions. Starting 2009, could not adopt restrictive policies on imports from Canada or the United States for used vehicles that were at least 10 years old. Every two years from 2009, the age of the used automobiles decreases by two years, so that by 2019 there will be no restrictions on the import of any used car from the United States or Canada. Year s Automobile Dearlership Association, or AMDA, has pushed aggressively to have an equal playing field for new and used-car imports. The Mexican government and AMDA are looking at alternatives to control used car imports; one could be the used cars emissions levels and second is that they meet the requirement of 60% NAFTA content. Dealers are pushing for 60% content being NAFTA built, but local content percentage is almost impossible to measure for a used car. The local content percentage can be measured for a new car because the dealer has the certificate of origin or an export template, but IHS s Vildozo says that they are trying to replicate it for used car imports. is expected to come up with some reasonable means of controlling some of the used car imports to boost demand for new vehicles IHS 2014 edition IHS

10 Address Grupo Quimmco, S.A. de C.V. Torre Quimmco Piso 11 Ave. Roble 701 Col. Valle del Campestre San Pedro Garza García, N.L Tel: +52 (81) Fax: +52 (81) Web: Company Type: Private Senior Officers José Canales, CEO Jesús Barrera Lozano, Managing Director Jorge Martinez, Corporate Communications Executive Carlos Vargas, Head, Purchasing & Materials, Sisamex Antonio Navarro, Head, Manufacturing, Sisamex Products Aluminium Castings, Brake Systems, Casted Gray And Ductile Iron Components, Forged Crankshafts, Forged Front Axle I-beams, Front And Rear Axles, Molds And Fixtures, Precision-machined Crankshafts, Trailer Axles Plants [8] Grupo Quimmco Axles, crankshafts & moulds Grupo Quimmco is a group of companies with businesses in the automotive components, chemicals and construction industries. In automotive the company supplies axles, crankshafts and aluminium casting components. The company generates 40% of its sales from exports. Grupo Quimmco was founded in 1994 and is based in Monterry (). The company organises its business in two divisions : Metalmechanics and Chemicals. The Metalmechanics Division is the group s biggest operating division. It manufactures components such as axles, brake and driveline components, forged i-beams and crankshafts. It also manufactures grey & ductile iron castings, aluminium castings, and moulds, fixtures & cutting tools apart from providing machining services to the automotive industry. The group s other two divisions have their manufacturing bases in. Quimmco production base is largely located in while the company supplies to several OEMs and component suppliers in the NAFTA region. The company operates seven companies under its Metalmechanics Division. Seven of the eight companies of Quimmco s Metalmechanics Division have their manufacturing bases in with the only exception to it being GreenEville Casting, which operates a manufacturing unit in Greeneville, Tennessee (US). The company is engaged in the foundry & machining of aluminium cylinder heads and other components to cater to the North American market. The Metalmechanics Division caters to both automakers and suppliers. The Division s major customers include Meritor, Axle Alliance, Chrysler, CNH Global, Daimler Trucks, GM, Hendrickson, John Deere, Mack Truck, Renault Truck, Teksid, Volkswagen and Volvo. The group has around 5,000 employees Corporate Strategy Grupo Quimco is following a three-prong strategy to ensure its growth. The company is focusing on facilitating organic growth, improving operating efficiency and identifying new business opportunities. The company is investing in its current business to further strengthen its market position. Grupo Quimco is also concentrating on improving manufacturing efficiency and reducing costs to improve its profitability. In addition, the company continues to look for new areas of growth. Grupo Quimco leverages its expertise in its existing three core businesses of automotive, chemical and construction to enter new markets, which offer high growth prospects. Presence in Grupo Quimmco s Metalmechanics Division operates seven companies in. In 1990s, the Mexican government sold its ownership stake in CNH Global to Quimmco. The company later entered into a settlement agreement with New Holland NV (Fiat subsidiary with stake in CNH) to restructure the shareholding in CNH Global, moving from 60:40 to 50:50 ratio. In January 2003, Quimmco and Meritor restructured their Mexican joint-venture company which manufactures axles, brakes and related components for commercial vehicles. The company located in Monterrey, which was earlier called Dirona SA, was renamed Sistemas Automotrices de México. In 2008, Grupo s subsidiary Blackhawk de made an USD1m equipment expansion, adding a 65-tonne holding furnace, CNC automatic grinders and new moulding handling equipment which helped to provide greater flexibility in lot sizes and grades of ductile iron, in turn, enhanced productivity. Quimmco operates the following affiliates in : Sistemas Automotrices de México (Sisamex) is a 50:50 joint-venture of Quimmco and Meritor. The company (previously called Dirona SA) manufactures axles, brakes and related components and assemblies for medium and heavy-duty commercial vehicles. Sisamex operates two production plants in Escobedo, Nuevo Leon employing a staff of around 2,000. The company s clients include Freightliner, Kenworth, Mercedes-Benz, Daimler Trucks, John Deere and Volkswagen. The company also supplies to tier one suppliers such as Dana and Meritor. The company caters mainly to the Truck market (accounts for 70% of 2010 sales), Buses (5%) and other applications (25% of 2010 sales). Sudisa is a wholly-owned subsidiary of Sisamex. The company is a leading manufacturer of non-traction axles and components for heavy-duty trailers in Latin America. Sudisa supplies its products to OEMs and independent trailers and semi-trailers manufacturers. The company sells its products, through Meritor, to the original equipment (OE) and aftersales markets. Production plant of Sudisa is located in Guadalajara, Jalisco. The company has approximately 145 employees. Manufacturera de Cigüeñales de México (Macimex) is a company engaged in precision-machining of crankshafts. The company machines casted and forged crankshafts for engines and braking systems. Macimex operates two manufacturing plants in, one in Tenango del Valle, Estado de and the other in Ramos Arizpe, near Saltillo, Coahuila. Macimex has installed capacity of over two million crankshafts per year. The company caters to customers located in North America, South America, Europe and Asia, exporting 50% of its production. The company generated 85% of 2010 sales from automotive market, 10% from agricultural and the remaining 5% from others. Customers

11 include OEMs such as Chrysler, Ford, GM, Daimler, John Deere and Nissan. The company currently employs 950 people. Forja de Monterrey is a heavy forging company located in Escobedo, Nuevo Leon. The company is engaged in forging of components used in production of front axle i-beams for heavy-duty trucks and crankshafts for diesel and gasoline engines. It serves markets such as heavy truck (accounts for 60% of 2010 sales) and passenger vehicles (40%). Forja de Monterrey s mainly supplies to the NAFTA market and its customers include Meritor, Axle Alliance, Sisamex, Mack Trucks, Volvo Trucks, Renault Truck, John Deere and GM. The company presently employs around 300 people. Blackhawk de is a foundry of grey and ductile iron for the production of castings for use in heavy duty trucks and agricultural tractors. The company supplies to OEMs and component suppliers in North America. In 2008, the company started exporting its products to Europe and South America. Blackhawk de operates one manufacturing facility in Monterrey, Nuevo Leon. The company employs 200 people. The company generated 80% of 2010 sales from heavy truck market, 15% from farm equipment and 5% from others. Blackhawk s main customers are Dana, Volvo, John Deere, Meritor and Auburn Gear. Quimmco Centro Tecnológico manufactures moulds and fixtures for the foundry and forging industries. Quimmco Centro is located in the city of Saltillo, Coahuila. The company was incorporated in the group in 1997 and caters to clients including GM, Spicer, American Axle, TRW, Ford, Jaguar, Castech and Brembo Rassini. The company currently employs 190 people and target markets include heavy-duty truck and auto (accounts for 90% of sales) and other applications (10%). CNH de is a 50:50 joint-venture of Quimmco and CNH Global, a subsidiary of the Fiat Group. The company assembles and markets agricultural tractors in. The company has an extensive dealer network with more than 210 agricultural and 120 construction machinery points of sale throughout. The company exports to more than 25 countries around the world, including the US, Canada, Central and South America, Africa and Asia. Its production plant is located in Queretaro employing about 1,500 people. The company caters to Agricultural machinery (accounted for 70% of 2010 sales), construction equipment (12%) and Service and parts (18%). Financial Overview For the fiscal year 2010, Grupo Quimmco reported total sales of USD700m and earnings before interest, tax, depreciation and amortisation (EBITDA) of USD60m. During the financial year the company made capital expenditure of USD296.5m over USD282.7m in Grupo Quimco is a privately owned company and therefore it does not publish details of its financial performance. Financial Figures - displayed in $ Year Net Sales [m] Operating Income [m] Net Income [m] R&D Expenditure [m] Employees Outlook Grupo Quimmco has made a significant presence in mainly in the automotive and chemical division market. With strong presence in the automotive business, which accounts for nearly 95% of its sales, Grupo Quimco is well positioned to benefit from the high growth prospectus of the Mexican automotive industry. The local automotive industry has been experiencing strong growth in investment from the global automakers who want to use as a low cost manufacturing hub to cater to demand in North and South America. Vehicle production in is forecast to reach 4.2 million units by This presents tremendous growth opportunities for the local suppliers like Grupo Quimmco in coming years.

12 Manufacturing Plants SISAMEX Address: Carretera Monterrey Colombia km6 General Escobedo Nuevo León León C.P Tel: +52(81) Web: SISAMEX - Carretera a Laredo Address: Carretera a Laredo #203 Norte Antiguo Ejido a San Nicolás de los Garza General Escobedo Nuevo León Plant C.P SUDISA Address: Calzada de las Lomas No. 205 Col. Álamo Oriente Tlaquepaque Jalisco Jalisco Jalisco Tel: +52(33) Fax: +52(33) Web: Forja de Monterrey Address: Carretera Monterrey Colombia km6.5 General Escobedo Nuevo León México. Nuevo León Nuevo León Tel: +52(81) Fax: +52(81) Web: MACIMEX Tenango Plant Address: Km 38.5 Carr. La Marquesa-Tenango, Tenango del Valle, Estado de Estado de Estado de Tel: 52 (722) Web: MACIMEX Ramos Arizpe Address: Morelos Sur 605 Ramos Arizpe Ramos Arizpe Coahuila Coahuila Tel: 52 (844)

13 Blackhawk de México Address: C. Villa de García Km A Santa Catarina Nuevo León. Nuevo León Tel: +52 (81) Fax: +52 (81) Web: