Mexico's car industry revs up By Katy Watson

BBC Mexico and Central America reporter Published duration 21 May 2015

Before I start, I must admit a personal interest. I have spent the past few months trying to buy a car here in Mexico, chatting to car dealers and friends about the best offers to be had.

It is never easy navigating this sort of thing in a foreign country.

But my research has proved fruitful. Not only have I been able to purchase some wheels, but in doing so I have learned a thing or two about one of Mexico's most successful industries - one that experts say brings in more foreign currency for Mexico than its oil.

Value for money

image caption Staff at the Aguascalientes plants are in buoyant mood

I took a flight to Nissan's manufacturing site in Aguascalientes, an hour from Mexico City. Greeted by hugely proud employees in company jackets and baseball caps, I was bombarded with statistics about the company's success.

One in four cars made in Mexico is a Nissan. And one car is made every 38 seconds at the plants in Aguascalientes. Evidently Nissan is enjoying a good ride at the moment.

Nissan Mexicana's vice-president of manufacturing, Armando Avila, says Mexico is a market that makes sense geographically. With the world's largest car market to the north and all of South America below Mexico, it gives the company flexibility, he says.

But as well as geography, Mexico has a reputation for a value-for-money workforce.

image caption Nissan's Armando Avila says Mexico benefits from its geographic position

According to the US-based Center for Automotive Research (Car), wages can be as little as an eighth of what they are in the US. So is that what drives car brands to relocate?

Eduardo Solis, the man in charge of Mexico's Automotive Industry Association, does not think so.

"If these investments only came to Mexico for cheap labour, then we would have seen important investments in Guatemala, Honduras, El Salvador, Costa Rica and Nicaragua," he tells me. "Not one of these countries have one single automaker today."

Mexico car industry in numbers

In the first half of 2014, Mexico produced about 1.6 million cars, up 7.4% on the same period a year earlier

One in four cars made in Mexico is a Nissan

More than 80% of cars manufactured are exported

Foreign car makers, including Toyota, Ford, BMW and Audi have announced multi-million dollar investments in the country

There are about 22 million second-hand cars in Mexico, mostly imported from the US

Billion-dollar investments

Mexico has done well at training its workforce - not just in manual labour, engineers graduating from Mexican universities are also highly skilled.

image caption The Nissan plant makes one car every 38 seconds

According to Luis Lozano, who heads the automotive team at PwC, investment in human resources and the trade agreements with more than 40 countries have helped Mexico tremendously.

The numbers speak for themselves. Car says that so far this year, $5.5bn (£3.5bn) of investments have been announced, including from Toyota and Ford . That, says Car, is higher than the investments made in the US.

But it is not just the mass-market car makers who are building their businesses here.

Audi will be moving the production of its Q5 SUV from its headquarters in Germany to its plant in Mexico - a move that it says has been made easier by the free trade agreements on offer here.

Low demand at home

But as is so often the case, there is a downside to all of this success. Amid the rising production figures - the industry grew by 10% last year - demand for cars here in Mexico is finding it hard to move up a gear.

image caption Most cars manufactured in Mexico are exported

Fewer than one in five cars made in Mexico is sold in Mexico. The rest are exported. In fact, at the Nissan plant we visited, 90% of the cars were being sent to the US. The other 10% to Brazil.

Analyst Armando Soto, of Kaso & Associates, says the demographics explain why.

"If you look at spending power, more than 50% of the population find it difficult to buy a new car if they don't have an adequate source of financing," he says. "But there's another problem - we have a huge part of the labour force which works in the informal economy, and they can't access financing either."

Junk cars

The solution? Second-hand cars it seems. But not just any old cars.

Since 2006, when then-President Vicente Fox legalised the imports of second-hand cars from countries such as the US, more than seven million cars have entered Mexico. In total, there are about 22 million used cars in the country.

The imported cars are what critics call garbage or junk cars - often more than 10 years old and not roadworthy in the US, they are sold in bulk at auction and come to Mexico for a new lease of life because there are fewer restrictions for cars on the roads.

image caption Wages in Mexico are much lower than in the US

While some would say it gives poorer people a chance of car ownership, Eduardo Solis' view is that they have hugely damaged domestic sales, and his organisation has been fighting to tighten the rules over imported cars.

Back at the Nissan factory at Aguascalientes, production continues.

There may not be much call to sell these cars on Mexican soil, but this an industry that is revving up. They see this as an opportunity - there will be plenty more people to sell to in the future.