Carmakers and the metals supply chain respond to consumers and investors by accelerating output south of the border

May 2017 - Automotive production in Mexico, measured in units built, grew by more than 71 percent between 2007 and 2016, with output surpassing 3.65 million vehicles last year.

“The automotive industry has [become] a growth engine of the country’s economy. This sector provides more than 3 percent of the national gross domestic product and 18 percent of the manufacturing GDP, generating more than [U.S.] $52 billion per year, and it is responsible for around 900,000 direct jobs,” ProMexico, a government agency, said in a 2016 report. Mexico is the seventh-largest producer and fourth-largest exporter of light vehicles on a global level.

The country’s auto industry is indeed global, with American, European and Asian manufacturers running full assembly operations, engine manufacturing and stamping plants, and parts factories because Mexico also exports automotive parts all over the planet.

Fiat Chrysler Automobiles builds Fiat models at its assembly plant in Toluca, Mexico. FCA runs six major plants in the country and owns several subsidiary suppliers operating there.

“If you look at projections for the next five to eight years,” light vehicle production will rise “from 3.7 million to 4.8 million vehicles annually,” says Olaf Voss, president of thyssenkrupp Materials de Mexico S.A. de C.V. “This is a growth path the whole industry has been following.”

Voss, who has been working within the Mexican auto industry and its supply chain since 2001, says thyssenkrupp “works for all the big OEMs located here: The Detroit Three, Volkswagen and Japanese companies like Honda, and a large variety of Tier I suppliers.”

The Germany-based producer and service center network is quoting with BMW in Mexico right now. “We have a good relationship with them in Europe. BMW is using a lot of aluminum,” says Voss. “Daimler is a big customer of ours down here. We have the whole body in white with Daimler for its first platform, and they want to bring even more vehicles into Mexico.”

Shipping back and forth

AK Steel Corp., Middletown, Ohio, expanded its tube production capacity in Mexico last year. “We are now producing carbon and stainless tubing of the highest quality in Mexico,” CEO Roger Newport told investors. “This expansion helped us preserve jobs in America, as we provide much of the steel substrate to this tubing facility from our steel operations in the United States.”

ArcelorMittal’s Lakshmi Mittal, chairman and CEO, says his company participates in the Mexican auto industry primarily through its Calvert, Mississippi, steel plants. “We bring in slabs from Mexico, process them at Calvert and then ship [sheet steel] back into Mexico. Calvert’s capabilities help us improve our presence in the automotive universe in Mexico.”

Mark Millett, president and CEO of Steel Dynamics Inc., Fort Wayne, Indiana, views Mexico “as a strong marketplace. We shipped 200,000 tons into Mexico last year, and the intent is to increase that to  about 400,000 tons. We are confident that’s going to happen,” he told shareholders during a recent earnings call.

The first test body-in-white for Volkswagen’s Tiguan was assembled last June. The 232,283-square-foot Puebla, Mexico, plant launched full production of the model during first-quarter 2017.

New metal plants

Nucor Corp., Charlotte, North Carolina, has formed a 50-50 joint venture with JFE Steel Corp. of Japan to build and operate a $270 million plant in central Mexico to make galvanized steel sheet for the nation’s automakers and their suppliers. The partners cited a forecast that vehicle output in Mexico would rise to 5.3 million units by 2020. Operations are expected to launch during the second half of 2019. 

In November, the voestalpine group, an Austrian metals producer and metalformer, announced it had won a contract valued at U.S. $600 million with a major carmaker. It didn’t name the customer, but said the contract prompted a €30 million investment, the bulk of which will be spent on building a components manufacturing plant in Aguascalientes, Mexico.

Citing forecasts similar to those seen by other metals companies, voestalpine says Mexico will advance to become the fifth-largest vehicle producer by 2020. 

Worthington Industries Inc., Columbus, Ohio, reported March 30 that its Tailor Welded Blanks subsidiary, a joint venture with China’s Baosteel, began full production of lightweight hot-formed tailored blanks in Puebla, Mexico, during the previous quarter.

Governor Rafael Moreno Valle Rosas (second from right) attends the opening of a thyssenkrupp Materials de Mexico automotive supply plant in Puebla alongside thyssenkrupp executives.

Feralloy Corp., a toll processing subsidiary of Reliance Steel and Aluminum Co., Los Angeles, has seen strong growth by servicing automotive customers in the U.S. and Mexico. “Our new [Acero Prime] facility in Monterrey, Mexico, which commenced operations in July 2016 to support automotive activity in that area, is already running at close to capacity, in line with our expectations,” COO James Hoffman told shareholders in mid-February.

Processing lines

Machinery builder Red Bud Industries, Red Bud, Illinois, has installed numerous metal processing lines for customers supplying the automotive industry in Mexico. “We sell a lot of slitters down there, many of which are for automotive,” says Dean Linders, Red Bud’s vice president of marketing and sales, who visits Mexico frequently. 

One major customer that runs automotive material has installed four slitters in just the past five years, he says. “A lot of new auto plants are going up,” Linders continues. As a result, Red Bud has clients that have filled up their line capacity in record time, then turn around and order a second line in order to double their output. He cited one new slitting line order in the first quarter while others are pending. He notes that the competition is keeping busy, too.

“What makes Mexico competitive is the skilled people, the infrastructure for the auto industry, and they have 45 trade agreements with countries all over the world,” says Voss at thyssenkrupp. “Eighty-five percent of the vehicles Mexico exports end up in the U.S. and Canada, which is nearly 70 percent of total production.” The industry is evolving with the mandate for higher fuel economy, which ties to lightweighting. Thyssenkrupp has purchased a dual-phase blanking line that will seamlessly process steel and aluminum. 

“We installed the new blanking line because we see the shift in materials,” says Voss. “The old times of all-steel [vehicles] are gone, but I doubt it will become all aluminum. I think the future is mixed materials. We will watch what the industry is doing and where car development is going.”

Next generations

Kia Motors opened an assembly plant in Pesqueria last September, representing a $3 billion investment by the carmaker and its suppliers. Kia expects the plant to be operating at full capacity of 400,000 units using three shifts by the end of 2018.

Ford Motor Co. canceled plans for a $1.6 billion plant in San Luis Potosi, Mexico, in January, however, supposedly under pressure from the then-incoming Trump administration to invest in U.S. factories. Nonetheless, the company said it would build its next-generation Focus at an existing plant in Hermosillo, Mexico.

“Due to the political situation in the U.S.,” Voss says, some of the most bullish forecasts were “dampened a little. But only one American OEM backed away.” Japanese, Korean, German and Italian carmakers are under no such political constraints. MM