Mexico’s booming auto parts business - Mexico Institute in the News

Mar 07, 2013
By

Economist Intelligence Unit

Not all is rosy in the industry, however. Some European manufacturers have been apprehensive about starting operations in a nation that has been shaken by violent drug wars in the past six years. Because of the well-publicized bloodshed, Audi reportedly considered other locations before settling on its initial plan for a new plant in Puebla.

Old Mexico hands have a more measured understanding of the violence, which tends to fade in one state while flaring up in another. Right now, the violence is concentrated largely in the northeastern states of Tamaulipas and Nuevo León, where competing drug cartels are fighting for dominance in the illegal drug trade.

“The businesses that are affected by security issues are generally the small businesses, the mom-and-pop operations,” says Christopher Wilson, an economist at the Washington-based Woodrow Wilson International Center for Scholars’ Mexico Institute. “If someone is going to try to extort a business, they’re not going after a company like Audi that has layers of protection.”

As for the thousands of medium-sized operations – the maquiladoras, as foreign-run assembly and industrial plants are called – most have settled in secure industrial parks. There are occasional reports of truck hijackings between Mexico’s industrial centers and the U.S. border. Yet few foreign companies have forgone Mexico’s array of business advantages to relocate elsewhere.

The effects on larger businesses are more psychological than material. Last year, the American Chamber of Commerce in Mexico surveyed more than 500 companies doing business in Mexico and found that the majority were paying significantly less for security there than in the U.S. The survey found that 45% of the companies used less than 2% of operating costs on security and 30% used 2-4%, while the average in the U.S. is about 7%.

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