Market Driven

How has Ford performed in the Mexican market recently?

We have been present in Mexico for close to 90 years, and have become one of its largest exporters. I would describe the performance of Ford in Mexico as outstanding. Naturally, that has much to do with the massive investments made over the course of recent years, such as the expansion of the production plant in Hermosillo, which grew from 56 vehicles per hour to 62 vehicles per hour—that means an annual capacity of 380,000 units. Since 201, we have also invested in the launch of the new Fusion model, the opening of a new engine plant in Chihuahua, and the refurbishment of the Cuautitlán assembly plant for the launch of the new model Fiesta. We have been growing our engineering capacity in Mexico by expanding the Product Development Center headcount from 50 to near 1,000 engineers by the end of 2013. Moreover, we are undertaking design work for the broader Ford universe. These achievements have granted us a wholly different status. The new investments provided such scale that, in 2013, we became the country’s second largest exporter. We are keen to sustain this momentum, but of course our competitors have not been idle. Some that were once solely importers are today planning, or are already building, production facilities in Mexico.

What are the competitive advantages of the Mexican market?

I would identify them as highly competitive labor cost and logistics, as well as proximity to the US, which is the second largest market after China. A number of carmakers have also established production bases here. This makes for a unique combination, rendering Mexico virtually unrecognizable from even a decade ago, when companies were entering solely for the promise of cheap labor. In general terms, importing components and assembling vehicles here for shipping to the US was previously the name of the game. However, growth in production volumes made investments by suppliers and manufacturers a workable proposition, thus providing the scale needed to also make financial sense. Numerous companies therefore established a presence in Mexico. Meanwhile, as part of a broader infrastructure drive to advance the nation, the government has launched numerous institutions of higher education with the aim of developing Mexico’s indigenous skill base; an investment in the future of the nation. And so today we have skilled labor prepared to tackle the demands of business. That’s why Mexico has gone from being a basic car manufacturer to an engineering and design workshop. The rules are changing.

What examples of Ford’s innovative spirit would you care to highlight?

Our product development center is underpinned by innovation. We have a very aggressive target for 2014, in which we plan to register at least 50 diverse patents with the US patent office, ranging from tires to upholstery. The good news is that Mexican engineers themselves are behind these innovations. The average age at our product development center is 28 years, and we have been hiring approximately 150 people a year. These skilled individuals are tasked with making our components better, lighter, simpler, and faster. Ford of Mexico’s total headcount stands at around 8,400.

What are your production plans?

Hermosillo will remain the key source of the Fusion and MKZ Lincoln models for the US market. We are already exporting the Fusion model around the world. China is poised to commence importing the MKZ Lincoln by the second half of the year, and will become an important destination for our products due to its growth story. Lincoln is a low-volume product, but nevertheless is important for us for being the first product be launched in China. We will raise the production of the four-liter engine to 450,000 units and the diesel engine plant to over 180,000 units a year, totaling over 600,000 engines per year at our Chihuahua plant.

Do you see Mexico as a logistics platform?

The transportation infrastructure in Mexico is reasonably well developed, and the government continues to work on urgent improvements. Nevertheless, more improvement is required at our ports and on the railroad network, which would in turn boost investor appetite.

What is the focus of your growth strategy?

We provide engineering services to Europe, China, and the US, among others, and boast an excellent delivery track record that has supported our growth strategy. Another element is that numerous suppliers have established themselves in Mexico, a fact that we take full advantage of. Having purchased $500 million worth of production materials some years back, we closed 2013 with a little over $11 billion in related purchases. Some of those components are for the local market, while the remainder are destined for export. Mexico today accounts for 14% of Ford’s global purchases, yet we expect the number to increase in light of the benefits on offer here. The added scale will translate into improved competitiveness, potentially lower costs, and better quality. The activity of new ventures established in the country, in addition to volume growth, will provide further economies of scale that will favor investments yet to come in a virtuous circle. Meanwhile, we continue to scope out opportunities for marked expansion over the course of the next four to five years. And while we play our cards close to our chest, we are pursuing an aggressive growth plan in terms of product development. The plants continue to be upgraded in line with our general advancement, while new products and models are strategically launched.

How do you envisage the future performance of the sector?

We remain committed to Mexico, and therefore plan to sustain our prominent role in the sector within the export and local markets.

© The Business Year – May 2014