How to become less dependent on the United States

The Mexican automotive industry depends almost exclusively on the United States, and as we all know, no dependence is healthy. Around 80% of the vehicles manufactured in this country are shipped to the northern neighbor, and if a flu from them causes pneumonia for Mexico's economy, for the automotive industry it almost means having to seek an agreement with some cemetery.

The two times we were most threatened were right when the current president was in charge of the United States, but now we have a double threat: our neighbors and the Chinese.

The United States is a threat because it can, depending on its leader's mood, impose whatever tariffs it wants and bankrupt the industry and its suppliers, as exaggerated as this may seem. The Chinese are also a threat because they do the same thing as us—produce for export—but they do it in greater numbers and at a much lower cost. Are we lost, then? Not necessarily.

There are at least three countries that have designed strategies to strengthen their automotive industries. The first was Japan, which after World War II, more precisely in 1949, created the category of "kei cars," vehicles that measured a maximum of 2.8 meters in length and had engines that could not exceed 100 cubic centimeters for two-stroke vehicles or 150 cc for four-stroke vehicles. What the authorities wanted was not only to offer affordable transportation but also to strengthen an industry that generated many jobs. Today, 76 years later, kei cars still represent between 30 and 40% of car sales in Japan. And these are cars that are not exported; they are sold exclusively within Japan.

Another country that did so, much closer to Mexico both geographically and in terms of development, was Brazil.

In 1993, South Americans decided to lower taxes on vehicles using engines with a maximum displacement of 1.0 liters. The idea was similar to that of Japan: to lower the cost of some vehicles for the lower-income population and boost the automotive industry, which had to adapt to the law and to the population's search for new vehicles they could finally afford.

Copy and create

The strategy worked, and many factories arrived or adapted to compete for the largest share of a market that today stands at 2.63 million (the record is 3.9 million); 42% of this total has a 1.0-liter engine, the majority now with turbochargers.

India has also implemented its program, and even the Chinese are having to adapt. India imposes tariffs on imported vehicles that can reach 100 percent. They also offer tax incentives to companies that produce in India, and the higher the local content, the greater the incentive. This prevents plants from being established in India solely on a CKD basis, meaning they only assemble but do not manufacture parts locally. MG and BYD do have plants in India, but the former claims to have 65% to 70% local content, while BYD only has between 15% and 20%.

Cleverly, India calculates local content and grants incentives based on the value of the parts produced, not their quantity. India also charges 15% more taxes if the car is longer than four meters.

None of these measures could apply to Mexico today, since its entire industry is based on exports to a market that isn't interested in small cars, much less small engines. But implementing some of these measures could lead the Chinese to finally start manufacturing here, instead of just promising without saying when.

China also has its own measures and penalizes cars with engines of 1.6 liters or more, which is why we see that practically all of its cars use 1.5-liter engines.

If Mexico decides to set limits on engine size, horsepower, or car length, it will force part of the industry to develop engines for the local market, which could be exported to Latin America or the Middle East, for example. Even for Europe, leaving aside this dependence on the Americans, which—and we're seeing this for the second time—leaves an industry that contributes almost 4% of GDP, close to 20% of manufacturing GDP, and generates more than a million direct jobs so vulnerable. We all make mistakes. Sometimes we even repeat them, but making them three times is already serious. And we're doing it.

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