TBY talks to Ernesto M. Hernández, President & Director General of General Motors Mexico, on the car giant’s local sales and manufacturing for export.
TBY What are the main pillars of the GM production system in Mexico?
ERNESTO M. HERNÁNDEZ At GM Mexico we rely on standardized work, and work under GM’s global quality guidelines. Mexico represents one of the best examples of the standardization of processes and the work environment. In addition, we work under the “lean concept,” which means we have very small structures and we apply automation just in the processes where it is absolutely necessary. This organizational concept gives our company great advantages in terms of cost, quality standards, and delivery. In addition, we put strong attention on our human resources. We make sure our staff work in a safe environment, and we also pay attention to recruitment processes, training programs, and on ensuring we attract, develop, and retain highly skilled personnel. We have also implemented other initiatives here in Mexico that involve plant personnel, making the plants strong participants in their local communities.
How extensive is GM’s production capacity in Mexico?
Our production capacity in Mexico is 605,000 vehicles per year, 1.2 million engines, and around 1 million transmissions. We have four manufacturing complexes in the country, with different combinations of engine, foundry, assembly, stamping, and transmission plants. This organization is very flexible and allows us to maintain high levels of production on all of our lines. We continuously monitor market conditions to improve or grow production levels.
What main fundamentals will characterize your plan to increase production in 2012?
Our investment plan to increase our production capacity is a combination of three factors. The first one is new capital investment to improve our production quality and standardization in terms of processes. The second is to fund new projects, and the third is to constantly analyze line rates to make sure we are always responding to market needs
What are GM Mexico’s main export markets, and what market share do your vehicles have on the local market?
Around 70% of our production goes to the US and Canada. We also export to South America, and to a lesser extent to other regions, depending on specific requests. The rest goes to the domestic market. We hold a 17%-18% market share in Mexico with our portfolio of both imported and domestic vehicles. The market share is obviously the output of something you do, and this performance is a combination of many factors, including ability to respond to demand fluctuations and having products that can compete in the marketplace in terms of price, technology, quality, and other demand expectations.
How did the global economic crisis affect your product lines, and what lines are currently produced in Mexico?
The global financial crisis has had a deep impact on the US economy, on the automotive industry, and consequently on GM Mexico. In that regard, we have had to make difficult decisions and adjustments. We redesigned our commercial strategy in terms of product offering in the Mexican market, and we decided to eliminate two of the six brands that we had competing in the market. Today, we offer Chevrolet, which is our core brand, Buick, GMC, and Cadillac. We stopped producing Pontiac and Hummer. Regarding specific models, affordability is what leads the highest demand in Mexico, and we compete for this portion of the market with vehicles like the Aveo, Sonic, Spark, Matiz, and Cruze.
What potential does Mexico hold as a production base?
To rank the production base of a country, several factors must be taken into consideration. These are principally (1) access to distribution centers, (2) government and community relations, and (3) market coverage. According to these factors, Mexico is in a good position. Nevertheless, there are some changes that I would like to see happening, but unfortunately they do not depend on GM but on the general environment where vehicles are being produced. We would like to see better distribution centers, and better infrastructure that can assist us in our operations. Mexico has the potential to become one of the most competitive countries in terms of manufacturing competitiveness, but it still needs some improvement.
What challenges does the automotive sector face in Mexico?
Every industry is linked to the performance of the national economy. Obtaining a good output is a mix of several factors. Mexico’s economy, and especially domestic demand, is also impacted by exogenous factors, such as US economic conditions and international prices for components and raw materials, which shape expectations on pricing and demand. These are some of the factors that can affect the performance of the automotive industry in this country. Around 70% of our production goes to the US. If the US economy is facing a recession period, it will obviously affect Mexico’s production activities.
How important is the automotive segment for the Mexican economy?
Putting aside the oil and gas industry, the automotive industry is the primary driver of Mexico’s economy. Its magnitude is critical in terms of employment generation, exports, creation of human wellbeing in society, and generation of taxes. The automotive industry is bringing technological innovation and the taxes positively benefit government revenues, which are then spent on improving living standards. The automotive sector is a big player in Mexico’s economy and it will play this role for a long time, contributing even more to the welfare of the population and the economy.
What main trends did you identify over the last few years in the automotive segment in Mexico?
First of all, I have to say that the Mexican consumer is demanding and looking for the best alternatives, but is always concerned about the price and affordability of a product. The automotive industry in the country is moving to meet the needs of this price-conscious customer base, and it is producing vehicles in concert with the capability of consumers. In Mexico, basic transportation is one of the most important factors, and for this reason automotive producers are basically focused on this segment. Another trend is the growing concern over the use of fossil fuels and its impact on the environment. The industry is moving to adopt new technologies that can mitigate this concern. There is also an augmenting concern over security and safety, especially from a regulatory point of view.
What will constitute the most effective actions that could improve the country’s industrial performance?
I believe that all participants in the automotive industry should align their agendas. The manufacturers, dealers, the government, and all components of the supply chain need to come together with common themes. This will ensure that we are speaking the same language. If we can improve the output and quality of the automotive industry, and make integrated efforts with the different levels of government in terms of regulations and incentives, as well as with suppliers and dealers, we will all participate in the generation of employment, conversion of the vehicle park, and in general, the improvement of the economy.
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