The first cars began arriving in Mexico City in 1903 and quickly took hold in the market, growing to nearly 1,000 units in just three years. Seizing the opportunity, Mercedes-Benz and Renault both established facilities for local assembly in 1910 and focused on supplying vehicles to the Mexican government. At the end of the Mexican Revolution in 1921, Buick began operations in Mexico as well, becoming the first officially established automobile producer in the country. The Ford Motor Company entered the market four years later and remains the longest-running automobile brand in Mexico today.
With the idea of developing a national car industry and creating jobs and technological know-how, the government started passing regulations, making it much stricter for foreign companies to operate in Mexico's automobile industry. These laws forced companies to assemble their vehicles in-country, using a combination of local and imported parts. Faced with an economic downturn and being unable, or unwilling, to comply with the new laws, several manufacturers left; however, a number of the larger companies remained, including Ford, General Motors, Chrysler, Renault, Volkswagen, and Datsun.
In the 1990s, Mexico's economy started to pick up again, which provided a much-needed boost to the automotive industry. Encouraged by the rapid growth and new FTAs, most of the previously retired car manufacturers, including Peugeot and Mercedes-Benz, reemerged once again in Mexico. Also capitalizing on the economic improvements, makers Honda and Porsche entered the market for the first time as well. Currently, there are nearly 400 different car models supplied by around 42 makers with official representation in Mexico, making the country one of the most diverse automotive markets in the world.
Mexico today holds 12 FTAs with 44 countries around the world. These, in combination with the cost effective land and labor, and the proximity to the US market, are making Mexico an increasingly attractive place for manufacturers to set up shop. As a neighbor to one of the biggest markets in the world, Mexico's production plants need to be capable of handling both domestic and international demand.
Though Mexico is the largest supplier of automobiles to the US, the vehicles produced in Mexico don't only go north; there has been increasing demand from South American markets as well, positioning Mexico right in the middle of the action. Additionally, roughly 63% of cars made in Mexico are exported to the US, while approximately 45% of the exports are made by manufacturers with European or Asian headquarters. Mexico recently signed an agreement with Japan, allowing companies like Mazda to bring in cars duty-free. As the world's eighth-largest producer of vehicles and fourth-largest automobile exporter, some experts have suggested that Mexico's economy could eventually even surpass Brazil's in size, as the country's annual growth is expected to increase at a rate of around 4.5% over the next decade.
In 2011, Mexico's auto industry received about 6% of the country's FDI, and in April 2013 auto production jumped nearly 16% compared to the same month a year before. With the emergence and reemergence of several carmakers and plants, it seems like the only way is up for Mexico's output. In addition to the major players already present, Volkswagen, Honda, Mazda, and Nissan have each announced investment plants for Mexico. In fact, over the past five years, investments by car manufacturers with Mexican establishments have reached nearly $19 billion, with Chrysler, Daimler, Ford, Volkswagen, General Motors, Nissan, and Mazda being the major contributors. As more and more players get set to enter the market, the future looks bright for the Mexican economy, and its automotive sector in particular.
Recent announcements by several leading automobile manufacturers indicate a healthy growth and resurgence of Mexico's automobile sector. As General Motors and Ford continue to invest heavily in their Mexican operations, other venders have declared their intention to enter as well. Recently, Volkswagen announced plans to build Audi models in Mexico, with officials saying that a $1.3 billion plant will open in mid-2016 and will eventually be the only source globally for Audi Q5 SUVs. Also in 2013, Honda announced its intention to construct a $470 million plant in Guanajuato, its second in the country. Opening shortly in Aguascalientes will be a second Nissan plant, representing around $2 billon in investment. Nissan currently exports to 115 countries from Mexico and is the market leader in sales, production, and exports.
In addition to foreign makers, Mexico has also been contributing its own vehicles as well. Though purchasing power in Mexico has historically been suppressed, forcing locals to import cheap used cars from the US instead, the Mexican government has been trying to change this by implementing new regulations in hopes that it will spur the development of a strong domestic player.
Domestic auto manufacturers have been relatively scarce in Mexico, in comparison to the large number of foreign makers in the country. However, with the labor force becoming increasingly skilled and educated, this is starting to change. Mexico first started assembling its own domestic vehicles in 1959 in the form of a small truck called the Rural Ramírez produced by the Ramírez Truck Company. In May 2007, Mastretta Cars first announced the creation of the MXT, the first Mexican sports car ever built. Production began in January 2011, with the first units delivered by April of the same year. In 2010, Mexican bus maker, Cimex, announced that it was expanding into the passenger vehicle field by developing a pickup truck called the Conin, which became Mexico's first domestically produced pickup truck when it entered into production in 2013.
With global climate change and increasing costs of fuel, profit margins on automobile sales have taken a hit and spurred companies to rethink their strategies when it comes to alternative fuels. Reaching the one-million-passenger-sales-per-annum milestone in 2005 further encouraged carmakers to offer alternative-fuel and hybrid vehicles. Additionally, the introduction of strict regulations in Mexico City that restrict driving on certain days puts further pressure on automotive companies to ditch diesel-fueled vehicles and look to hybrids or more fuel-efficient cars. Going forward, alternative-fuel or hybrid vehicles could become a major focus for several market players.
Around 42 manufacturers supply the Mexican market with around 400 different car models, making Mexico one of the most well-served markets for vehicles in the world. In 2012, the light automotive industry in Mexico was worth over $700 million, which represented 5.7% growth over the 2011 figure. Meanwhile, the heavy vehicle industry was valued at around $500 million, with growth of nearly 30% over 2011. In total, around 2.3 million vehicles were produced in 2012, 13% up on the year before, and it is estimated that the country will continue to grow, producing around 3 million vehicles by the end of 2015. With an abundance of FTAs, economic land and labor costs, along with a well-positioned geographic location, the outlook is positive for Mexico's economy in the coming years, with the automotive sector being the driving engine for growth.