3 Reasons Why U.S. Auto Manufacturers Are Making the Move to Mexico

Manufacturing in Mexico has grown exponentially over the years, particularly in the automotive industry. Recently, U.S. manufacturers have been incentivized by USMCA trade provisions regarding original auto content, as well as legislation on microchip production. Both have been a recent boost to this sector’s growth.

However, U.S. automakers have benefited from nearshoring for decades. Here are three main reasons they continue to move and expand their operations to Mexico, and how partnering with a Mexico shelter company adds an extra advantage.

1. Close Proximity and Faster, Cost-Effective Shipping

With inflation on the rise, U.S. manufacturers are constantly looking for new ways to save on costs. The close proximity between the U.S. and Mexico makes fast, cost-effective shipping a significant benefit. Shipments bound for the U.S. can be scheduled to arrive within a few days, if not on the same day, unlike shipping from overseas which takes several weeks and sometimes months.

The shorter distance also means products can reach their target market faster, keeping U.S. auto manufacturers competitive in this fast-moving industry. Additionally, manufacturing in Mexico comes with less risk of delayed supply chains or costly interruptions.

During the pandemic, U.S. companies manufacturing in China experienced prolonged delays and in some cases, full supply chain shutdowns which set them back substantially. As a result, bringing operations to Mexico was a way to mitigate this risk and keep operations closer to home.

2. VAT Exemption and Duty-Free Savings

To operate as a foreign manufacturer in Mexico, companies must apply for the IMMEX program and receive VAT certification. Upon approval, U.S. manufacturers are exempt from the 16% VAT on all temporarily improved goods, materials, and equipment used for production.

Additionally, U.S. automotive manufacturers are making the move to Mexico due to the USMCA incentives. Per the automotive provisions, companies are offered reduced tariffs or possible duty-free trading as long as 75% of components are manufactured in the U.S., Mexico, or Canada. Furthermore, Mexico has a total of 13 free trade agreements with 50 countries worldwide, making them one of the top automotive importers in the world.

3. Established Supply Chain and Infrastructure

In addition to the more recent USMCA incentives, Mexico already maintains a long history of successful automotive manufacturing. There are manufacturing clusters throughout the country with convenient access to multiple modes of transportation, including airports, highways, and seaports.

There are also facilities set up for the automotive sector that can be tailored to fit a company’s specific project needs. The established infrastructure and steady supply chain are among the top reasons why global leaders like Ford and General Motors continue operating and investing in Mexico manufacturing.

How a Shelter Company Like IVEMSA Can Help

Mexico also offers the unique advantage of shelter services. These include site selection analysis, trade compliance, HR and recruiting, accounting, and more. Working with a Mexico shelter company also minimizes the risk and exposure as a U.S. operator doing business in Mexico. Plus, it saves on time and costs, while relinquishing full production control to the manufacturer.

There are numerous advantages to manufacturing in Mexico. With the surge of automotive production in an ever-evolving technological landscape, U.S. manufacturers are relying on Mexico as a way to stay competitive.

Learn more about how enlisting the help of a Mexico shelter company can help you reach your production goals faster and at a lower cost. Contact IVEMSA today.

Source:
https://www.trade.gov/country-commercial-guides/mexico-trade-agreements