Steffen Reiche, CEO, Volkswagen de México: Interview

Interview: Steffen Reiche

What are the main business, labour and logistics advantages Mexico offers to automotive and industry-related companies?

STEFFEN REICHE: Mexico is a land of opportunities for manufacturing, and particularly for the automotive industry. For more than 50 years the country has been producing high-quality automobiles, and it is a key player globally. The 24 factories in operation are strategically located around the rail routes and near the main highways in a manner that ensures that the supply chain delivers input on time and that companies send vehicles and components in a timely manner to foreign and domestic clients. What is more, the industry’s workforce is well trained and efficient, a result of several research and education centres that emerged during the boom years. What is more, employees also tend to continue their careers within the automotive sector, often for the same companies that first hired them.

Collaboration between companies and academia must continue in the coming years and more investment is needed to reinforce the education system. Such investment can build opportunities in internship programmes, for example. Today there are several universities with solid comprehensive training programmes through which automotive companies are reinforcing their human resources. This provides opportunities for the younger generations and allows a great pool of talent with a vast industry-related knowledge and first-hand experience to emerge. Thus a cycle that strengthens the industry’s whole supply chain develops and eventually supports overall socio-economic growth.

To what extent would a decrease in domestic sales discourage companies from establishing or expanding operations in Mexico?

REICHE: After a period of growth that reached a peak of 1.6m units sold in 2016, the Mexican light vehicle market has gone through a phase of slower expansion. The slowdown was caused by the US dollar-peso currency trade, the difficulty consumers face in accessing credit for vehicles and a lack of consumer confidence. However, the country’s installed capacity is mainly oriented towards supplying foreign markets. As such, even when the domestic market performance is underwhelming, the dynamism of exports brings stability to the industry. What the country needs to do now to encourage growth is to promote innovation and technology, and support start-up development.

As soon as the US-Mexico-Canada Agreement currently under negotiation moves forward, the government and the private sector will be in a very favourable position to implement an aggressive promotion and incentive programme that will increase Mexico’s attractiveness to both local and foreign investors in the automotive industry. This, combined with other regulatory improvements, will not only encourage further investment into the sector, but will also set the foundations for a strengthened value-added manufacturing industry.

In what ways are automotive companies providing financial support to consumers? Which types of products have been the most successful?

REICHE: Although successive years of credit expansion have contributed to the sector’s growth, the current situation has caused companies to explore different ways to make the financial services more accessible for customers. Today customers can purchase not only insurance but also the after-sales services at no additional cost. After the leasing period, customers can either buy the vehicle or return it. In many countries leasing is a successful model, but in Mexico it is still in its early stages. There is significant potential in leasing in the years ahead, but these offers pose a difficult set of challenges.