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Historical Analysis: The Automotive Manufacturing Industry in Mexico

Updated: Nov 3, 2023

Woman working in an automotive factory.

Do you wonder about the history of automotive manufacturing in Mexico? How did it all start? This post unpacks everything you need to know about the development of car manufacturing and the utilization of maquiladoras in the country.

1902 saw the arrival of the first automobile in Mexico City. In the first year of private vehicle ownership, Mexico saw the importing of 136 cars. By 1906, there were 800 automobiles in Mexico City.

As a result, Mexican President, Porfirio Díaz, formed the Mexican Highway Code and tax legislation directed at car owners.

During Francisco Madera's presidential campaign against Díaz in 1911, the Government ended the tax with the Mexican Revolution's onset.

The Arrival of the Big Manufacturers

After the troubles ended in 1921, Buick was the first automobile manufacturer to trademark itself in Mexico. Ford entered the Mexican manufacturing market in 1925, building assembly lines in plants across the country.

A decade later, in 1935, General Motors – the world's leading automobile manufacturer at the time, set up shop in Mexico, with the Automex Company (Chrysler), starting operations in 1938.

The 1950s and 1960s saw an influx of car manufacturing brands from around the world entering the Mexican market. The cheap labor and abundance of natural resources meant car manufacturers could boost bottom line profits and keep manufacturing close to the US. Japanese manufacturer Mitsubishi opened its first Mexican plant in 1964, with Chrysler, Ford, and Volkswagen all setting up or expanding operations within the country in the same year.

By the start of the 1970s, many Japanese, American, and European car manufacturers ran profitable operations in Mexico.

First units manufactured at the GM Mexico plant in Mexico City.
First units manufactured at the GM Mexico plant in Mexico City. (via GM Authority)

The fallout from Economic Turmoil

The early 1960s saw a downturn in the Mexican economy. In response to the turmoil caused by the economic duress, Mexican government officials urged manufacturers to keep inventories local to cultivate a national Mexican automobile market to promote job creation.

Many companies sided with the Mexican Government. Others like Peugeot, Volvo, FIAT, Mercedes-Benz, and Citroën, decided the tax and regulatory environment was too restrictive, causing them to remove operations from the country.

The Mexican Government did manage to retain the big three of the American manufacturers, Ford, General Motors, and Chrysler. Other brands that decided to remain in the Mexican market included VW, Renault, American Motors, and Datsun.

The start of IMMEX in Mexico

Introduced by the Mexican Government in 1965, IMMEX is an acronym for "The Maquiladora Export Manufacturing Industry." The IMMEX program is for foreign manufacturers importing components and raw materials into their plants in Mexico. The manufacturers, or "maquiladoras," use these components for cars they intend to sell to the export market outside of Mexico.

Those manufacturers using the IMMEX program benefit from not paying any import duties on the components they bring into the country related to the manufacturing process. The manufacturers save on VAT, import duties, and other compensatory fees as long as they manufacture in Mexico. As a result, Mexico is considered one of the premier automotive manufacturing destinations in the world. It has an accommodative government that's ready to assist companies with navigating the challenges of setting up operations and competing in the global market.

IMMEX has the goal of making Mexico an attractive manufacturing destination for leading automotive manufacturers, as well as other industries. The country wants to provide a positive business climate where manufacturing brands can bring new modern technologies and IP into the country.

The program's primary goal is to attract more foreign direct investment (FDI) to Mexico, stimulating the local job market. To get a deeper understanding of IMMEX read this post.

Mazda's most recently opened production factory in Salamanca, in the state of Guanajuato
Mazda's most recently opened production factory in Salamanca, in the state of Guanajuato (via Inside Mazda UK)

The Reintroduction of Vehicle Taxation

The Mexican economy started to experience its first green shoots of real recovery from the announcement of the 1968 Olympic Committees' decision to host the Olympic Games in Mexico. In response, the Mexican Government re-introduced the tax on private car owners in an attempt to raise money to build stadia for the games.

The tax, known as the "Tenencia Vehicular," also helped the Mexican government finance the stadia and event preparation needed for its role in hosting the 1970 FIFA soccer world cup. The nature of the tax changed over the years, and today, the tax rate depends on factors like the vehicle's value and other features, like gas mileage.

Typically, the vehicle tax is around 10% of the current value of the car. However, it's important to note that Mexican drivers also pay a second tax when purchasing a new vehicle. Known as the "Impuesto Sobre Auto Neuvo" (Tax on a new car) or "ISAN" tax, the rate of this tax also ties to the vehicle's sale price.

Unlike the Tenecia tax, this is a one-time payment for the buyer. Mexican federal law demands all listing prices at dealerships to include the 16% VAT tax and the ISAN amount included on the sticker price.

Most Mexican drivers evade paying the tax, and the Government is currently implementing countermeasures designed to improve the collection rate. However, it's important to note that Mexican President Calderón announced that the Tenencia tax is null and void as of 2011. However, he did keep the tax in Mexico City.

By 1986, both Mazda and Ford opened the "Hermosillo" manufacturing plant, creating 1,200-jobs, with workers building 240-cars a day. The Hermosillo plant is one of Mexico's pinnacle manufacturing gems, and the plant has a reputation for adhering to the best quality standards and workmanship.

Economic Expansion and the Mexican Automotive Market

Between 1977 to 1989, the Mexican automotive industry started to stimulate and regulate fair trade and competitive practices within the local industry. As a result of the encouragement to the business environment, the Mexican Government deregulated certain aspects of the motor vehicle manufacturing industry to inspire foreign investment into the country.

The late 1990s saw massive growth in the manufacturing sector, and by 2005, annual car sales in Mexico reaching one-million per annum.

Final VW Beetle driving off Mexico factory floor
Final VW Beetle driving off Mexico Volkswagen factory floor (Via DW)

Moving into the Future – The Mexican Automotive Market (2007 to Present)

Mastretta was the first local Mexican car company to produce a sports car, unveiling it in May 2007. In 2010, the Mexican bus manufacturer, Cimex, decided to expand into passenger vehicles, developing Mexico's first domestic pickup truck.

42 car manufactures currently have operations in Mexico, producing more than 400 unique models. As a result, Mexico is one of the most diverse automotive manufacturing destinations in the world.

If you’re looking to take advantage of some of these same benefits that afforded this growth to the automotive manufacturing industry in Mexico, reach out to us at Javid LLC and we can help you begin your own manufacturing operations in Mexico!



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