Mexican Economy Growing: You Need to Pay Attention

Mexican Economy Growing: 

You Need to Pay Attention

February 3, 2014 6:35 am by: Sara Nunnally 

http://www.contrarianprofits.com/mexican-economy-growing/

Mexican economy growing…slowly but surely. Unexpected industries are moving South of the border and his means big changes for Mexico.

Mexico is edging its way into the spotlight… The country made big news when it announced it would open its oil and gas industry to the private sector, ending a 75-year monopoly that could inject tens of billions of dollars into the economy.

But this isn’t the biggest development in Mexico’s economy.

Rather, it’s been a slow accumulation in an unlikely sector.

From Bloomberg:

Mexican auto exports to the U.S. more than quadrupled from 1993 to 2013 as output almost tripled, buoyed by lower tariffs under the North American Free Trade Agreement. Three plant openings in four months – by Nissan Motor Co., Honda Motor Co. and Mazda Motor Corp. – will supply the final push for Mexico’s leap past Japan, which as recently as 2008 shipped almost twice as many cars to U.S. consumers.

While everyone’s back was turned to the East, labor costs in Mexico were gaining an edge on China. Take a look:

But there’s another edge Mexico has on places like China and Japan… Proximity.

It can take a full month for tires, for example, to be shipped from China to the U.S. But a plant in Mexico can have those same tires shipped to America in 36 hours.

That’s a huge cut to cost and time.

Auto Industry Moving South

The auto industry is a massive pie in the U.S. Imports are a $150 billion business, according to Bloomberg. And that’s a big reason why companies such as Honda, Nissan and Mazda are setting up shop south of the border.

Their factories will boost auto production by 600,000 vehicles over the next couple of years. Before the end of the decade, Mexico will produce 4 million vehicles.

This year, more than 1.69 million of those cars and trucks will find their way to the U.S. market. That figure could climb to 1.9 million by 2018…

In other words, nearly half of all the cars and trucks made in Mexico will be sent to the United States.

It’s no surprise, then, that companies have forked out almost $10 billion in investments since 2011.

In fact, this much attention, interest and investment could put Mexico on pace to top Canada as the largest exporter of vehicles to the U.S. by 2015.

Mexico has a lot of things going for it. Labor costs are low. We’ve seen it’s got a 20% edge on China, but Mexico’s labor costs are 80% lower than U.S. labor costs.

Now, you may think that with cheap labor come cheap products. Not so.

David Sargent, the global automotive vice president of J.D. Power & Associates, says that Mexico’s factory quality is comparable to the U.S. Recent investments mean good technology. Those new factories Nissan, Honda and other manufacturers are building aren’t low-brow.

And get this… Mexico is also the leading exporter of auto parts to the U.S. That means the infrastructure and manufacturing knowledge is already in place to support the full auto industry.

Now, this shift is not sudden, and it will still take years to play out. It’s kind of like turning a big ocean liner around… You can’t turn on a dime.

Mexican Economy Growing…Slowly

Those new manufacturing plants will take years to build. That means, as an investor, you might not want to jump into companies such as Nissan and Honda based solely on the cost savings they’re sure to see down the line.

Rather, you may want to make a bet on the Mexican economy as a whole.

As these big companies make multibillion-dollar investments, they’ll be hiring construction workers, factory workers and other employees… These folks will then spend money at restaurants, movie theaters, malls…

You get the point.

The Mexican economy is going to benefit roundly from these kind of investment.

Consumer stocks could be one of the best bets in Mexico over the next couple of years as new workers put that money to work.

One of the most lucrative sectors of consumerism is in beverages.

Coca-Cola FEMSA (NYSE:KOF) is an easy way to jump into the Mexican economy and bank on folks buying more.

But pay attention to all consumer-based products, such as telecommunications, mobile phones and even airlines. Mexico’s discretionary spending will open up many opportunities over the next five to seven years.

Happy Investing,

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