Saturday, 26 May 2018

Mexico earthquake no match for modern auto industry

An earthquake struck Mexico City last week, but auto and parts factories emerged largely unscathed. Photo credit: BLOOMBERG

Last week’s scenes of shattered buildings in Mexico City and brave citizens digging earthquake survivors from the rubble across a four-state area were like flashbacks to September 1985, when an even bigger temblor brought Mexico to its knees.

But that was then, and this is now.

Mexico and its auto industry are likely to move on relatively quickly from the most recent disaster, even as victims and their families take time to heal.

In the 1980s, Mexico was a one-party state dominated by government-owned industry that answered to no one. Enforcement of construction codes was diluted by rampant graft and bribery in construction contracts.

But the lessons of the 1985 quake, which killed an estimated 10,000 people and damaged thousands of buildings, laid the foundation for a nation that takes such things as building codes, worker safety and citizen action much more seriously.

Indeed, the 1985 earthquake is considered a historical inflection point, giving rise to an aggressive civil society, a modern democratic movement and an economic model open to the outside world. Within a few years, the ruling political party would splinter, and Mexico would be part of negotiations leading to the North American Free Trade Agreement.

The relatively minor damage last week to auto and parts factories, including those near the impact zone, is a testament to the modernization of Mexico’s economy, experts say, with global industries bringing global standards for risk management.

“The majority of the auto-parts industries established in Mexico came after the signing of the North American Free Trade Agreement 23 years ago, and there were already more robust construction standards as a result of the earthquake 32 years ago,” said Oscar Albin, executive president of Mexico’s National Auto Parts Manufacturing Association.

“Also, the majority of the companies that came to Mexico were foreign, and the industries they established here had to meet the same standards as in their home countries,” Albin told Automotive News. “So, it’s not just government inspections. It’s inspections done by the companies themselves, most of which are Canadian, American, German and Japanese.”

While the bulk of Mexico’s booming auto industry is not in earthquake-prone areas, he said, significant parts of it are. Volkswagen has a sprawling plant in the capital of Puebla state, which was hard-hit by last week’s quake, and Audi has a new crossover plant nearby. Puebla also has one of Mexico’s largest supplier communities. Albin said there were no immediate reports of serious damage at any auto suppliers.

The Mexican Automobile Distributors Associationsaid there were no immediate reports of serious damage to any dealerships, although some had to close temporarily because of nearby damage or gas leaks.

Economists expect the impact to economic activity — such as Mexico’s record auto production of 2.5 million vehicles this year through August — to be temporary and focused on airlines, tourism and the insurance industry because of payouts from earthquake damage.

“While we regret the unfortunate victims, we consider the economic impact of these earthquakes to be rather limited,” Mexican bank Banorte wrote in a research note. “Mexico has learned the lessons of previous deadly tremors, such as the quake of 1985 that cost the lives of more than 10,000 people and the collapse of more than 400 buildings.”

The death toll of last week’s quake was approaching 300 as rescuers dug through the rubble of collapsed buildings in densely populated Mexico City.

The auto industry was mostly untouched, as was the infrastructure used to bring those vehicles to market locally and abroad.

• Volkswagen and Audi briefly halted operations at their Puebla plants for building inspections and to allow workers to check on family.

• Nissan sent workers home from its Cuernavaca complex just south of Mexico City and was assessing damage. No workers were injured.

• Fiat Chrysler and General Motors said operations in Toluca, a suburb of Mexico City, were normal.

• Ford said there was no damage to its assembly plant in Cuautitlan just outside Mexico City.

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