Bulletin 380 - Friday, August 1, 2008

GM invests US$1 billion

Villa de Reyes, SLP, Mexico,- With a US$ 1 billion investment, General Motors Plant in San Luis. Potosi started operating yesterday to produce Aveo, a model that will be sold in Mexico and South America. President Felipe Calderon, accompanied by the Ministers of Labor and Economy, Javier Lozano and Eduardo Sojo, respectively, inaugurated the premises. The plant, located at Villa de Reyes Municipality, will generate 2 thousand 500 direct jobs and more than 17 thousand indirect jobs. Troy Clarke, President of General Motors North America, Kevin Williams, GM's CEO in Mexico and the State Governor, Marcelo de los Santos, all attended the inauguration event. "General Motors has always considered Mexico for business due to the quality of labor. We are happy with jobs generation and growth in the region, and San Luis Potosi is one of the main routes in North America", Williams pointed-out. Mr. Williams explained that 58 companies at San Luis Potosi are General Motors suppliers and 14 more will establish at the State to meet the Plant's needs. President Calderon said that public and private investments are essential to generate jobs and provide for better life standards. "Mexico is a promising and reliable place to invest, and to achieve this investment we must make of Mexico the most attractive place. Mexico has now a position as a key country for the future of automotive industry in the world", he said.

Aeronautics provides impulse to national industry

Mexico City,- Aerospace industry experienced a growth close to 30% from 2002 to 2007, and there. are now 186 companies established in Mexico, that generate 20 thousand jobs. Exports of aircraft parts had a 400% increase in the first five months of the year, when compared to even term in 2007, when they added to US$2.6 billion. Israel Morales, Director of the Economy Committee of the Mexican Export Manufacturing and Maquiladora Industry Council (Consejo Nacional de la Industria Manufacturera y Maquiladora de Exportación - CNIMME), said that there is a lot of investing enthusiasm in the aeronautics sector. "Aeronautics maquiladora industry represents 10% to 15% of maquila investment in Mexico", Mr. Morales said. Also, due to the fact that Mexico is increasingly more attractive for some companies due to the quality of labor and proximity to the USA, companies such as EADS have hinted that they could transfer part of their production to Mexico. The Canadian company Bombardier is one of the companies in the field that is already in Mexico, with a plant in Queretaro, where more than one thousand direct jobs are generated. A few months ago, the Company also announced a US$250 million investment to manufacture aircraft parts.

Bomi de Mexico invests US$3 million

Bomi de Mexico will invest US$3 million in Mexico, an investment which is part of the Company's. growth and expansion plans for 2008, said in an interview Fernando Estrada, Director of this Company which provides outsourcing logistic services to producers and distributors of materials for the health sector. He further said that this investment will provide for a 12,000 square meters (129,160 square feet) expansion of their warehouse at the State of Mexico, currently 10,000 square meters (107,600 square feet). A significant part of the investment will be channeled mainly to infrastructure of refrigerating and freezing chambers, computer systems and lifts. Estrada said that the investment will allow for the generation of 55 direct jobs. "Bomi will also make an additional US$1.5 million investment in 60 transportation units, which will generate 70 direct jobs", he said.

Mexican companies looking for suppliers at low cost countries

Mexico City, - What are Mexican companies doing regarding the increase in the cost of raw materials which are critical for the industry as far as Low Cost Country Sourcing is concerned? 43% of CEO and Managers in the Chain of Supply of companies operating in Mexico say that their companies are undertaking an intensive search for suppliers; 21% considers that there is a medium size effort, and 21% says that there are no initiatives nor are they considered for the next 12 months, according to the third and last part of the survey made by Corporate Resources Management, S.C., when launching the Supply Chain Executive Forums for Top Executives in the Chain of Supply - the maximum forum in Mexico for knowledge exchange among top executives in the field - which results were disclosed by Jesus Campos Cortes, CEO and Partner of this Mexican consultants and experts' firm. Another aspect measured by the survey was to know how executives have perceived changing prices of some raw materials for their companies in the last 12 months. On this issue, almost 80% of these executives say that costs have gone up, which confirms the scenario forecasted for at least the next 5 years. As far as the main weaknesses Mexican Mangers find in the operations areas of their Chains of Supply, 43% talk about a lack of solid strategies, 29% say that there is poor logistics infrastructure, 14% considers suppliers are not reliable and 14% think there is a need for talented personnel. Regarding the percentage of sales total logistics costs represent, 36% said it ranges between 30% and 20%; 36% pointed out it is between 10% and 10% and only 28% has a logistics cost below 10%.

Ford's strategy beneficial for Mexico

Mexico City,- Ford's new strategy to concentrate in small and more efficient vehicles, as well as in the production of hybrid cars will benefit Mexico, because the plants in Mexico are prepared for the change, Herman Morfin, Ford Mexico's Communications Director declared. Mexico will have this advantage even if at a global level the Company reported a net loss of US$8.7 billion in the second quarter of the year. "The announcement is very positive for Mexico because the strategy being announced by the company is focusing on small cars and at both automobiles assembly plants in Mexico we have very important news. "The report states that production of Fusion and Milan models will be expanded (manufactured in Hermosillo) towards 2010 and hybrids' production will be doubled", he said. Hermosillo Complex is ready to start producing hybrid vehicles this year and recently the assembler announced a US$3 billion investment to adapt Cuautitlan Plant to manufacture the new Ford Fiesta, a small car to be manufactured exclusively in Mexico for the rest of the world. By 2012, Ford is planning to increase production in Mexico to 300 thousand engines, 500 thousand cars and 300 thousand transmissions per year.

EDITORIAL

U.S. Customs Reconciliation US Customs Value Maquiladoras Standard Cost Value Added
 
In our last bulletin regarding the U.S. Customs Value Reconciliation, I discussed the necessity of analyzing the standard cost used in the BOM, used by the Maquiladora to declare the material values of finished products shipped to the USA. I commented on the necessity of deconstructing the standard cost of the materials, to determine what is included in that standard cost and to make a proper determination of material values as they pertain to the CBP Value Reconciliation.

In this bulletin I discuss the necessity of likewise deconstructing the standard value added cost used by the Maquiladora in their customs invoices. The primary reason for deconstructing the standard cost for value added is that the value added declared on Customs Invoices, as a total amount for the year, should approximate the actual foreign expenses incurred by the maquiladora for the same time period. In actuality, the actual foreign expenses incurred by the Maquiladora for the year, is the real value added. This includes all expenses, rent, labor, overhead, administrative, maintenance, etc.

The first step is to check the amount of the variance between declared value added and actual foreign expenses. It is easy to check the variance. Just total up the Value Added that was declared on the Customs Invoices for the period that you are reporting. Compare to the actual foreign expenses booked in the Maquiladora Ledger for the same period. They will always be different, but the key is to get the two as close as possible for the following Value Reconciliation. CBP likes to see a variance of 5% or less. 10% or more and you are likely to get a letter from CBP asking you to explain the variance.

If you are close, you have estimated your standard value added cost well. If not, you need to analyze the standard value added cost to get it closer to the actual foreign expenses.

There are two types of variances; 1) underdeclared, which is the most common, and 2) overdeclared.

[First we must make the distinction between Value Added Standard Cost for U.S Customs Value purposes and Value Added Standard Cost for internal company purposes. The first is the value added declared on Customs invoices for shipments from the Mexican Maquiladora to the U.S. importer. This Customs invoice is the U.S. importers declaration of value to U.S. Customs.

The second is not used for U.S. Customs Value. Sometimes, companies establish work standards and estimate the costs that the company will incur. During the course of the year, they compare how they do against what their projections were, but these are done for internal purposes to gauge themselves against pre-determined efficiency standards, adjusting as they go.
They report internally how their costs projections are doing against their estimated standards.
But this reporting is done outside the scope of the value added standard cost used for Customs Invoices. In our case we are talking about the value added standard cost used on Customs Invoices. Usually a maquiladora will use a frozen standard cost for value added for the entire year. It is this frozen Standard Value Added Cost for Customs Invoices purposes, versus the fluctuation of actual foreign expenses, that causes variances between values declared to Customs and actual costs.]

PART ONE OF THREE
Alex Romero
AFRomero & Co., Inc
General Manager

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