25 March 2019

Mexico’s auto industry - tuning up for a very bright future

On the eve of our exciting Automotive Leaders Summit in Mexico City - 27 & 28 March - I thought it was a good time to focus on activities in the region. With the ongoing uncertainty over NAFTA renegotiations, OEMs, suppliers and logistics providers might be forgiven for adopting a cautious approach to investment in Mexico but a quick review of automotive projects there tells a different story.

From the Renault-Nissan-Daimler $1.24 billion joint venture factory in Aguascalientes which has started pilot production to supplier Faurecia’s $600 million plant expansion in Puebla, to feed the nearby Volkswagen plant, and other OEMs in the area, there seems to be no fear of the Trump administration's threats of dismantling the favourable elements of the NAFTA agreements.

When one considers that in spite of, or perhaps because of, the Trump government’s somewhat erratic fiscal policy threats, the US car and light truck market had a very good year in 2018, topping off seven straight years of annual sales growth that ended in 2017 at 17.13 million units, sold with a marginal 1.9% loss. This is just under the figures for 2016 which was an all-time record year with sales of 17.55 million.

When one looks at where these vehicles are made, the picture is even more reassuring for Mexico. In 2017, Mexico assembled or completely manufactured almost 15% of all new light vehicles sold in the US - 75% of Mexico’s total exports.

But what about domestic sales in Mexico? Given the uncertainty over NAFTA, the home market in most regions would be seen as a vital buffer against global headwinds and the picture in Mexico is as healthy as can be expected considering the comparatively low income of much of the population. Light vehicles sales rates in Mexico had a 4.6% decrease in 2017, after seeing double-digit growth rates in 2015 and 2016. Rising inflation, now at its highest for more than 15 years, plus higher interest rates, have hit vehicle financing hard. Bank and other credit and finance accounts for less than a quarter of new vehicle purchases and the OEMs have cleverly stepped into this breach, providing almost 75% of loans to customers.

So, a thriving export picture, aggressive investment by OEM and supplier transplants, a domestic market that is helping eliminate the negative impact of the US possibly withdrawing from or drastically modifying the NAFTA agreements; all of which makes Mexico a great place to make and sell cars.

There is still time for you to register for one of the remaining places at the Automotive Leaders Summit Mexico 2019, where we shall discuss these themes and much more - go to: www.automotiveleaderssummit.com

See you in Mexico City!

Simon Duval Smith

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