Eduardo Solis – President AMIA

Mexican auto industry seeks to spark domestic sales; exports continue to increase

With profits and sales running higher, automakers continue to hope there will be no potholes ahead in 2012. However, for the vehicle build industry in Mexico, success for the remainder of the calendar year and into the start of the 2013 model year, depends on several factors outside the country.

If the industry manages through those – European economic instability, Middle East geopolitics and gasoline prices going north and not south -- Mexico's vehicle manufacturing, foreign direct investment and industry employment remain in position to rise for the foreseeable future.

There remain several issues internally to Mexico as issues with used vehicles impact the prospects for domestic new vehicle sales. Dr. Eduardo Solis, president of Mexican Association of Automobile Manufacturers, took a look at the issues, the good and the not-so-good that affect the market in his country:

THE AUTOMAKERS IN DETROIT SAID THAT 2011 WAS A VERY SUCCESSFUL YEAR. HOW WELL DID DETROIT'S SUCCESS INTERPRET INTO SUCCESS FOR THE AUTO INDUSTRY IN MEXICO?

Dr. Solis: The Mexican auto industry also had a very successful year in terms of production and exports. We have record high numbers and we are right at 2,557,000 thousand vehicles manufactured in 2011, which was a record high, historic number and for exports we arrived to a figure first time over 2,143,000 exported in 2011.

Those are the highest numbers Mexico has had historically. Our pending agenda is the domestic market which is still in very low numbers, although growing 10.4 percent last year. Those are numbers way lower than what was previous to the crisis.

You compare for example 2011 with what we had in 2007, the number in 2011 is 17.6 percent lower than 2007. Actually our domestic sales are lower than even the 2001 numbers. We have a tremendous issue and a pending agenda to try to reactivate the domestic sales in Mexico.

YOU TALK ABOUT THE SALES STATISTICS. BUT AS YOU TAKE A LOOK AT THE POTENTIAL, WHAT ARE THE TRENDS THAT YOU'RE SEEING GOING IN 2012 AND INTO THE 2013 MODEL YEAR WITH THE MEXICAN DOMESTIC AUTO MARKET?

The domestic auto market is a very important potential that we have not been able to unravel. We have over-supplied the market with used vehicles imported from the United States, mostly garbage, mostly salvage product that has made its way to Mexico.

Unfortunately over the last six years we have seen six million of these vehicles come into Mexico, which is absolutely causing major damage to our domestic market. Those six million vehicles are over-supplying our vehicle stock in Mexico and that has a very important impact not only on the sales of new vehicles but also on the natural renewing of the used market because of the prices caused by this oversupply.

The potential in the market is a number that is between 1.5 million to 1.8 million. That means almost double the sales that we had last year. That is about 350,000 new jobs that could be created should we do things right to try to work towards reactivating domestic sales.

IN 2011 MEXICAN AUTO EXPORTS TO EUROPE INCREASED, IT LOOKS TO BE ABOUT 20 PERCENT. FROM YOUR LEADERSHIP ROLE, WHAT IMPORTANCE DO YOU PLACE ON EUROPE AS A MEXICAN EXPORT DESTINATION AND WITH EVERYTHING GOING ON IN EUROPE, HOW SUSTAINABLE IS THAT MARKET?

Europe grew quite nicely last year to 220,000 vehicles for an increase of 23.9 percent over the figures of 2010. Europe is still a small percentage but still is 10.3 percent of our total exports. I think that we have to be very cautious. I think all of the yellow lights are right now over the numbers of Europe. What's happening in Europe may affect the total demand of, not only of vehicles, but all of the products that are not consumables.

IN A RECENT PRESENTATION, YOU SAY SOUTH AMERICA HAS BECOME MEXICO'S MOST DYNAMIC AUTO EXPORT MARKET. WHAT ACCOUNTS FOR THAT, AND IN WHAT SOUTH AMERICAN COUNTRIES DO WE SEE THE MOST BUSINESS FOR MEXICO'S AUTOS?

The Latin American market has been growing quite nicely at the pace of 50.9 percent in last year. Latin America counts for almost 15 percent of total exports of Mexico. This figure used to be in the low 5- to 6- percent only three years ago. I think that without question what accounts for that is our trade agreements that we have with countries in Latin America.

Our major destination of our exports in Latin America is Brazil with 131,000 units exported in 2011; Argentina with 69,000; Columbia with 46,000, Chile with 33,000 and then Ecuador and Peru with almost 98,000 vehicles. That positions Latin America as our single most dynamic market of our exports.

I WANT TO BUILD FROM THAT LAST ANSWER: VERY IMPRESSIVE STATISTICS. BUT AS YOU LOOK TOWARD LATIN AMERICA, WHAT ARE THE VALUE ADVANTAGES OF MEXICAN AUTO PRODUCTION?

I will say that Mexico has positioned itself quite nicely, not only Latin America but certainly around the world, we are the ninth-largest manufacturer of light vehicles today. We are the sixth- moving toward the fifth-largest exporter of light vehicles in the world.

Mexico has positioned itself quite nicely because of its tremendous competitiveness. The experience of our labor force in Mexico in this area is quite important. We have some of the most productive global plants in Mexico. Of course trade agreements around the globe and our geographic location are also plusses and they play an important role for Mexico.

NISSAN, MAZDA AND HONDA HAVE ANNOUNCED NEW INVESTMENTS IN ASSEMBLY PLANTS IN MEXICO. WHAT IMPACT DO YOU THINK THAT WILL HAVE ON THE MEXICAN ECONOMY, ITS COMPETITIVENESS AND THE ABILITY TO INCREASE BOTH THE DOMESTIC AND EXPORT SALES FROM "HECHO EN MEXICO"?

I think that production in Mexico is going to grow so I have no question about that. That is very important to Mexico as a whole and to the Mexican auto part makers, which by the way are the Number One suppliers to the U.S. market. Also it is very important for the region. They will be located in the Bajío area and regionally that will have a very important, positive impact for Mexico.

IN WHAT WAYS DO INVESTMENTS BY MAJOR AUTO MAKERS INTO MEXICO TELL THE WORLD THEY LOOK PAST THE VIOLENCE AND THE ISSUES ABOUT SECURITY?

Well you can see investments are pouring into Mexico and I don't have to restate what is already a fact. Companies are very interested in having a major footprint in Mexico for manufacturing and now, by the way, for engineering too, which is very important for us.

DURING THE INTERVIEWS WE'VE DONE OVER THE PAST SEVERAL YEARS, YOU SAID MEXICO CLEARLY NEEDS TO FURTHER AND STRENGTHEN ITS TIER 2 AND TIER 3 SUPPLY CHAIN. WE TALK ABOUT IT EVERY YEAR. WHAT PROGRESS ARE YOU SEEING IN WHAT YOU HAVE TERMED THIS A CLEAR INVESTMENT OPPORTUNITY?

I still believe that we have a tremendous opportunity, I don't think we have done enough, I am about to fly out to Windsor, Canada to talk about these opportunities. Clearly, pursuant to those important opportunities that we have, I think that we still have pending homework in this area and we are trying to talk about that as much as we can.

YOU HAVE PREDICTED THAT MEXICO'S DOMESTIC MARKET COULD SEE ADDITIONAL SALES OF OVER MORE THAN A MILLION VEHICLES. FROM YOUR PRESENTATION YOU SAID "IF WE DO THINGS RIGHT." IN THIS CASE PLEASE DEFINE "RIGHT."

I think that we ought to work on the major issue that has affected our domestic market which is the entry of used vehicles into the Mexican market. We have a decree on imports of used vehicles, a very recent decree of July 1, 2011. I think this is a very important decree to order the market in Mexico, specifically the import of used vehicles.

Also on November 20, 2011, the government said for the first time standards for the entry of used vehicles into Mexico -- emissions standards that have to be complied with. These instruments are very important to the objective. Of course we have to continue to fight to try to make people understand the importance of all the imports of these used vehicles. Last year we sold 600,000 of those vehicles getting into Mexico, making their way into Mexico and affecting clearly our domestic sales and of course they are affecting the whole chain, the used vehicles chain.