Mexico’s auto industry sets all-time records for Q3-2014
By Nancy J. Gonzalez
Mexico´s light vehicle production continues to exceed historical levels. For the month of September, 2014 light vehicle production reached 267,674 units, a 10% increase from the same month in 2013. For the first time in more than a decade, Mexico is poised to overtake Brazil as the top Latin American automobile producer. The surging exports to the U.S. have spurred factory openings and record output in Mexico. According to the Mexican Association of the Automotive Industry (AMIA), a total of 2,396,308 light vehicles were manufactured in Mexico from January to September of this year. This figure is 7.5% above the units manufactured in the same period, last year. The increase in light vehicle production was bolstered by new plants and expansions such as Nissan, Honda, VW and Mazda. Eduardo Solis, AMIA President, said in a press conference Mexico is likely to produce a record 3.1 million autos this year. “We have record production and exports, but a weak domestic market,” he explained.
Top destinations for Mexico´s auto exports
The light vehicles manufactured in Mexico main destination are overseas. Between January and September of this year, more than 1.9 million vehicles have been exported. As shown in Exhibit 1, the U.S., Canada, Brazil, Germany and China are Mexico´s top 5 destinations for light vehicle production. These countries get 91.5% of all the export production.
Of relevance is the growth of some countries, such as China, which improved two places in the ranking of export and now is in fifth place. The year before, Argentina was the fifth destination from Mexico´s auto production. Only a 17% of the total production stays in Mexico for domestic customers.
According to AMIA´s analysis, the light vehicle exports also exceed historical levels, both for the month of September as well as to year to date production. Exhibit 2 shows Mexico´s auto exports went up 8.7 percent in the first nine months of this year. The auto production for export reached 1,952,501 units from January to September of this year, while in 2013 this figure was less than 1.8 million. With almost 71% of exports, the U.S. is Mexico´s main foreign market, 10% ends up in Canada, and another 4.2% is sent to Brazil. Also, Germany gets 3.5% of Mexico´s auto production for export, while another 2.3% ends up in China.
Made in Mexico autos on the rise
Mexico’s ascent is being fueled in part by auto sales running at the fastest pace in almost eight years in the U.S., the country’s largest market. According to Ward’s Automotive, in the first nine months of 2014 light vehicle auto sales reached 12,371,160 units in the U.S. This figure is 5.4% higher than last year´s. Exhibit 3 shows that 11.2% of the units sold in the U.S. were manufactured in Mexico; therefore, at least 1,384,590 light vehicles came from an assembly plant in this country. All countries that provide light vehicles in the United States showed positive growth rates. Mexico has the highest rate at 15.4%, compared to January-September 2013 production. The Index of Consumer Confidence in the U.S. stood at 86 points in September 2014, a 7.9% above the level in the same month last year. This number can be seen as positive, but it is 13.6% lower than reported in the same month in 2007, before the crisis.
The domestic market
For Solis, the light vehicle domestic market is weak because used auto imports are way too high. He explained that the used vehicle imports should be restricted as a way to boost the domestic market. Domestic auto sales are at the same level as they were in 2007. Solis regards this issue as “The lost decade” Even though domestic sales are on the rise, the market is not strong enough. AMIA statistics show that only 17% of the light vehicle production has as destination the Mexican market. According to AMIA´s analysis, light vehicle sales in Mexico reached 89,116 units, 13.7% more than a year before. AMIA believes that if used car imports are restricted, the domestic market would be stronger.
Foreign Direct Investment in the automotive sector in Mexico
The automotive industry has become one of the most dynamic and important sector in Mexico. As a result Mexico is ranked as the fourth exporter and the #8 producer of vehicles worldwide. Mexico is an attractive country for investment. From 1999 to 2013 the vehicle and auto parts manufacturing sector accounted for 8.4% of the total Foreign Direct Investment (FDI) in the country. (Exhibit 4) The automotive industry has been the main recipient of FDI over the last 15 years, capturing 18% of this sector or US$30.182 billion. As shown in Exhibit 5, this industry captures more of the FDI in Mexico followed by the beverages and tobacco industry and the food industry. The recent plant openings in Mexico forecast the automotive industry will continue to grow in the nearby future. Nissan, Honda, and Mazda have a combined investment valued at US$4 billion, while Germany’s Audi AG is building a US$1.3 billion plant to assemble the luxury Q5 sport-utility vehicle. Bayerische Motoren Werke AG announced plans to invest about US$1 billion in a new factory in Mexico that will produce about 150,000 vehicles a year. Furthermore, Daimler AG and Nissan said they would jointly produce luxury vehicles, including Infiniti compact cars, at a new US $1.4 billion factory in Mexico, the biggest project to date in their four-year-old partnership.
Mexico´s light vehicle production and exports continues to exceed historical levels. The most recent forecasts show the annual production can reach 3.1 million units, most of them for the foreign market. Mexico’s proximity to the strongest market, the U.S., and lower labor costs are two of the main advantages that will continue to support the growth of Mexico’s auto industry in the nearby future.