Mexico’s Auto Production Starts to Recover

Mexican light vehicle production has been rising in recent months and November posted the 5th straight monthly increase. This industry had fallen into its deepest year-on-year production losses ever.

The U.S. recession slammed Mexican factories in 2009 on top of Mexico's consumers' cut back on retail purchases. Mexico's economy is expected to contract 7.2% in 2009, according to a recent poll of economists by Mexico's Central Bank.

Indicators for the Automotive Industry all over the world are linked to the situation prevailing in the global economy. And although consumer sentiment remains low, signs of recovery have been showing-up in Mexican auto factories.

Some international analysts have commented that the global crisis has bottomedout, but many expect a difficult and slow recovery for emerging countries.

In Mexico, while the Central Bank thinks the economy likely grew about 3% during Q3-2009 from the previous quarter, economists suggest that a recovery in employment is slim and this will keep the return to growth muted next year. The adverse international economic situation continues to affect auto exports and total production.

"We can say that we have hit bottom," Eduardo Solis, Mexico's OEM Automotive Association (AMIA) President, said at a news conference recently.

TOTAL PRODUCTION

Mexico is a major car producer and sends about 70% of its exports to the U.S. where auto sales have been deeply affected by the economic downturn.

In November 2009, according to AMIA, production of vehicles had an increase of 2.9% compared with the same month in 2008, with a volume of 176,655 units. This is positive for the industry because this is the first month of 2009 with better production results than the preceding year.

Eduardo Solis also said this in his press conference: "...the results of November show a light improvement and with the application of smart policies in 2010 the trend can be favorable".

The data for total production in the first 11 months of the year, 1.35 million units, show that Mexico still accumulated a 31.6% drop in 2009 compared to 2008. A total of Mexican auto exports of 145,711 units were also an increase in October 2009. This represents a jump of 24% compared to the previous month going to the highest level since late 2008. Year-onyear, exports for October were down 13%. But this is still the highest jump between months for the year.

At the same time during the month of October production in Mexico was still down 13.9% from October 2008. The AMIA said that automakers produced 184,769 vehicles in October. This is an increase of 26% from September and the highest level since late last year.

Eduardo Solis explained that most of the countries have shown a "comeback" in their automotive industries, particularly Brazil, and this recovery has been much faster than expected and much better than Mexico's.

According to IHS-Global Insight, the largest economic consulting firm in the world, Mexico's total production level of about 2 million units per year recorded during 2006-2008 will not likely be obtained again until 2011. The firm estimates that 2009 total production will be about 1.5 million units, and that 2010 will total 1.7 million light vehicles.

EXPORTS

Eduardo Solis mentioned that foreign demand of new light vehicles in November registered a drop of 17.4% reaching a total of 64,913 units compared to the 78,553 units registered for November, 2008.

In this context, the accumulated total for the first 11 months in 2009 show that vehicle exports fell 28.3% over the same period in 2008, for an export total of 662,957 vehicles. By the end of the year Mexico will likely export over 250,000 units less than in 2008.

DOMESTIC MARKET

IHS Global Insight forecasts that domestic sales will take a long time to recover. After reaching a sales peak of about 1.1 million units, total sales for Mexico in 2008 declined by 9%, barely topping the one million unit sales mark.

For 2009, light vehicle domestic sales are estimated to decrease to fewer than 750,000. According to the consulting firm, domestic sales will likely not get back to the one million levels until 2015. And if things go really right, under an optimistic scenario, it will be 2013.

The AMIA emphasizes that the pilot program to increase domestic demand will provide the basis for launching a national program that can truly be seen to have an influence on consumer decisions".Also," according to the AMIA, "the Auto Industry has put on the table a proposed legislative agenda that, among other things, urgently considers eliminating federal taxes for the purchase of new vehicles".

The AMDA is the Mexican Association of Auto Dealers and Jose Gomez is the President. He had this to announce during a recent press conference: "At this time there are some dealerships working at their minimal capacity. We need to improve the automotive consumer sentiment in order to improve overall commercial opportunities".

Total domestic sales of new light vehicles have dropped significantly, taking by reference the month of November of 2008 and 2009, shown in Exhibit 1. Also, Exhibit 2 shows a graphic rendering of the market share for brands for November 2009.