MEXICONOW Staff Report
Mexico’s Banks are not doing enough to help the country’s booming motor industry - indeed, they are more of a hindrance than a help - and major reform is needed to set that right, according to a leading financial expert.
Diego Zarroca, of GE Capital, was speaking on the question: “Is There Enough Support for the Auto Industry?”
Mr. Zarroca was in no doubt as to the answer to the question and he said: “Quite simply, the complicated machinations of the Mexican banking system fail to support the Mexican auto industry. In a nutshell, the banks do not know how to deal with the Mexican auto industry.”
His remedy is to:
- Ask the Federal Government to start a program to support banks when lending to auto industry participants.
- Ask the Federal Government to put in a place a lending strategy by Bancomext & Nafin.
- Choose some preferred banks or financial companies and agree on programs as an industry instead of on a case by case basis.
He said: “Those actions would go some way to make up for the deficiencies in the banking system in terms of its support for the auto industry. The Mexican auto industry is clearly doing very well but life would be so much easier if those suggestions were put in place. Although the industry is thriving, we cannot ignore anything that would help its continuing success.”
Mr. Zarroca said that the auto industry was the 10th single contributor to the Mexican economy, was growing internally and externally and was becoming a major force for the economy as a whole.
It had been growing at six times average against the economy since 2010 but, in his opinion, financial support for the industry has stagnated.
He said: “Of course financial support from banks and financial companies is good for our auto industry. The benefits of such financial support include building a partner relation position and increases value for shareholders. Financial strength and efficiency increases business opportunities.”
“Financial support helps improve credit rating and reduce credit cost, generates enough cash flow to prepay other bank debts, increases suppliers’ time to generate cash and increases leverage to expand credit capacity. It also improves profitability and supports expansion.”
His colleague, Charles Zinkosky, Managing Director of GE Corporate Finance Automotive Group, provided a business overview of 2014, explaining that GE Capital companies supported over one million customers globally with US$516.8 billion in assets and 50,000 employees in 50 countries.
He said: “GE Capital Americas combines smart financing with top industry experts and business know-how. Our capital is already at work with US$8.5 billion investments across the value chain and GE Capital funded over 750,000 vehicles across the USA in a recent year.”
Mr. Zinkosky said the factors for growth in the North American auto industry included the US economic recovery and auto sales rebound, the general manufacturing recovery due to energy advantage and reset labor rates and the unique cost effectiveness of the Mexican market leading to growth in North American exports.
In his predictions for beyond the recovery, Mr. Zinkosky said: “The positive sales trajectory will taper after peaking in 2017 when long-term output nears 18.9 million units, far surpassing the 16 million units of pre-2009 levels.”
“The industry will be restructured, the break-even figure lowered and it will become increasingly globally integrated and the US and Mexico will benefit from export positioning.”
“New investment will pour into Mexico with the country gaining 25 per cent of all NAFTA investment by 2021.”
“Mid-Mexico is one of three distinct North American production clusters, along with the Great Lakes and South East USA. Mid-Mexico will rise to 4 million units by 2020 as new capacity, diversified demand and supplier investment act as enablers.”
Such good news for the Mexican auto industry could only be enhanced if Diego Zarroca gets his way and the tricky relationship between the Mexican banks and the industry is ironed out.