Mexico’s Auto Market Is on a Long and Winding Road to Recovery

Warning: foreach() argument must be of type array|object, bool given in /home/mexiconow/public_html/sites/mexiconow/wp-content/themes/mexiconowwpnew/single.php on line 253

By Guillermo Rosales
General Director
Mexican Association of Automotive Distributors (AMDA)

We have started a new year, and with it come the resolutions to overcome the obstacles of the previous cycle.
This helpful tradition keeps us from sinking into discouragement in an adverse situation.

The Mexican automotive market concluded with a 28% decrease in the sale of new light vehicles. In the 2020 annual total, 949,353 vehicle sales were placed, representing a decrease of 368,578 units compared to 2019.

With this outcome, the Mexican market totals four years of decreasing sales of light vehicles, with 2016 being the last year with positive results, registering the all time record sale of 1,607,165 units.

That year seems distant, when the estimate of the potential demand for light vehicles was above 1.8 million units per year. Four years later, we find a market reduced by almost half with respect to installed capacity, personnel and allied equipment.

This is the magnitude of the challenge to be faced this year, and in subsequent years, since the expectations of most analysts agree that the recovery of the automotive market will be slow and will require reaching 2024 in order to reach sales levels similar to 2019.

In the estimate for 2021, I consider that we will be around 1.07 million units, equivalent to a year-on-year growth close to 13%.

Of course, if 2020 was marked by the COVID-19 pandemic and the unfortunate consequences in loss of human
life and economic damage, from which the automotive market did not escape, what will distinguish 2021 will be the ability (or lack thereof) to implement an efficient and effective national vaccination program, as well as reinforcing social participation in controlling the spread of the virus.

It all depends on whether the recovery scenario can occur.

However, beyond the relevance of everything concerning the control of the pandemic for the automotive sector, there
is a much broader agenda that must be managed in parallel.

Here, I am insisting on the importance of investing in strengthening digital marketing channels, given that this will increasingly affect the feasibility of companies. The suspension of non-essential activities announced in April and May to contain COVID-19 and the restrictions imposed by the red traffic light in differentent entities have demonstrated the value of efficiently implementing these tools.

Even more so when its use has been democratized, in the sense that consumers are increasingly adapting to digital marketing, given the realities of the pandemic, and that this is crossing economic, social or age segmentation barriers.

On the other hand, just as today we are facing a disruptive factor in the health field, there are others that have been present for decades, which have not been possible to eliminate and have only produced negative results. In this case, I am talking about the importation of used vehiclesform the United States.

Beyond the political use of this phenomenon or its social justification, the truth is that this practice brings with it serious effects on the economy, security and the environment.

According to the study of potential demand for light vehicles in Mexico, carried out by the AT KEARNEY
consultancy in 2015 , controlling the importation of used vehicles is one of the two most relevant variables that affect the potential demand for the sale of new vehicles.

For this reason, it is noteworthy that on December 24, 2020, the new regulation was announced in the Official Gazette of the Federation, which modifies and extends the rules by which the definitive importation of used vehicles is regulated.

It is important to mention that the previous regulation, in force since July 1, 2011, has been a valuable instrument to regulate the definitive importation of used vehicles to our country.

This confirms that during the period from 2006 to 2008 the import of used vehicles was 18% higher than the sale of new ones in the country as a result of an indiscriminate opening that filled us with automotive garbage.

Compared to this, from January to November 2020, imported used vehicles represented 13% of the sale of new light vehicles and in 2017, the year of greater control, they represented only 8.1%.

The new regulation is adapted at the end of the North American Free Trade Agreement (NAFTA) and at the start of the United StatesMexico-Canada Agreement (USMCA), while trying to maintain the control of mechanisms that have been
applied in recent years.

Likewise, the new regulatory framework will be in force until September 30, 2024, at the end of the administration of President Andrés Manuel López Obrador, thereby eliminating the uncertainty of the annual renewal.

Although it is relevant to have a regulatory framework to formalize the definitive importation of used vehicles
under legal and certain conditions, there is a growing illegal internment of vehicles that finds space on the electoral agenda that demands regularization.

This circumstance becomes worrisome in 2021, given the widest election in the history of the country, with the election of new governors in states where there is a greater proliferation of smuggling vehicles (Baja California Norte, Baja California Sur, Sonora, Chihuahua, Sinaloa, Zacatecas, San Luis Potosí and Michoacán), missing only Tamaulipas in this group, and also including the election of Congress members and city councils.

We hope the pressure will be reinforced throughout the year to regularize illegal vehicles, which is still unfortunate but is necessary in the midst of one of the worst crisis in the automotive market.

It is, in this sense, constructive that President López Obrador has declared that the issue will not be addressed by the federal government until the electoral processes have concluded. However, I believe that the correct course for a government that seeks to promote economic growth and enforce the law is not to regularize smuggling under any circumstance.

It is for this reason that those interested in the automotive sector must act decisively to avoid the regularization of illegal vehicles. Finally, I take advantage of this space to make a point regarding the automotive credit market.

In contrast to what happened in previous economic crises (2009, 1995, etc.), banks and companies specializing in automotive credit currently have not issued a final tally. The data available as of November 2020 show a decrease
of 25.7% in the number of new vehicles financed, a lower percentage decrease than that of the sale of automobiles.

Likewise, the past due portfolio of loans is at 2.27%, which is acceptable but has shown an increase in recent months. In turn, interest rates have decreased as a consequence of the monetary policy implemented by the Bank of Mexico and the terms available for an automobile loan reach up to seven years.

We are facing a demand problem caused by the decrease in income in many families and by the uncertainty that the crisis generates. In this regard, having a healthy financial system will allow us to gradually recover consumption levels.

In this first collaboration of 2021, I share with you the responsibility and the opportunity to act to make this year better than the previous one.