The auto industry – one of the drivers of Mexico’s economy
The auto industry is one of the industries with the greatest growth in the Mexican economy because everything from autoparts production to car assembly and its connection to the international market have performed well.
In previous years, we observed growth in this industry and estimated that vehicle production would increase 1,5% in 2016 compared to the previous year, despite a tough start to the year with 3,1% declines in the first half of the year. This represents an increase of approximately 51.000 units. Next year, production could increase to just over 4 million units, which would mean a 17,4% jump in 2017. This would once again put the industry at the forefront of the Mexican economy.
Automobile production in Mexico has gained importance in the large investments made in the country to supply the national market, but primarily due to the potential of the international market. Up to 79% of the automobiles manufactured in Mexico are exported, mostly to the U.S. 1,3 million vehicles were manufactured for export in the first half of the year, a decline of 5,6% compared the same period last year. The decrease in momentum is partly due to the fact that 2015 was a year with an extraordinary increase of 10,4%.
Most auto exports are sent to the U.S. and will continue growing this year. Meanwhile, demand for Mexican vehicles fell in other regions and countries like Canada, Latin America and Europe. This decline can be explained by slow economic growth in these economies, among other things.
Strengthening the variety of products to meet the increased demand for light trucks in the U.S. market represents the best prospect for the second half of the year in terms of production and exports. Mexico will launch a luxury Audi SUV manufactured in Puebla in the second half of this year. Fiat Chrysler Automobiles (FCA) will also manufacture a new compact crossover for its Jeep brand in Toluca, State of Mexico in the second half of the year for both the domestic and export markets.
Vehicle sales in Mexico higher than ever before
Although the international auto market has less momentum, the domestic market is on the rise. In the first six months of the year, vehicle sales in Mexico reached 722.000 units, equivalent to 18,4% growth over the same period last year. Sustained growth in recent years is mainly due to a diverse and competitive supply of credit from the banking industry and the financial branches of automakers, as well as improving consumer confidence.
The new vehicle sales outlook is promising for the remainder of the year in Mexico, provided the number of auto loans maintains the current pace. Financing grew at an annual rate of 25,3% from January to June, including financial institutions, banks and even self-financing. New vehicle sales are expected to grow by 13,8% by the end of the year, the equivalent of 1.530.000 units.
Autoparts
A review of the auto market must also consider the production of autoparts. In this case, 60% of all autoparts produced in Mexico are sent to the U.S. and Canada. Lower vehicle production in Mexico has had very little impact, especially when taking into account Kia and Audi opening new plants, as well as the demand for more safety-related auto parts like air bags and anti-lock brake systems.
Finally, given weak global trade and global economic uncertainty, Mexico should be cautious and maintain its current and predicted automotive productive capacity at the best occupancy levels and be ready for a possible change in preferences among international automobile consumers.