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The report expects Mexico to return to a much more integrated autos industry after recovering from the economic crisis thanks to the efforts of carmakers such as Volkswagen (VW) and BMW, which are looking to strengthen the local supply chain in the country. Although recovery in the domestic market seems a distant reality as of now, we expect Mexico's long-term growth to be driven by planned investments by carmakers, which should take its total production capacity to 2.15mn units by 2014.
Estimates from the Mexican Auto Industry Association (AMIA) show that in August 2009, carmakers increased production by 23.5% month-on-month, making it the second consecutive monthly increase of the year. The report, in agreement with the general consensus, believes that the spike was mainly an outcome of the US$3bn ‘cash-for-clunkers' programme introduced in the US. With economic pessimism at its peak, we have revised down Mexico's production forecast to a 30% y-o-y fall by end- 2009 to be followed by a more robust 9% y-o-y increase in 2010.
We stress that the key to Mexico's autos recovery will be a resurgence in its exports to the US, given that the market relies on the latter for as much as 65% of its total production. The report expects Mexico's exports to reach rock bottom in 2009, down more than 30% y-o-y, to be followed by a much stronger 10% y-o-y recovery in 2010. Meanwhile, domestic demand, which fell 24.6% y-o-y during 7M09, is likely to end up at 900,000 units by end-2009, down from 1.06mn units sold in 2008. In 2010, however, a more nascent 6.4% y-o-y increase is likely, which will set the pace for the market to reach 1.19mn units by end-2014.
Mexico's autos industry has always been greatly influenced by US developments. The country is tipped to become the focus of the joint venture (JV) between Chrysler and Fiat with the US firm reportedly considering building the Italian carmaker's 500 model at its Mexican plants. This has led to the cancelation of a vehicle exchange project between Nissan Motor and Chrysler, for which Mexico would have been the key production site.
Mexico's biggest weakness going forward will be the fact that much of the country's potential for vehicle production has already been tapped, which puts a limit on the potential returns carmakers may achieve in the country. This places Mexico in fourth position in the Business Environment Rankings for the autos industry in the Americas. However, by reaching out to newer markets such as Asia and Europe, the industry can hope to boost its future potential and ratings.
Mexico Autos Report Q1 2010: http://www.companiesandmarkets.com/r.ashx?id=7DN57X73R169541
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