MEXICO CITY – Mexico’s largest auto industry association, the AMIA (Asociación Mexicana de la Industria Automotriz), is optimistic about the future of the sector, despite COVID-19 disruptions, ongoing semiconductor shortages and government support for used car sales.
AMIA President José Zozaya informed Wards that the production stops due to chip-related parts shortages should end in the second half of 2022, having already been reduced from full working days to a few hours per week in late 2021.
“Each company needs to make their own assessment, but that’s what we call ‘technical disruptions’ of just a few hours… maybe one shift, but we’re confident and optimistic about the second half of the year when semiconductor supplies will begin to normalize.” . This allows us to achieve greater sales and export figures,” says Zozaya.
According to Wards Intelligence data, domestic LV sales in 2021 totaled 1,013,149, up from 947,915 in 2020 but up from 1,316,058 in 2019 before the COVID-19 pandemic. 2022 sales are on track to match 2021 total sales.
In a report released on May 17, the country’s largest commercial bank, BBVA, said total revenues for the national auto industry (including parts sales) are 77 billion pesos ($3.9 billion) below 2019 levels.
The industry’s current revenue is 534 billion pesos (US$26.7 billion), which means 14% growth is needed to reach the 611 billion pesos (US$30.5 billion) earned in 2019. “We do not expect this to happen before 2023,” the BBVA report said.
A challenge for the Mexican auto sector chasing sales is the government’s legalization of importing used foreign vehicles without papers – so-called “chocolate cars”.
This follows a decree signed by Mexico’s left-wing populist President Andrés Manuel López Obrador and released on February 27 that offered “administrative facilities and other incentives” to owners who wanted to register their irregular vehicles. This program operates in the states of Baja California, Baja California Sur, Chihuahua, Coahuila de Zaragoza, Durango, Michoacán de Ocampo, Nayarit, Nuevo León, Sonora and Tamaulipas (primarily in the North and Northwest).
The aim is to give low-income Mexicans access to a car, the federal government said. A used SUV from Mexico can cost as much as $10,000, but an imported SUV can cost as little as $7,000, according to a Wards review of ads posted on Mexican social media.
“In many cases, these vehicles are brought by Mexican migrants who went to the US, bought a car there, returned to Mexico and gave it to their families. These vehicles are a means of transport that is still in excellent condition for the Mexicans who use them for work,” says Carlos Iván Rodríguez, President of the National Union for Organizations and Associations for Vehicle Control (NGO).
However, the Mexican Association of Automobile Dealers (AMDA) is dissatisfied with the policy. Its president, Guillermo Rosales Zárate, says this decree could jeopardize new car sales. The approval process for undocumented cars has not gone as smoothly as the government and owners had hoped, he adds.
“To date, the Public Vehicle Registry has not released any official data on the type and number of legalized vehicles…there is information from the media in the 12 states that are running this program that indicates the process is virtually stalled,” Rosales claims Zarate.
AMIA’s Zozaya agrees: “This shouldn’t have happened. The goal was to give people with limited resources access to vehicles. However, this is difficult as the auto parts for it may not be available in Mexico. We don’t know the mechanical state these vehicles came in, so they could stop working in a few months.”
Despite challenges, optimism remains for the industry. In 2021, Mexico was the seventh largest automaker in the world and among the top 10 exporters according to the Paris-based Organization Internationale des Constructeurs d’Automobiles (OICA).
According to Mexico’s National Institute of Statistics and Geography (INEGI), in 2021 about 28% of Mexico’s exports were automotive-related. Given these numbers, AMIA predicts that the Mexican auto industry’s domestic light vehicle sales will grow 25% through 2025, despite new rules imposed by the US-Mexico-Canada Agreement (USMCA), which increases Mexican salaries and lowers North American ones Integration of car demands -parts supply chain.
“Mexico is a good option (for auto investments) because of the highly skilled workforce,” says Zozaya. “In addition to the geographic location, this is one of the main advantages. Despite the difficulties that businesses face, like any other place, this is a country where the rule of law is respected, a country of institutions.”