The Mexican auto industry continued to grow in 2002 even though the global economy continued to slump, retail trends were erratic and gaps remained in the domestic supplier network.

Led by low interest rates and reasonable inflation, sales of new cars and light trucks hit 975,780 units, up from the 912,407 vehicles delivered in 2001, according to Ward's data. "The auto sector there is holding up fairly well, despite the fact the economy is soft," said Arturo Elias, president-General Motors de Mexico SA de C.V.

GM Mexico was the sales leader for the seventh consecutive year with a record level of deliveries totaling 228,393 units, up from the 199,044 cars and light trucks it sold in 2001. The auto maker's market share increased after declining for four consecutive years. (See related data: Mexico Automakers)

(See related data: Mexico sales)

GM's Chevrolet Joy/Swing was Mexico's top selling model. Deliveries increased 2.3% in 2002 to 63,138 units from 61,704 in 2001. Chevy Silverado was the top selling truck with sales totaling 29,839 units, up 12.5% from 2001's 26,529.

Volkswagen de Mexico S.A. de C.V.'s SEAT lineup had a remarkable sales upturn in 2002. The smallest increase among its four models was 65.4%, posted by the Cordoba. Leon sales climbed 136.5%, Ibiza deliveries were up 105.8% and Toledo sales surged ahead by 78.2%.

Ricardo Carrasco, auto industry general manager at the Mexican bank for foreign trade (Bancomext), said sales of light vehicles in Mexico should grow to between 2.9 million and 3.3 million units in 2006. And Mexican consumers would have more models to choose from as well — 004, up from 110 in 1996, according to industry insiders.

Mitsubishi Plans Market Entry

Mexico's bright sales future lured Mitsubishi Motors America Inc., which unveiled a plan in August to begin sales in Mexico in 2003 through its alliance with DaimlerChrysler AG. The plan called for DC Mexico to select some of its 122 Chrysler dealers to sell Mitsubishi-brand vehicles. Those picked would have to build separate showrooms adjacent to their existing facilities, and provide staff and training. The dealerships were slated to be open in 2003, selling most of Mitsubishi's U.S. lineup.

MG Rover Group Ltd. returned to the Mexican market in 2002 with sales of its Rover 75 and 75 Tourer. "We believe that we will sell 900 to 1,000 units in a full year," said John Parkinson, MG Rover sales and marketing director.

The Rover 75 originally was launched in Mexico when BMW AG owned Rover Group. "It was sold through BMW dealers, and we were taking orders for around 70 units a month," Parkinson said.

However, while new vehicles sales in Mexico were strong, production in 2002 declined by 2.8% to 1,805,507 units from 1,857,114 in 2001, as fewer units were exported north of the border. Still, the industry hoped the solid sales and production figures eventually would be joined by the emergence of a viable network of domestically owned suppliers.

According to auto industry insiders, the shortage of local Mexican suppliers with the capability to build many different types of components and work with emerging materials or new technologies, such as plastics, hydroforming, powder metal and laser welded blanks, continued in 2002. There also was a dearth of suppliers for steering and suspension systems, front-wheel-drive transmissions, forgings, stampings, castings and tooling.

As a result, auto makers and Tier 1 parts makers were forced to look elsewhere to source components. For example, Delphi Corp.'s Mexican unit, which spends $2.5 billion annually, purchased only $420 million worth of parts — up from $30 million in 1997 - within the country in 2002, said Adriana Medina, manager-Mexico Localization for Delphi. "So there's a $2 billion opportunity there."

GM imported 54% of the parts needed to build its Chevy Suburban SUV in Silao during 2002. It took five to 10 days for Suburban parts, depending on their origin, to travel to the plant. "We are now focusing on cost reduction and we see big opportunities in logistics reduction," said Manuel Ballina, GM Mexico advance purchasing manager.

However, there were encouraging trends. Chrysler Group purchased $2.6 billion from Mexican suppliers in 2002, up from $700 million in 1991, said Ricardo Rodriguez, Chrysler Mexico purchasing manager.

GM business with Mexican suppliers grew from $4.9 billion in 1999 to $7.2 billion in 2002, Ballina revealed. The auto maker forecast that figure would increase to $16.8 billion in 2007.

In 1994, Bancomext said, there were no Tier 1s among the 600 Mexico-based parts makers. However, by 2005, the bank forecast, there would be 30 Tier 1s. Over the same 11-year period, the number of Tier 1 and Tier 2 Mexican suppliers would grow by 350 companies, Carrasco predicted. "The Mexican market seems to be a good performer in the near future," Carrasco said.

Toyota Gears Up Production Plans

Indeed, Hiroyuki Okabe, president-Toyota do Brasil Ltda., announced plans in December to export 10,000 Brazil-built Corollas to Mexico in 2003. Meanwhile, parent Toyota Motor Corp. confirmed plans Sept. 20 to build the Tacoma pickup truck at a site under development on the outskirts of Tijuana in the state of Baja California.

Toyota Motor Mfg. de Baja California S. de R.L. de C.V. represented a $140 million investment. About 460 workers would be employed there when assembly begins in 2005, according to the company. Plans called for vehicle assembly to start small — customary for Toyota — at 20,000 units annually. Operations would include welding, paint and assembly.

The auto maker, earlier in 2002, said it planned to build a plant on the Baja California site to manufacture Tacoma pickup beds for units built at the Toyota-General Motors Corp. joint venture New United Motor Mfg. Inc. in Fremont, CA, as well as at the Mexican site. Plans called for the facility to build 170,000 truck beds annually starting in 2004.

The auto maker, which began importing Camry and Corolla cars in 2002, said it expected to have annual sales of 100,000 vehicles in Mexico by 2007. Toyota also revealed plans to expand its Mexican dealer network to 15 from six.

On the labor front, Ford Motor Co. Mexico S.A. de C.V announced plans in April to cut 600 jobs at its Hermosillo plant in northern Mexico due to decreased U.S. demand for the Escort and the end of Escort sedan production, offering workers voluntary severance packages.

In September, a strike at Volkswagen AG's Puebla assembly plant was averted when a settlement was reached in a wage dispute on Sept. 4, after five weeks of negotiations. Employees at the plant, which builds Jetta and Beetle models for the North American market, received a 5.5% wage hike and a 1.5% increase in benefits, under the new agreement. Workers had demanded a 10.2% raise.

Then tragedy struck Chrysler's Mexico City plant Oct. 25 when four people died after inhaling toxic fumes. The plant, scheduled to close permanently, was not running at the time. The workers, employed by a local cleaning company, were cleaning a cistern when they inhaled the harmful fumes.

Meanwhile, Brazil and Mexico continued to negotiate terms of a broadened trade agreement. Both countries hoped to expand their existing trade accord, limiting the export shipment of vehicles from Brazil to Mexico at 50,000 units annually at an import duty of 8%, to some 200,000 units annually at a 5% duty until 2005, when the quotas would be dropped.