Mexico Market Growing

Mexico's auto industry finally is enjoying its long-predicted growth spurt, hitting new highs every year since 1999.

Barring any unforeseen economic jolts — which can never be ruled out in Mexico's volatile economy — demand should continue to increase steadily. That will benefit local manufacturers, but due to the dynamics of the Mexican market, it also means new opportunities for producers in the U.S. and other countries.

More than a decade ago, analysts predicted strong economic growth for Mexico that would generate 1 million vehicle sales annually by the end of the 1990s. Then a major devaluation of the peso dashed those hopes, and deliveries nose-dived from a high of 671,000 in 1992 to 183,000 in 1995.

The economy since has stabilized, and annual light-vehicle sales could hit the million-unit mark this year or next. In fact, the country could see annual sales climb by 40% in the next five years, based on forecasts by Global Insight Inc. The market could expand by two-thirds its current level in 10 years to more than 1.6 million units.

That's good for Mexico's key auto assemblers, which includes Volkswagen AG, Nissan Motor Co. Ltd. and Detroit's Big Three, but they will remain mostly dedicated to production for export to the U.S. and Canada.

Sales will grow even faster than production — so much so that Mexico's plants will supply a lower percentage of vehicles to its own market, according to Global Insight.

“The Mexican auto industry has elected to produce higher-content vehicles for export and to import lower-content vehicles,” says Rebecca Lindland, senior market analyst for Global Insight.

Indeed, three-fourths of Mexico's output is exported, including many of the large pickups and SUVs sold in the U.S. by the Big Three. Meanwhile, a growing number of entry-level cars are being imported for domestic sale.

“A lot of new cars are coming to Mexico from SEAT (SA), and the Volkswagen Pointer is doing well,” says Lindland. “Toyota (Motor Corp.) and Mitsubishi (Motor Corp.) are just entering the market,” she adds, which will help boost sales of vehicles built outside the country.

Overall, Global Insight forecasts that 58% of 2003 sales will be vehicles assembled outside the country. That will rise to more than 62% in five years.

The small-car segment, at 59% of the market, dominates Mexico's landscape. Furthermore, a bigger mix of those vehicles is coming from European and South American plants. In the future, more will be coming from the U.S. as well.

Lindland says Ford Motor Co. will shift more Focus production to the U.S. after the small car is displaced by the midsize Ford Futura at the Hermosillo plant. She also says General Motors Corp. will not build the Chevrolet Cobalt — the '05 replacement for the Cavalier — in Mexico, but instead will source it entirely from the U.S.

“The tall wagon Chrysler Neon-replacement (coming in 2004 from a U.S. plant) should do well in Mexico,” she adds.

Currently, U.S.-built vehicles account for one-third of the imports sold in Mexico. Global Insight expects the U.S. import share to rise and stabilize at roughly 42% by 2008.

“There are opportunities for Hyundai (Motor Co. Ltd.) and Kia (Motor Corp.), too,” she adds. “Lack of Korean vehicles really sticks out there. They should be exploring that market.”