Demand Accelerated Asian Market Share in Mexico

The Asian invasion was happening again in North America in 2005, only this time the target was Mexico.

Asian auto makers were gaining market share at a rapid pace in a country that had been a solid performer for both the U.S. Big Three and Europe’s Volkswagen AG.

Asian market share for 2005 stood at 29.0%, according to Ward’s data, equaling the 20-year high set in 1987 when the only Asian auto maker selling in Mexico at the time, Nissan Motor Co. Ltd., held 29.0%.

Related document: World Automakers' Addresses, 2006

Nissan had been selling cars in Mexico since the 1960s and Honda Motor Co. Ltd. came on the scene in 1996. Toyota Motor Corp. (2002) and Mitsubishi Motors Corp. (2003) were relative newcomers.

Mazda Motor Corp. came on board in October 2005, when it began selling the Mazda3, Mazda5 and Mazda6 at dealerships in the country’s three major cities.

“The reception in Monterrey, Guadalajara and Mexico City for the Mazda brand has been very, very strong, so we’re very excited about the opportunities there,” said Jim O’Sullivan, president and CEO-Mazda North American Operations.

O’Sullivan said Mazda planned to expand its dealer network quickly, going from four locations to 10 by the end of its fiscal year in March 2006.

Asian Makers Continued Gains

Asian auto makers over the prior five years had gained at least one percentage point of market share annually in Mexico, growing from 23.3% in 2000 to 27.4% in 2004.

By comparison, General Motors Corp., Ford Motor Co. and DaimlerChrysler AG (including Mercedes-Benz) saw their combined market share fall from 55.4% in 2000 to 48.8% in 2004, before recovering slightly in 2005 to 50.8%.

And GM placed No.1 in light-vehicle sales in 2005, with 243,932 units, edging out Nissan.

European auto makers experienced the opposite. After seeing their market share in Mexico increase for six years, from 1998-2003, they experienced a decline from 24.5% in 2003 to 23.1% in 2004. It fell again to 20.2% in 2005.

“VW, in particular, has struggled to hold its share in the marketplace,” said Paul Ballew, GM executive director-global market and industry analysis.

In calendar 2005, VW’s market share in Mexico stood at 15.5%, according to Ward’s. In 1994, the German auto maker held 27.3% of the light-vehicle market.

“What has happened is you’ve had Toyota entering the market, because they weren’t in the market up until a couple of years ago,” said Ballew. “And then you had Renault (SA)-Nissan, combined. Then you had Honda add some vehicles into the portfolio.

“The principal manufacturer (that has) struggled against the weight of that competitive product coming in has been VW. It has certainly struggled to defend its position, especially if you go back a decade ago,” Ballew said.

Since the signing of the North American Free Trade Agreement in 1994, and recent FTAs inked between Mexico and Brazil and Japan, the majority of vehicles now sold in Mexico (are) imported, Ballew said.

He characterized Mexico’s new-car market as “one of the more open markets around the globe.” And that, he said, had changed the dynamics with regard to the number of vehicles being sold there, which “has gone up dramatically.”

New Vehicle Sales Record

Indeed, the Mexican auto industry had grown at a feverish pace: from 183,385 light vehicles sales in 1995, after the peso was severely devalued in December 1994, to 1,089,665 in 2004; the first time more than 1 million units were sold in a single year.

And, while some Asian auto makers, such as Nissan and Honda, had seen sales falter from year to year due to new-market volatility, sales of Asian brands, overall, had accelerated from 42,602 light vehicles in 1995 to 326,138 in 2005.

Global Insight Senior Analyst Rebecca Lindland said the lack of a domestic brand paved the way for the country’s reception of imports.

She pointed to Toyota’s quick rise to a 3.1% market share today as proof. In 2002, its first full year in Mexico, Toyota registered 3,836 light-vehicle sales. In 2005, it saw 35,318.

The Japanese auto maker entered the Mexican market in 2002 with three models: the Camry, Corolla and 4Runner SUV. Three years later Toyota boasted a lineup of seven light trucks and five cars.

The Corolla was Toyota’s top-selling car in Mexico in 2005; the RAV4 small cross/utility vehicle its No.1 light truck.

Despite Toyota’s rise, the Nissan Tsuru small sedan, basically an ’84 Sentra, was the best-selling car, with 68,201 deliveries in 2005.

Lindland said the Mexican market is a perfect fit for many of the Asian brands, because they sell the small cars Mexican buyers want.

“(Mexicans) are much more receptive to small cars (than the U.S.), because of the crowded conditions they tend to live in, certainly in Mexico City,” Lindland said. “The Mexico market is very different from the U.S.”

However, Ballew cautioned against pegging Mexico as an “econocar” market, saying it is “more fragmented than people assume.”

“We’re seeing that in other emerging markets as well,” he said. “While you get small-car growth, you get growth in other parts of the market,” including CUVs, SUVs and a variety of pickup trucks.

Competitively priced vehicles and a relatively young new-car market also contributed to the Asian brands’ fast growth in Mexico.

It remained to be seen whether Hyundai Motor Co. Ltd., known for having some of the most competitively priced vehicles in the world, would enter this lucrative market. The company opened its first North American plant in Montgomery, AL, (since it closed an ill-fated assembly operation in Broment, Que., Canada, in the early 1990s) and a company spokesman said at the time there were no plans to sell Hyundai-brand vehicles in Mexico.

The South Korean auto maker already had a presence in Mexico, of sorts. DaimlerChrysler Corp. sold the Hyundai Atoz as a Dodge small car. The deal was a remnant of DC’s former 10.5% stake in Hyundai.

Hyundai not withstanding, Asian brands were expect to continue growing in Mexico, but the Big Three and Volkswagen did not need to lose sleep.

Of Mexico’s top-selling new-car brands in 2005, Global Insight predicted that by 2010 Nissan would lead, with a 21% market share; followed by GM with 19.7%; Ford and VW each at 16.0%; and DC at 11.7%. Toyota trailed with 4.3%.

For 2005, new-vehicle sales eclipsed the 1.090 million units sold the previous year.

While car sales slumped, light truck sales increased.

The Ford F-Series was again the No.1 selling light truck, while Nissan’s Tsuru was the top-selling car.

Total vehicle production was up as well, with production for export making up the majority of the tally.

Notable events during the year included the opening of Toyota’s first full-scale Mexican assembly plant in Tijuana. Toyota was the last of the Japanese Big Three to open a Mexican facility, with Nissan having had a presence in the country for 40-plus years and Honda for a decade.

Toyota Motor Mfg. de Baja California opened officially in February. It began producing truck beds in August 2004 for the Tacoma compact pickup and in December 2005 commenced building a nominal number of Tacomas. Toyota’s joint venture plant with GM in Fremont, CA, New United Motor Mfg. Inc., built the majority of Tacomas for North America, but Tijuana was set to add 30,000 annually to the mix.

Nissan announced in late September it had selected its plant in Aguascalientes to build the new Versa subcompact for the North American market. Nissan planned to begin U.S. sales of the ’07 Versa in mid-2006.

The auto maker said it would invest $800 million in the facility to expand its annual capacity by 150,000 units to 350,000 in 2007. Suppliers were said to be spending another $500 million to support the program.

The added investment was expected to create 4,000 jobs in total, 2,000 at Nissan and 2,000 at suppliers.

The Versa, a version of Nissan’s successful Tiida small car, would come equipped with a 1.8L 4-cyl. engine mated to a choice of three gearboxes, including a continuously variable transmission.

In August, Nissan said it would begin sourcing CVTs from Mexico in late 2005, marking the first time Nissan CVTs were produced in North America.

Nissan affiliate JATCO Ltd. reportedly would make approximately 300,000 CVTs annually for fitment in Nissan vehicles for the North American and European markets.

Also in August, Ford began production of its new midsize sedans, Ford Fusion, Mercury Milan and Lincoln Zephyr, at its Hermosillo plant.

To make room for the new products, the plant halted production of 3- and 5-door Focus cars in June. Production of the variants, which had been built at Hermosillo for five years, shifted to Ford’s Wayne, MI, plant.

After a 2004 strike at its Puebla plant, Volkswagen AG reached an agreement in August with union leaders, avoiding another strike.

More than 11,000 union workers at Puebla accepted a 4.2% pay raise and minor improvements in benefits, the company and union leaders said. Workers, who originally demanded a 12.5% raise, had walked off the job in 2004 and 2001 over similar demands.

In July, VW announced it would build the Jetta station wagon at Puebla beginning in late 2006.

Otto Lindner, chairman of Volkswagen de Mexico S.A. de C.V., said the plans for the new vehicle were part of the company's previously stated $2 billion investment in Mexico between 2003 and 2008.

In August, the country’s Finance Ministry relaxed its limits on the importation of used cars from the U.S. and Canada, despite auto industry objections. The age limit for cars and trucks that could be legally imported was extended to 15 years from the previous 10 years.

The government said it was acting to try to organize the used-car market in Mexico before limits were fully lifted in 2009 under the terms of the North American Free Trade Agreement. Mexico already had millions of unregistered used cars, many brought back by migrants after working in the U.S. and Canada.

In light of the bilateral free-trade agreement inked between Mexico and Japan that became effective in April, Isuzu Motors Ltd. began exporting its light-duty ELF trucks to Mexico in November.

The FTA allowed Japanese auto makers to import up to 50,000 vehicles a year tax free, rescinding the previous 50% tax.

Isuzu established a 51/49 joint venture with Mitsubishi Corp. in July, Isuzu Mexico S.de R.L., to act as the local distributor. Isuzu Mexico was capitalized at ¥400 million ($3.4 million).

Isuzu’s sales projections called for 300 units October-December 2005; 1,800 in 2006 and 2,300 in 2007.

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