Mexican auto production is expected to grow 6.4% in 2015

The Mexican Automotive Industry Association (Asociación Mexicana de La Industria Automotriz: AMIA) has reported light-vehicle sales, production, and exports in August. Light-vehicle sales increased 7.9% year on year (y/y) last month, according to the AMIA, the eighth consecutive month of growth but at a more sedate pace compared with a 27.1% gain in June and 16.1% in July. Sales in the year to date (YTD) were up an impressive 19.0% y/y to 833,577 units in August. YTD sales of passenger cars increased 21.2% y/y to 560,176 units and sales of light commercial vehicles (LCVs) rose 14.8% y/y to 273,401 units. Mexican sales in 2015 have been somewhat different from the last months of 2014 and from those of several other global regions, in that passenger car demand has increased at a higher pace than LCV demand.

Nissan easily maintained its position as the best-selling brand in Mexico, with sales of 21,371 in August, a 10.1% y/y gain, and a YTD total of 218,315 units, a 22.9% y/y gain. General Motors (GM) held second place with 15,120 units sold in August, a decline of 14.4% y/y, and in the YTD the gain was 13.5% y/y to 157,617 units. Volkswagen (VW) Group was in third position with 17,137 units sold in August, an increase of 16.1% y/y, and VW saw an increase of 10.9% y/y in the YTD. FCA Mexico, formerly known as Fiat Chrysler Automobiles (FCA) Mexico, held fourth place with a 17.3% y/y gain to 8,382 units sold in August. Ford sold 6,948 units last month, a decline of 3.3%. Toyota delivered 7,125 units, up 9.5% y/y. Honda saw a 11.8% y/y sales increase to 5,543 units in August. The results for low-volume brands were mixed in August, with BMW (1,011 units) up 12.3%, Subaru (1,110 units) flat, and smart (55 units) down 56.3%. While smart is in the process of rolling out a new fortwo, the brand's sales were down 26.9% y/y in the YTD.

Mexico's auto industry continues to see production gains, though they have moderated compared with the corresponding months of 2014, when new plants were increasing production. In August, a total of 292,271 light vehicles were built in Mexico, a 7.7% gain over the corresponding month of 2014. Only Ford (down 32.8% y/y to 29,179 units) and Mazda (down 6.1% y/y to 12,889 units) reported declines in production in August. Nissan increased production by 5.2% y/y in August. The gains in Mexico's output continue to be as a result of investment in new facilities, along with Toyota boosting output of the Tacoma.

Mexico's light-vehicle production continued at record levels in the YTD in August, with a 6.8% y/y gain. Nissan continues to lead Mexican production in the YTD with an increase of 1.7% y/y to 546,652 units. GM's YTD output total of 456,500 units was a 3.1% y/y decline. Ford's output was ahead of FCA Mexico's in April, June, and August. However, in the YTD, FCA built 332,092 units in Mexico, up 0.7%, compared with Ford's 299,171 units, down 3.1% y/y. VW's output declined in April (7.7%), May (15.0%), and in June (8.1%), but increased in July (3.3%) and August (39.7%). In the YTD, VW's production was up 3.7% y/y to 324,147 units. Mazda built 12,889 units in August, down from 13,719 units in the same month a year earlier, while Honda's August production reached 18,572 units, against a total of 14,149 units in the same month a year earlier.

After a small decline in July, Mexico's light-vehicle exports increased in August, a moderate 3.5% y/y increase instead of double-digit gains earlier in the year. In the YTD, exports increased by 7.8% in August and were at record levels, according to the AMIA. In August, export volume slipped to 80% of the country's output, compared with 82% in the YTD. Exports from Mexico in 2014 were up 9.1% to 2.64 million units. Over the first eight months of 2015, 70.9% of exports went to the United States, a total of 1,323,034 units, while exports to Canada in the YTD were 206,411 units, accounting for 11.1% of the total volume. Exports to Brazil fell 34.6% y/y to 48,688 units in the YTD, leaving Germany as the third-largest export market at 69,096 units. Exports to Argentina increased by 67.1% y/y to 29,583 units in the YTD, though more vehicles (37,932 units) were exported to Colombia during January−August. GM and Nissan have jockeyed for position as top exporter from Mexico, and in the YTD in August GM was in the lead with 354,603 units, compared with Nissan's 353,428 units. FCA Mexico exported 315,666 units and Ford 286,549 units during the same period. Mazda exported 111,893 vehicles over the first eight months of 2015, while Honda exported 105,193 units.

Outlook and implications

Registrations of light vehicles in Mexico have returned to pre-crisis levels, which stood at over 1 million units per annum (upa) between 2004 and 2008, largely by improving access to credit, and the market is now generally considered business as usual. With double-digit increases in many months and a 7.9% gain in August, YTD sales were up 19.0% last month. IHS has revised its forecast for 2015 to 1.276 million units, a full-year increase of 12.5%, and indicating the pace of growth over the first six months will not be sustained throughout the year; August's results reflect that expectation. We forecast sales of 1.28–1.33 million units per annum (upa) through 2020, increasing to 1.42 million upa in 2022. Despite the sharp increase in the YTD sales, overall we expect credit conditions to continue to improve and a moderate pace to ultimately become the new trend, beginning with a forecast for 2016 to see sales increase by 3.0%, with growth in subsequent years of between 1% and 2%.

In August, the Banco de Mexico, the central bank, again reduced GDP growth expectations for 2015, to 2.34% (down from 2.55% in July, 2.6% in June, 2.66% in May, 2.88% in April, 2.95% in March 2015 and 3.29% early in 2015). Meanwhile, the central bank's prediction of a general inflation rate of 2.82% in 2015 and 3.44% in 2016 is relatively stable. According to the AMIA, international financial instability, the weakness of the external market and the global economy, and the oil production platform are risk factors that could slow growth. In August, the fifth component of Mexico's consumer confidence index, which measures intentions to purchase durable goods in Mexico, was recorded at 85.8 points. This result was 16.4% higher than in August 2014, but 23.9% below that in August 2007, according to the AMIA. The AMIA also noted that a supplemental index of possibility of making a car purchase stood at 64.8 points in August, 15% higher than in the same month last year.

The AMIA reports that used-car imports are continuing to decline, which is a factor in our sales forecast increase, as the slowdown in 2014 helped provide some breathing room for new cars. Through July 2015, Mexican imports of used cars fell by 6.3% y/y. In 2014, full-year used-car imports fell 29.1%, though this still represented 40% of cars sold last year. The AMIA has previously noted that the 7.5 million used vehicles in the country will have implications on the environment, road safety, and the renewal of vehicles. The AMIA remains concerned that the influx of used vehicles from the US impacts on the renewal of the vehicle parc, and encourages the Mexican government to keep the current practices in place.

Investments by automakers and component suppliers continue, though without significant new announcements in August; however, Daimler and Renault Nissan broke ground on construction of their JV plant in early September. After Toyota and GM announced investments earlier this year, Ford announced investment in its engine and transmission production, while Jaguar Land Rover is reported to be considering beginning production in the country. Suppliers also continue to expand their facilities in the country.

After Mexico's light-vehicle production reached 3.21 million units in 2014, an increase of 9.9%, we forecast production growth will be more moderate in 2015, reaching 3.41 million units. However, as new plants come online in 2016 and 2017, output is forecast to reach 4.39 million units in 2018, continuing and passing 5.0 million units in 2024. Mexican production eclipsed Brazilian output in 2014 and is forecasted to remain ahead throughout the forecast period, in part on slowing markets in Brazil and Argentina.