The Mexican Auto Industry Association (Asociación Mexicana de la Industria Automotriz: AMIA) has released data showing the country's sales, production and exports for March 2014. With two new plants onstream, production picked up by 16.3% to 277,314 units, and 2014 is expected to be a record year. Exports increased by 12.9% with 230,772 units shipped, partly due to a better month for US car sales, which increased by 5.7% in March; for the year, Mexican exports are up 8.6%.
|
Mexican light-vehicle sales, production, and exports |
||||||
|
March 2014 |
March 2013 |
% change |
Ytd 2014 |
Ytd 2013 |
% change |
|
|
Production |
277,314 |
238,519 |
16.3 |
774,731 |
727,571 |
6.5 |
|
Exports |
230,772 |
204,475 |
12.9 |
606,204 |
558,375 |
8.6 |
|
Sales |
85,682 |
82,767 |
3.5 |
251,124 |
247,229 |
1.6 |
Light-vehicle production also saw an improvement of 26.3% year on year (y/y) to 277,314 units in March, following a record year in 2013. With new plants from Honda and Mazda going online in 2014 following the additional capacity available at Nissan's Aguascalientes 2 from late 2013, another record year is likely. Production in the country was led by Nissan, which produced 32.4% more this March than last at 70,590 units. Following behind Nissan was GM with output of 60,774 units (up 14.4% y/y), Chrysler with 41,112 units (up 23.3% y/y), and VW producing 38,600 units (down 16.6% y/y). Ford was in fifth place, building 4.3% fewer units than last March at 44.811. Mazda's production began in January, and the company maintained a faster pace than Toyota, building 6,733 units in March, while Toyota was up 20.9% to build 6,066 units.
Of the light vehicles produced locally in March, 83.2% were exported, which is similar to the 82.6% exported last year, and indicates that the 79.6% rate of the first two months was low. While exports dipped in January, they have been increasing ever since. In March, exports were up 12.9% to 230,772 units. Over the first three months of the year, 70.7% of exports went to the United States – a total of 428,376 units and an increase of 14.4% – while 60,859 units were shipped to Canada, an increase of 34.8%. Mexican producers increased exports to Brazil by 9.5% to 24,466 units. GM exported the largest number of vehicles during the first three months of the year with 144,356 units, followed by Nissan (133,838), Ford (110,514), Chrysler (100,360), Volkswagen (82,627), Toyota (17,906), and Honda (8,403).
Outlook and implications
Demand in Mexico continues to rebound from the lows reached in 2009 when the economic crisis hit, but AMIA points out that sales are still below those reported in 2004. However, overall, registrations of light vehicles have returned to pre-crisis levels, which stood at over one million units between 2004 and 2008. Sales have been buoyed by access to credit, with a rise in the number of vehicles purchased using this method. Currently, there are about 54% of vehicles being financed, compared to 70% before 2008. However, flat sales in the first two months of 2014 may be due to credit tightening up.
Vehicle demand bucked the economy, thanks to a return of credit and an aggressive push by the OEMs. Also, the market is essentially back to normal, passing the 1-million unit mark. As a result, we see the market moving at a more moderate pace, beginning in 2014, with a rate of about 4.1% or 1.11 million units; the change is also a result of weak January and February results. We expect the moderate pace to become the new trend; with business normalising, growth is expected to stay close to the pace of GDP growth, thus moving away from the recent trend of the pace of growth doubling that of GDP. Some local expectations put the growth rate higher (6-7%), but our forecast is more conservative owing to the fiscal and financial reforms taking place in Mexico, which we believe will weigh down on vehicle demand. Relative to the slow first two months, we hope this was mostly the impact of a severe winter, but December saw a contraction in credit to durables. With an update to that series, we will have a better understanding if the beginning of 2014 was an outlier. We also have the caveat that if the credit situation does not normalise, Mexico could face a fairly anaemic sales year.
In reporting March 2014 figures, the AMIA cited remarks from the managing director of the International Monetary Fund (IMF), Christine Lagarde, who said the global economy is leaving the recession behind, but still faces obstacles. However, global growth is still too slow and weak, and the obstacles ahead include reform of the financial sector, high levels of debt in many countries and strong levels of unemployment. She also indicated an emerging risk of ultra low inflation, which could inhibit demand and products; a risk of worsening market volatility as advanced economies withdraw quantitative expansion; and geopolitical tensions, specifically in the Ukraine, which have the potential to tarnish the global outlook. In March 2014, the fifth component of the consumer confidence index, which measures intent to purchase durable goods, was at 73, according to the AMIA. This is 30.8% lower than pre-crisis levels, but also showed a slight recovery this month.
Sales volumes in Mexico are still held back somewhat by the oversupply of used vehicles from the US. The AMIA previously said that used vehicle imports into Mexico grew by 53.3% in 2013, holding back new vehicle sales despite being taxed at a higher rate than new car imports, which will continue as a temporary law has been extended. However, used car imports in February 2014 fell by 35.8%, according to the AMIA data. While used car imports result in Mexico growing at a slower pace than other countries like Brazil or Colombia, we anticipate that the market will be buoyant going forward.
Meanwhile, further investments by automakers and component suppliers in Mexico bode well for the country as a production base in the future. Mazda began production in Salamanca in January 2014, followed by Toyota, confirming its subcompact from this plant will use the Mazda SkyActive powertrain; Honda started production in February; and Nissan expanded production in late 2013. Premium automakers are also moving in, with Mercedes-Benz on course to join the upcoming Infiniti Q30 at a Nissan site, after Audi announced plans for the country in 2012. Following the demise of the distribution agreement that Hyundai had with Chrysler Group, the company is establishing an independent sales network of its own. Hyundai has previously been adamant that it will not build more plants or increase capacity in the short term, but there are some indications that its stance is softening. If it does, Mexico is an option, as are several other countries.
We anticipate that 2014 will be the year when production in Mexico finally breaks through the 3-million unit mark on its way towards four million units by 2017. We also see output nearing 4.5 million light vehicle units by the end of the decade, as both capacity and component supply networks are widened and improved.
