The Mexican Auto Industry Association (Asociación Mexicana de la Industria Automotriz: AMIA) has released data showing the country's light-vehicle production and exports for May 2014; as of 9 June, sales were not included in the results. This follows a year-on-year (y/y) sales decline of 8.0% in April 2014 and a ytd decline of 0.8%. With two new plants in 2014, production continues on its upward trajectory; the growth rate in production in May was 12.5% – more than April's 3.9% but less than March's 16.3%. Ytd production has reached 1.31 million units through the first five months of 2014. Exports increased by 22.7% to 234,629 units shipped in May, compared to 9.0% growth in April, partly on a better month for US car sales, which increased 11.3% in May; for the year, Mexican exports are up 11.6%. While sales in May have not been reported, April saw Nissan maintain the top spot with 19,488 units sold (down 7.6%), followed by General Motors' (GM) 15,853 deliveries (down 4.5%). Volkswagen saw a jump in April to 11,464 units, while fourth-placed Chrysler saw sales decline 14.4% in April.
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Mexican light-vehicle production, and exports |
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|
May 2014 |
May 2013 |
% change |
Ytd 2014 |
Ytd 2013 |
% change |
|
|
Production |
287,488 |
255,474 |
12.5 |
1,310,250 |
1,221,811 |
7.2 |
|
Exports |
234,629 |
191,205 |
22.7 |
1,043,161 |
935,128 |
11.6 |
Light-vehicle production saw an improvement of 12.5% in May 2014 to 287,488 units, bringing total production in the first five months up to 1.31 million units, and setting a record for the month of May. With Honda, Mazda, and Nissan's additional capacity in late 2013 and early 2014, another record year is expected after the 2013 results also delivered. Production in the country continues to be led by Nissan, which produced 5.0% more this May than last at 74,159 units. Following behind Nissan was GM with an output of 59,841 units (up 21.5% y/y) and Ford (up 0.8% to 46,769 units built). Volkswagen produced 46,263 units – a decline of 9.9% as the brand continues to see a sales decline in the US market. Chrysler held fifth place with 40,983 units sold (up 3.8% y/y), while Honda (9,205 units) pulled ahead of Toyota (6,193 units) and Mazda (4.075) in production output in May.
Of the light vehicles produced locally in May, 83% were exported, indicating that the 79.6% rate of the first two months in 2014 was low. Exports dipped in January, but have since continued to increase. In May, exports were up 22.7% to 234,629 units. Over the first five months of 2014, some 71.1% of exports went to the US, a total of 741,638 units and an increase of 19.2%. An additional 98,580 units were shipped to Canada through May, with Canadian exports increasing 37.2% and accounting for 7.7% of Mexico's export volume. Mexican producers saw declining exports to Latin America by 2.4% to 108,549 units as the region suffers from struggling sales. GM exported the largest number of vehicles during the first five months of the year with 243,166 units, reflecting a 33.6% increase over 2013, followed by Nissan (212,590), Ford (183,551), Chrysler (182,071), Volkswagen (158,924), Toyota (28,163), and Honda (20,101). The only producer seeing a decline in exports ytd is Volkswagen, down 20.8%.
Outlook and implications
Although May 2014 sales data have not been reported as yet, demand in Mexico through April continued to rebound from the lows reached in 2009 when the economic crisis hit. However, AMIA pointed out that sales are still below those reported in 2004. Overall, registrations of light vehicles returned to pre-crisis levels, which stood at over one million units between 2004 and 2008. Sales have been buoyed by improving access to credit, with a rise in the number of vehicles purchased using this method. Currently, 54% of vehicles are financed, compared to 70% before 2008. However, flat sales in the first two months of 2014 may have been due to credit tightening. After-sales picked up in March, with results in April declining again – something the AMIA indicates is relative to decreased sales days because of the holy week; it could also be related to tight credit.
Overall, vehicle demand has recently bucked the economy, thanks to a return of credit and an aggressive push by the OEMs. Also, with sales exceeding the 1-million unit mark, it is largely considered business as usual. This contributes to the market moving at a more moderate pace, beginning in 2014, with a rate of about 4.1% or 1.11 million units, which also reflects an IHS reduction based on 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, and 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 on vehicle demand. Relative to the slow first two months, we hope this was mostly due to the impact of a severe winter, but December 2013 saw a contraction in credit to durables. With an update to that series, we will have a better understanding of whether 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 May 2014, AMIA noted that the results of the World Bank's Doing Business in Mexico study showed a stronger business environment in 31 states and the Federal District, but also that "there is still a long way to go to shorten the gap between the entities of the best and worst" performance in Mexico. In reporting April 2014 figures, the AMIA cited remarks from financial advisor and head of the International Monetary Fund's (IMF) Monetary and Capital Markets Department, Jose Vinals. The IMF notes that over the past six months, financial stability has improved in advanced economies in general terms, but deteriorated in emerging economies; the IMF believes it is time for financial systems to leave behind the unit of easy money and move towards an environment of continual growth. Expectations are that resultant strengthening in the balance sheets of banks and companies should help to underpin optimism in financial markets, leading to the improved flow of credit to support a recovery. Vinals said that advanced economies are seeing financial markets backed by "extremely accommodative monetary policy and the abundance of liquidity. These economies will have to reduce their dependence on the struts and monetary liquidity to be able to create an environment of continual growth, marked by an increase in business investment and a growing level of employment". In March 2014, the fifth component of the consumer confidence index, which measures intent to purchase durable goods, was at 73.0, according to the AMIA. This is 30.8% lower than pre-crisis levels, but also showed a slight recovery this month.
The April results for sales volumes in Mexico were still somewhat held back by the over-supply of used vehicles from the US. The AMIA previously said that used vehicle imports into Mexico grew 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 March 2014 fell 0.9% to 42,407 units, according to the AMIA data. While used car imports resulted in Mexico growing at a slower pace than 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 future. This month, Denso opened a new plant and rumours surfaced that Kia is also planning a new plant in the region. Comments have long been circulating about a BMW investment in Mexican production. 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. Hyundai 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. Production will continue to increase in the second and third quarters of 2014, though output may be sequentially lower in the fourth quarter. 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.
By Analyst Stephanie Brinley
