Another Year of Uncertainty?

Similar to what we wrote in  November, more challenges have been present in the first quarter of 2023, economically, politically, and socially. All these may also affect the internal market of light vehicles due to the cautiousness that potential buyers are demonstrating in their decisions.

With the economy, even though some indicators are gradually improving, such as consumption in specific sectors, manufacturing is growing, employment is recovering, and public finances are stable, we still have high inflation, and interest rates may probably increase another two times, by 50 basis points, widening the gap with the Federal Reserve rate and causing the recent appreciation of the Mexican Peso, which has reached levels below MX$18 per US$1. This helps importers but affects the export market. This makes our currency one of the strongest in the world.

Growth is still low even though trade among our main partners has increased. Moreover, with the USMCA, we still have difficulties in transgenic corn and energy, where negotiations may fail following some controversial panels, and the solutions may not favor Mexico. In the rules of origin in the automobile sector, the result was beneficial for Mexico.

The announcement that Tesla would invest around US$5 billion to place a gigafactory in our country to  manufacture up to 1 million cars, creating thousands of direct and indirect jobs, is essential news because it reinforces the value chain and commerce in both countries. However, there is a contradiction in continuing to build a fossil refinery in Dos Bocas in Tabasco, one of the iconic projects for this administration, as well as the Mayan Train in the Yucatan peninsula, which is affecting the environment across the region.

Global financial markets are still volatile and uncertain. Many economies, especially in Europe, and including the US, expect lower growth for this year, probably less inflation, and some gradual adjustments in interest rates by the end of the year. However, there has yet to be a consensus among analysts, financial institutions, and central banks around the globe.

The war in Ukraine continues to have a significant economic and social impact  on that part of the world. Politics is prevailing over diplomacy.

Talking about politics, let me highlight some crucial points in Mexico, which are not exhaustive but relevant because we have elections in two critical states this year, Coahuila and the State of Mexico, and the presidential race in 2024.

Political parties are still divided internally and externally. Morena is the strongest now, with three or four possible presidential candidates. The opposition PRI, PAN, and PRD do not have a visible candidate to beat Morena. One thing that is not very clear is why Movimiento Ciudadano ( MC) stepped down from these two elections, arguing they are preparing for 2024. It is an interesting political maneuver that has created a lot of discussion and speculation.

Citizens have also made two relevant peaceful protests to defend the Electoral Institute (INE) and the democratic vote with very important effects on society.

Congress has approved a Plan B for electoral reform, but such a reform will weaken different electoral and democratic institutions. It is putting us back 30 years when the government was the only one controlling all elections: federal, state, and municipal. The final decision on this reform is now with the Supreme Court, which recently appointed a new president, a very prestigious woman independent of President Lopez Obrador. The outcome  has yet to be decided.

Another critical point is the request from some US legislators, specifically Republicans, to approve the use of resources from  their military and drug enforcement institutions to confront the different cartels in Mexico  related to the trafficking of fentanyl or fentanyl-related substances, which have caused the death of close to 100,000 young Americans. The position of the Mexican government is that this would encroach on the country’s sovereignty and may create more tension in the bilateral relationship.

Another political situation that has created fallout here is  the decision of the jury in a New York federal court case to declare guilty the former minister of public security during  Felipe Calderon's presidency, from 2012 to 2018. We are waiting for the final sentencing  on five charges related to drug cartels and money laundering. A decision is expected by June 27.

Regarding the automobile sector, the government has extended the decree allowing the legalization of used and illegal cars coming from the US, which amounted to almost 1.1 million vehicles in 2022, with negative impacts on the domestic market, pollution, and security.

The internal vehicle market for 2023 still needs more inventory from  many brands; we expect that to improve over the coming months. However, there are still many variables that may affect the prediction of sales for the whole year, including financing, which has strong potential as interest rates may gradually decline; new products and strategies from OEMs will be crucial to make  business models more efficient, while also  providing additional models of hybrid and electric cars.

With that, I believe we will grow moderately this year, with good results during the first two months of the year.

There is no doubt that the name of the game for the future is customer satisfaction