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In the Auto Sector — and Elsewhere — Uncertainty Will Prevail

By Guillermo Prieto Treviño -
Independent Contributor


Guillermo Prieto Treviño By Guillermo Prieto Treviño | Independent Contributor - Wed, 07/05/2023 - 16:00

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I will attempt to summarize, in this concise article, various aspects of collaboration primarily focused on the domestic landscape and its correlation with the automobile industry. I won't delve into other external factors that, naturally, impact our country. However, it is worth mentioning a few, such as our relationship with the US, specifically in terms of manufacturing, energy, agriculture, migration, border security, and arms. These factors contribute to the complexity of this relationship, and Canada also holds a significant role. Given that we are facing multiple political elections within a short timeframe, the outcomes of these collaborations will be crucial.

The war between Russia and Ukraine is having a global effect, leading to low economic growth in Europe. Nearshoring is real, and we must take advantage of this phenomenon with incentives for the private sector. There is no grey area here, it is black or white: If we don’t have investment, confidence and the clear rule of law, internally and externally, we will not grow. In this competitive environment in which we find ourselves, the decision is to participate actively in the future or to be pushed out of the race like many countries in Asia, Africa, and Latin America.

We should not adhere to populism and polarization. Governments cannot implement  authoritarian decisions to destroy autonomous institutions. That is why the divisions of power are crucial in a democracy: Having Executive, Judicial, and Legislative branches leads to a balance of power.

It is also important to have a productive relationship between the government and the private sector, and other sectors, including the media. You cannot get up every morning and fight anyone who is not comfortable with the president’s decisions, a president who has lied to the people thousands of times. Mexico cannot be a one-man country.

President Andrés Manuel López Obrador is popular, no doubt; the recent elections in the State of Mexico and Coahuila are a clear sign that Morena will maintain the presidency in 2024 unless something extraordinary happens, which could be a split or a breakdown within Morena.

We need our political parties to agree on the future we all want, although I see that as practically impossible, and for the poor, middle class and the rich to recognize the destruction wrought by this government, which will take decades to recover. It is not just a matter of how money has been distributed. There has been no , incentíves for education or health, we are one of the worst countries in addressing the COVID 19 crisis, and on matters related to security, arms, partnerships with drug cartels, rule of law, corruption, impunity and  many others.

I may be wrong, but people in most segments of the population likely have not realized the damage this government’s so-called 4T (Fourth Transformation) has done to the country. People basically do not care. They do not care that 50% of the population did not vote last Sunday — and the president is taking advantage of that. We need to express in the 2024 presidential election  what we want. Certainly, Mexico is competing strongly in the world; we have the people, the resources, investments that are productive and we have an enviable geographic position. We need to make the decision to be better every day. 

We all need you to vote next year!

Going back to the automobile industry in Mexico, I believe there is more uncertainty, especially as a result of the significant impact from macro variables: consumer confidence, interest rates, inflation, exchange rate, politics, and as always, OEM policies and decisions, distribution contracts, and the change in business models.

Although recent months have been profitable for many brands, there are still challenges to face in the near future because this situation will not last long. Therefore, dealers have to be very careful, especially with working capital and liquidity in order to be more efficient.

For some time now, we have had low inventories and therefore fewer interest payments, so better margins; but there is a big problem with many car brands  not arriving on time. Yet, we are obliged to invoice the car just to have a good picture at the end of the month so that the OEM can gain market share. In fact, we are paying interest on a car we cannot deliver.

This is not a problem for the dealer, but we have to assume the costs, or at least the private financial institutions or brand financials have to provide compensation for the excess costs. This is totally unfair. We are not a priority in the global strategy of OEMs and their distribution networks in Mexico. They take advantage of our great efficiency in terms of  workforce, production, and exports. That doesn’t translate into boosting the  importance of our internal market.

This year, we will achieve close to 1.3 million, or a little more, in sales of light cars . That is an  improvement but not near the 1.7 million that we had registered  before the COVID-19 pandemic. If the participants in the domestic market continue to hold differing views and interests that do not run  in the same direction, we will not reach our very significant potential for future growth.

In my next article, I will focus on mobility!

Photo by:   Guillermo Prieto

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