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Chocolate Car Decree: Who Will Benefit?

By Alfonso Núñez | Mon, 10/25/2021 - 16:20

President Andrés Manuel López Obrador’s decision to legalize vehicles unlawfully imported into Northern Mexican states has received ample criticism. But who will benefit from this controversial signing?

During the October 16 signing ceremony, President López Obrador explained that the decree aimed to aid those who cannot afford to buy a new or even used car by providing them accessible transportation. In Mexico, an estimated 80 percent of all mobility is done through public transport as the percentage of homes that counts with automobiles in Mexico’s urban cities ranges from 11 percent (Acapulco, ranking as the country’s lowest) to 51 percent (Chihuahua, the country’s highest).

“There are a lot of people who use these cars because they do not have the money to buy a new car, and with these cars they take their children to school and carry out their daily activities,” President López Obrador said.

While critics warn that the measure will impact Mexico’s automotive industry, other parties stand to benefit from the decision. The first are those who own “chocolate” cars, thrown away US vehicles that find a second life along Northern Mexican border states after crossing the border without paying taxes nor complying with custom proceedings. In Tamaulipas alone, there are an estimated 700,000 “chocolate” vehicles facilitating the transportation of residents but these cars present a danger to drivers as they are unregistered. This is the primary population President López Obrador’s decree aims to aid, particularly those located in rural areas without public transportation options for their every-day traveling needs.

“We applaud the President’s decision to solve this issue, derived from the enormous difference between prices for used vehicles in the US and our country, which will benefit most of all the families of Mexican migrants in Baja California,” said the Democratic Farmers Union in large support of the decree.

Local governments also stand to benefit. Chocolate car owners will have to pay a MX$2,500 (US$124) registration fees to their respective state, resulting in a massive input to these local governments. Secretary of Security and Civilian Protection Rosa Icela Rodríguez believes the decree will overall lessen crime, citing that in the last year 78 percent of cars used to commit homicides in Baja California were of foreign origin and as such were unregistered. Rodríguez hopes registering these vehicles will facilitate their monitoring and aid crime investigations.

However, the overall impact of the decree on crime is up for debate as many have criticized that it apparently endorses further illegal activity. Furthermore, these vehicles could have a negative impact on resident’s health due to their high mileage and age, making them high polluters. Many of the illegally imported vehicles failed to meet Mexico or the US’s minimum vehicle safety standards.

Environment aside, the Association of Mexican Automobile Distributors (AMDA) predicts the decree will cause a 39 percent decrease in the national vehicle sales. The President of the Mexican Confederation of Business Owners Alejandro Valdés Menchaca pointed out that the decree will put at risk the 2 million jobs of those working for auto manufacturing companies. Moreover, the decree comes during a global shortage of microchips that is already causing auto-factory shutdowns. Menchaca added that the decrease in national vehicle demand will cause car manufacturers to stop paying value added tax (IVA) and income tax (ISR) as well as diminish paid taxes on new cars (ISAN), which already fell to MX$11 million (US$545,000) in 2020.

The Mexican auto industry currently makes up 3.4 percent of the country’s GDP, making it the seventh largest producer and fourth largest exporter of light vehicles, fifth biggest auto part producer and top exporter of tractor units in the world. There have been 19 regulations for importing used US vehicles into the country, each largely impacting the industry in its own way. President López Obrador’s latest decree believes the direct aid is worth the predicted pay off but the overall influence will have to be determined taking all players in mind.

Photo by:   Unsplash, Jim Witkowski
Alfonso Núñez Alfonso Núñez Journalist & Industry Analyst