Miguel Jáuregui
Founding Partner
Jáuregui y Del Valle
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View from the Top

Familiar Challenges Still Plaguing Domestic Market

Tue, 09/01/2015 - 11:06

Q: What obstacles do you see within the Mexican market in terms of automotive manufacturing and local consumption? 

A: The domestic car market lacks liquidity. More consumption ability is desirable, but disposable income in Mexico has to increase in order to drive an increment in cars sales in the domestic market. The solution is two-fold, involving both public policy to promote consumption in the Mexican car market, and improving access to affordable credit.

The potential increase of car sales in Mexico will also depend on legal protection that enables credit providers to repossess vehicles if necessary, in order to recover the value of leased cars and outstanding loans. The fragility of the Mexican car market in these areas negatively impacts car sales. 

Q: What measures have to be taken to improve the situation of illegal used vehicle imports? 

A: Car registration must improve in Mexico, as well as public policies regarding property enacted by the federal, state, and municipal governments. Demonstrable and reliable car ownership is a requisite to avoid situations where consumers lack protection against illegal car sales. 

Consecutively, the importation of poor quality second hand cars from the US must continue to be avoided, as they negatively impact consumer rights and threaten safety in the used car market, not to mention the fostering of unfavorable competition. The approval of these imports has damaged the second hand car market in Mexico, since most of them are sourced from scrapyards in the US, and in many instances are bad for the environment. 

Fortunately, there is an increased awareness of the dangers in allowing the importation of poor quality cars from the US; but conditions are yet to be improved through a wellfunded and transparent used car market, combined with affordable new cars and efficient maintenance services. OEMs should provide Mexican consumers with the ability to buy affordable used cars with legitimate legal titles. Rules and processes are not standardized in Mexico, as each state has its own system to recognize and transfer car titles and issue license plates.

Q: What are the most effective incentives that states and municipalities currently offer OEMs to attract their investment? 

A: Upon arrival into Mexico, OEMs generally require infrastructure, security, qualified labor, and land. Incentives for OEMs range from land contributions to the provision of infrastructure, such as roads, electricity, water, and waste management. Additional incentives can range from public transportation for employees, to the reduction or waiver of real estate transfer taxes. 

Unfortunately, accelerated depreciation of investments is no longer available, while salary subsidies are lacking and must be directly negotiated with the federal government. Local payroll taxes may be also exempted, but we advise our clients to keep three main points in mind. Firstly, they should not partake in any corrupt activity, secondly, regulations must always be followed, and thirdly, it is vital to understand and respect the conditions of the Mexican market and its environment. Knowledge of Mexican history and of the operating region, as well as an understanding of the political climate, is also necessary. 

Q: How has Jáuregui y Del Valle developed over the last year, and how do you see it moving forward in the automotive industry?

A: Jáuregui y Del Valle is a full service law firm and its aim is to provide a high-quality comprehensive service, offering expertise in all areas of practice that are essential for successfully operating a business. These divisions can include corporate, mergers and acquisitions, tax, intellectual property, labor, energy, telecommunications, competition, regulatory compliance, anticorruption and money laundering. 

Jáuregui y Del Valle has the necessary capacity to successfully operate within Mexico’s competitive marketplace, with a view to provide clients with excellent services at affordable prices.