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Insight

Future of Mexico's First OME Hangs in the Balance

Mon, 09/01/2014 - 12:35

In May 2014, Mexico’s Mastretta announced it was halting production of the country’s much-anticipated first sports car, the MXT. Shortly after, the OEM’s founding owners Daniel and Carlos Mastretta declared that they were parting ways with the company. Certain critics will herald this development as evidence that Mexico is not yet ready to host its own automaker, but a look at Mastretta’s journey shows how close it came to success.

Calling on years of experience in the transportation sector, Daniel and Carlos Mastretta began a bus body manufacturer in 1987 bearing the Mastretta name. After Mexico was sent reeling from several financial crises, the company was restructured in 1996 with the brothers realizing they needed to expand their business model. The new vision saw the Mastrettas carry out car designs in-house and build actual prototypes from their base in Mexico City. In 1997, Mastretta began making replica cars of the 1959 Corvette and the Porsche 356 for the Japanese and American markets, but after a brief success, the country was rocked by another crisis, forcing the company back to the bus sector. In partnership with CONACYT, Mastretta was able to produce an alternative version of the Metrobus, which is still running today. That same year, Mastretta partnered with a company from Guadalajara to work on a joint system for the city’s Auto Tren unmanned train. Despite this brief foray into rail, the Mastretta brothers have predominantly devoted their attention to their true passion: the sports car.

The focus of this attention has been on the brother’s MXT creation, the initials of which are a nod towards the Mastretta name, Mexico, and the car’s transverse engine configuration. Designed entirely in Mexico and powered by a Ford 2.0-liter Turbo Four engine, the car has received considerable global attention for being the first car almost entirely developed in Mexico without any foreign input. Following sizable international exposure the brothers partnered up with a distributor in England and after some promotion in Europe, in 2011 the Mastretta’s were contacted by the BBC’s eponymous Top Gear. What should have been a glorious moment for the company turned into a PR shambles, with the show pouring scorn on the idea of Mexico producing a serious sports car. The incident caused a minor diplomatic spat between Mexico and the UK but ultimately proved the old adage that no publicity is bad publicity. “This exposure landed us 20 orders for the MXT,” explained Daniel Mastretta. “That order was too large for us to handle, so we had to adjust our investment and business strategy. We were close to building one car per week, and our idea was to build up to producing two a week by the end of 2014, and four a week by late 2015 in order to reach our long- term sales targets.” Those targets saw Mastretta come up against serious competition. The niche market for two-seat, rear engine vehicles includes experienced manufacturers that produce anywhere from 50 to 1,000 cars per year. The pressure to increase output was therefore no small weight for the Mexican company with big dreams to bear.

Funding for the development of the car proved to be an ongoing challenge, and backing originally provided by CONACYT eventually ran out, leaving the brothers to continue development with their own funds. In 2013, in need of a secure source of funding, the family-owned business sold a majority shareholding to private investors, with the hope of being able to use the funds to gain European Community Small Series Type Approval. The agreement saw the brothers hand over control of the company to Latin Idea Ventures, which saw the parachuting in of the investors’ own executive into the role of CEO. “We knew from the beginning that it would be difficult to remain independent forever. We never had the economic power to do it ourselves. We never had the resources for any project really, but this one in particular is very costly. Therefore, we had to get money from outsiders, as the family-owned company route was not the way to go anymore,” reasoned Daniel Mastretta.

Sadly, despite hard work to perfect the Mastretta MXT sports vehicle under the Mastretta Cars brand, the company has finally reached what seems to be an insurmountable stumbling block. The decision to hand over majority control to a third party appears to be one the brothers have lived to regret. Explaining the Mastrettas’ decision to part ways with their own company, their representatives released the following statement: “It is the contention of the Mastrettas that the new management team made poor strategic decisions, failed to achieve any of the agreed goals, and wasted valuable funds that should have been earmarked for development. It is also alleged that despite a contractual agreement being in place, investors have withheld the second installment of funding. The Mastrettas maintain that they have repeatedly warned their board of the potential consequences of management policies, including delays to the approvals program, but with no action being taken on either this, or the implementation of the subscription agreement, they felt that they had no other choice than to remove themselves from the business until their concerns are addressed.”

Despite the many challenges encountered by Mastretta in the development of the MXT, the company managed to advance both the MXT and the racecar MXT-R version to become well-defined and viable concepts. The sports car envisioned by Mastretta was designed not to copy those developed by traditional producers, but to stand out in its own right. The vision and achievements of the brand have also inspired the Mexican automotive industry itself. The launch of the Mexican developed VUHL in 2013 can be directly attributed to Mastretta. One of VUHL’s founders, Guillermo Echeverría, studied under Daniel Mastretta. “Echeverría, after having worked at Mastretta, told me that he wanted to do the same thing, and I told him to go for it. He saw Mastretta cars as a motivation and we must continue to do just that, to motivate each other. There are many areas where Mexico must improve, and there are many possibilities here to do just that. The number of people thinking outside the box is increasing.” While the future of the Mastretta brand remains uncertain for now, hope remains that Mexico’s journey to cementing its own successful OEM will continue, and eventually succeed.