Image credits: Government of Mexico
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News Article

Mexican Government Fails to Support the Automotive Sector

By Alejandro Enríquez | Tue, 04/28/2020 - 11:49

OEMs based in emerging countries are facing a lack of government support not seen in their home countries. Cashflows might be compromised if financial relief policies focused on alleviating the effects that COVID-19 has had on sales and production in manufacturing destinations do not match with those from OEMs’ home countries.

Early this week, Volkswagen's CEO, Herbet Diess, told German television ZDF that a broad stimulus package was needed to revive the automotive sector in Europe. "We need consumption, the economy needs to get moving again," he said. European countries such as France, Italy, Spain and Germany have implemented financial or fiscal strategies to minimize the effect of the pandemic and avoiding job losses. However, access to these stimulus packages comes with a series of strict guidelines that must be followed by large companies. Earlier this month, it was known that the terms of the merger between FCA Group and PSA Group could be revised for one the automakers applied for financial aid, dividends could not be paid. Financial relief packages have not been seen in some of the developing economies where OEMs’ production is based. “In a lot of the countries in which we produce, such as Tunisia, Hungary and Mexico, we have to pay staff costs ourselves,” told Dräxlmaier to the Financial Times. According to the same source, most OEMs and Tier 1 companies in Mexico have to solve the salary issues on their own. Nissan and FCA are paying 100 percent of wages despite production shutdowns throughout April.

The Mexican government has not announced any stimulus package for large companies. In mid-April, just a single MXN$25,000 (US$1,040) credit program for SMEs was announced. Week after week, players in the sector have urged to government, without much success, to label the industry as essential to keep operating. Brazil, the other Latin American automotive hub, is already designing a package to support large companies in 10 sectors, including automotive, electric power, airlines and retail through public banks, according to bnamericas.

Facing a lacking response from the government, the Mexican Business Council and IDB Invest launched a fund of up to US$12 billion to provide credits to 30,000 SMEs in Mexico. The program is directed to protect supply chains across different sectors. The amount of the credits is variable and has an average term of 90 days. The initiative was not very well received by the president who said: "I do not like the manner (in which the program was done)."

Brands in the sector have already stepped up and have also urged the government to take decisive actions. Jorge Vallejo, Director of Mitsubishi Motors Mexico, told Milenio that "the market is contracted and we definitely need to manage and boost it quickly." he said. During yesterday's morning press briefing, President López Obrador briefly addressed the sector: "When we talk about the automotive industry in Mexico we are talking about 1 million jobs. This is going to be reactivated soon; they are key companies, but there are many companies around them. We are in very close communications with the US government." he said.

The data used in this article was sourced from:  
Reuters, Financial Times, Mexico Business News, Milenio, Ministry of Economy,
Photo by:   Government of Mexico
Alejandro Enríquez Alejandro Enríquez Journalist and Industry Analyst