Eduardo Solís
Executive President
View from the Top

Mexican Market Must Break Decade-Long Stagnation

Mon, 09/01/2014 - 09:47

Q: What are the main priorities of AMIA and how do you interact with the government to address your concerns?

A: We have four major elements. The first is to reactivate the domestic market. We must do something to bring back the internal market to where it ought to be. 2013 closed with the sale of just over 1 million vehicles internally in Mexico, just above the 2012 sales of 980,000 vehicles. The market should be at 1.8-1.9 million vehicles at least. Despite the almost 9% increase from 2012 to 2013, the numbers we have now are still too small. These numbers are similar to the ones that were seen ten years ago, and highlight what I call the “lost decade” in the domestic automotive market. The numbers for the first quarter of 2005 were the same as those seen in the first quarter of 2014, and this comes after a period of constant growth in the internal market. The second pillar is to ensure the right business environment. We now need to continue working on the supply chain, incentives, cost of utilities, human resources, and quality. The third pillar is international market access. We have FTAs with more than 40 countries, but for a country like Mexico that exports more than 80% of its production, it is very important to continue looking for new markets. Last year, we created a new agreement with Peru and consolidated the existing one with Central America. We are on the right track, but we must continue to actively expand our markets. The fourth pillar is the scaling up of the value chain all the way to engineering, innovation, and research and development. Studies show that more engineers are currently graduating in Mexico than in the US, and we need to take advantage of that. We need to present Mexico not only as a manufacturing country but also as an engineering base. Thankfully, we have already begun this transformation, and companies are taking notice of this.

Q: Does AMIA directly lobby for the creation of R&D projects for the Mexican automotive industry?

A: We do lobby the OEMs to bring their R&D projects to Mexico, but the government has to create the right incentives and implement an adequate business atmosphere in order for them to reap the benefits. For example, if a company takes an automotive R&D center to China, it will receive a 100% tax return on its investment. In Mexico, there is currently no such incentive. Five years ago, there was a 30% return on taxes, but this was taken away completely after we lobbied for it to be increased. This is because the government sees these incentives as a cost, not an investment. It viewed Mexico’s tax return as creating a hole in its finances. That was under another administration and different legislatures, however. We must now work with the government that is currently in place.

Q: Do you believe Mexico missed the opportunity to establish a Mexican OEM?

A: Today, I believe we still have the opportunity to create a Mexican OEM. We need a major Mexican tycoon to decide that they want to get into the automotive industry. An OEM was almost created through a joint venture between Grupo Salinas and a Chinese firm, but the project was shelved during the crisis of 2008. Mexico will eventually have a Mexican owned OEM, but I do not think that this is absolutely vital. The automotive industry has already become very globalized. For example, how American can we say General Motors is nowadays? Therefore, OEMs being present in Mexico is more important as opposed to whom they are owned by.

Q: What is your outlook on the potential growth of the Mexican automotive industry?

A: Export growth depends on the demand of the countries on which our production depends. The US has been growing steadily since the 2008 crisis. That crisis hit the Mexican automotive industry hard, and we have been gradually recuperating. The contraction in the European market has also been a big loss for us, as Europe represents 8.5% of our total exports. We need to increase our presence in those markets we are already in. For example, while Japan has decreased its exports to the US, Mexico will continue increasing its market share. We could be as high as 12-13% in the next three to four years. A 1% increase for Mexico in the US automotive market share represents about 140,000 vehicles, so each percentage means a new plant, which requires a relatively big investment, the economic benefits of which should not be underestimated.