Is the Mexican Market Ready to Ditch Chinese Vehicles Stigma?Sat, 09/01/2018 - 12:29
After FAW’s failed attempt to conquer the Mexican market, consumers were left with a bad taste of mouth regarding Chinese vehicles and overall Chinese automotive quality. However, as the domestic market grows and Mexico becomes a much more attractive automotive destination, Chinese companies see an opportunity to once again try and win over the Mexican client. Time may have passed and Chinese companies may not be the same as before but the question is, how ready are Mexican consumers to ditch their preconceptions regarding Chinese production and embrace these new brands as real participants in the domestic market?
We are the first Chinese automaker to come to Mexico in 10 years after FAW’s failed attempt to enter the market. BAIC is now an example of the quality of Chinese vehicles. The fact that our units are now part of rental car operator Europcar’s fleet is evidence of our quality and competitive price standards. Working in a fleet means meeting quality and price standards or rental companies will not adopt these vehicles. BAIC started selling cars in Mexico in June 2016 and 22 dealerships across the country have opened since then. JAC is already in Mexico and other Chinese companies are looking for partners to help them enter the country. I think up to two new Chinese automotive companies will enter Mexico by 2H18. We assembled 500 cars in 2017 and our plan for 2018 is to finish another 1,000 and bring more vehicles ready for assembly.
Emerging brands have shown massive improvement in terms of quality and design. Moreover, the size of the Mexican market allows for a niche to attract new competitors. As long as these companies can offer an attractive option based on a price-to-quality rate, they will grow their presence and conquer part of the share currently held by other companies. This, however, is easier said than done considering the number of brands competing in Mexico and the constant efforts these players make to constantly introduce new technologies. Under the current business model they have presented, we expect these brands to have low-volume sales. Disrupting the status quo like some companies have done demands aggressive investment strategies, as well as local manufacturing operations that can complement the company’s portfolio with a made-in-Mexico option.
Consumers need to ask themselves whether a vehicle made in China is necessarily low-quality. The best way to ditch this stigma is to drive these cars and to consider that renowned dealership groups, financing institutions and insurance companies would not risk their image and prestige by selling vehicles without a solid warranty. There is no place for half-good or half-bad vehicles in the automotive industry. The level of sophistication and quality enforcement common to the global automotive industry means OEMs either comply with the minimum quality standards and are present in the market or they do not. Regardless of their origin, brands that arrive to Mexico have all the technological, endurance and quality needed to compete in the global market.
Gerardo San Román
This is a cross that Chinese brands will have to bear and shake. Mexican consumers have already proven they are no fools and they are demanding, at least with the brands already established in the country. Some clients might have had bad experiences with Chinese vehicles but the future of new brands will depend on how they present themselves to the public. If these companies decide to invest and participate as actively as any other brand in the market, the result will be positive. It will definitely take time to eradicate previous ideas regarding image and quality but Mexicans are willing to invest in good cars regardless of their origin. These brands will definitely grow but maybe not at the rhythm they do in China.
These brands have a great opportunity to grow in the market and all other industry competitors must be careful of how these companies evolve. The market is in a downward trend that will be impacted by how the political and economic environment evolves. Mexicans will continue to buy cars but we still expect further contraction for the rest of 2018, at least in certain segments. Chinese OEMs have a huge production capacity and they have the flexibility to update their models at the drop of a hat. All this helps them be extremely aggressive not only in Mexico but in all international markets. Mexico did have a bad experience with previous Chinese ventures but these newcomers have worked extensively to ensure quality at an extremely competitive price.
Carlos López de Nava
Many dealerships are already betting on these models and we expect to enter this business before the end of 2018, although we are still considering who to partner with. Clients are gradually trusting these companies and it helps that they have the support of large distribution groups. The big advantage of Chinese companies is that they have an attractive design and extremely competitive prices, even though they pay high percentage import tariffs. Right now, Chinese brands are approximately 10 percent below their competitors in terms of price. If we conclude a free-trade agreement with China in the future, the difference might reach 30 percent. There will be no further discussion of these brands’ success after that.
One of the Chinese brands entering the market is a massive company globally and the distributor of the best-selling electric vehicle in the world. The OEM is not that well-known in Mexico but in the short time it has been in the market it has grown its sales considerably. The company was extremely careful when selecting its distribution partners, some of whom were already Scotiabank’s clients. We were surprised about the level of research this OEM did before entering the market and it gave us confidence regarding the company’s opportunity to grow. We see great potential in this and other Chinese companies because they have improved their quality significantly both in terms of product and service.
This will depend on the marketing efforts these companies implement. The average customer is not aware of whether a brand is Chinese, Korean or Japanese. As long as the company offers an attractive design at an affordable price, coupled with a good financing strategy, the market will embrace its vehicles regardless of their origin. Having said that, the image of Chinese manufacturing is changing and companies are now betting on innovation and electrification. Our perception is changing accordingly and we now have many Chinese brands that exemplify technology development. I see a good opportunity for these players to grow their presence in the market.