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Analysis

Nontraditional Contenders Seek Automotive Success

Sat, 09/01/2018 - 12:06

Of all the nontraditional companies present in Mexico, South Korean and Chinese brands may have the greatest opportunity to increase their share in the light-vehicle segment thanks to their local assembly operations. The start of operations of the Hyundai Group in Nuevo Leon with Kia in 2016 and Hyundai in 2017, BAIC’s operations in Veracruz in 2017, as well as the local assembly of JAC vehicles by Giant Motors in Ciudad Sahagun are changing the landscape of automotive production in Mexico and disrupting the status quo in the domestic market.  
SOUTH KOREA’S QUICK SUCCESS
South Korea was the fifth-largest investor in Mexico’s automotive industry between 1999 and 1Q18, with 2.9 percent of the total foreign direct investment received in the automotive industry. Kia alone has achieved a significant share of the Mexican market only two years after the Hyundai Group opened the Kia assembly plant in Nuevo Leon. The brand increased its domestic vehicle sales 49.2 percent between 2016 and 2017 to total sales of 86,713 units and 10.7 percent in the first six months of 2018 from 41,055 units sold in 1H17 to 45,468 units in 1H18. This swift sales growth made Kia the seventh-largest player in Mexico’s market with a 5.7 percent market share in 2017. Horacio Chávez, Managing Director of Kia Motors México, says Kia arrived to Mexico as a vibrant alternative for the Mexican consumer and focused on differentiating the brand. “For 2018, Kia’s objective is to sell 100,000 units in Mexico and produce 314,000 vehicles at the Pesqueria plant,” he says.
Although Hyundai has experienced less aggressive growth rates than its sister brand, data from AMIA shows the company grew its sales substantially between 2016 and 2017 reaching a 28.2 percent growth rate. The company marketed 46,534 units in 2017 over the 36,287 it sold in the previous year with the Creta SUV being Hyundai’s best-seller in 2017 at 11,783 units. According to Michel Kaim, Managing Director of Hyundai Motor de México, Hyundai’s sales target for 2018 is marketing 55,000 vehicles in the Mexican automotive market. “Hyundai is still in a growing phase in Mexico,” he says.
THE CHINESE CHALLENGE
Questionable quality, noncompliance with security and emissions regulations and the economic difficulties caused by the 2008 financial crisis were among the reasons why FAW light vehicles introduced by retail giant Grupo Salinas failed miserably in the Mexican market. Less than two years after the first models reached Mexican roads, the project to build an assembly facility to manufacture these vehicles locally was dropped and sales were suspended indefinitely.
Almost a decade later, two companies have taken it upon themselves to show the automotive quality that China can really bring to the table. “We are the first Chinese automaker to come to Mexico in 10 years after FAW’s failed attempt to enter the market,” says Patrick Yang, Director General of Chinese OEM BAIC de México. The company started marketing BAIC light vehicles in June 2016 and since then has obtained satisfying results. “In 2017, BAIC commercialized around 1,500 units and opened 22 dealerships around the country,” highlights Yang. BAIC expects to sell between 5,000 and 6,000 units in 2018 and to assemble 1,000 vehicles at its manufacturing facility in Puente Nacional, Veracruz. Furthermore, the OEM is already looking for a location for a second facility in the country, according to Yang. “The whole country is aware of our intention and several state governments have contacted us to discuss the advantages they can offer,” he says.
The partnership between Mexican automotive assembly company Giant Motors with Chinese OEM JAC Motors to introduce the JAC brand into the Mexican brand is China’s second venture into the light-vehicle market. Elías Massri, Director General of Giant Motors Latinoamérica, says Giant Motors’ ability to adapt vehicles to various markets, coupled with JAC’s interest in building vehicles for the Mexican market and making a long-term investment in the country were the main reasons to target the passenger-vehicle segment. “JAC is a Chinese brand but all the vehicles that Giant Motors produces for the Mexican market are made in Mexico, designed for the Mexican market by Mexican people and using Mexican components,” says Massri. According to Yang, other Chinese companies aiming to enter the Mexican market must learn to specialize in the segment where their vehicles participate if they are going to prosper. He expects more Chinese automakers will eventually enter the market. “JAC is already in Mexico and other Chinese companies are looking for partners to help them enter the country,” he says.