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Analysis

Optimism in the Face of Market Adjustments

Sat, 09/01/2018 - 12:09

As of 1Q18, there were 206 Japanese companies with investments in the automotive industry that accounted for 15.3 percent of the 1,345 foreign companies investing in this industry in Mexico. According to the Ministry of Economy, Japan is the second-largest investor in Mexico’s automotive industry. It accounted for 18.2 percent (US$11 billion) of the total foreign direct investment poured into the sector between 1999 and 2017.
Yasushi Takase, Ambassador of Japan in Mexico and top representative of the Japanese government in the country, says trade volumes between both countries have doubled since the implementation of an economic partnership agreement (EPA) between Japan and Mexico in 2005. “While Japan has always been Mexico’s top commercial partner, Japanese investments in Mexico grew rapidly thanks to this treaty,” he says. The EPA established with Japan was a turning-point for the Mexican automotive industry. Nissan, Honda and Toyota, which already had assembly operations in Mexico prior to the treaty, inaugurated new facilities while others, such as Mazda, Hino, Isuzu and INFINITI, set up shop for the first time in the country.
Despite the downturn in sales that the Mexican automotive market is undergoing, Japanese light-vehicles have remained best-sellers in Mexico and have held onto their market shares. Of the total 1.5 million vehicles sold in Mexico in 2017, Japanese OEMs together marketed 41.7 percent with a total of 638,989 units. In 1H18, these companies increased their share of the total sales in the Mexican market to 42.7 percent compared to the same period in 2017. Individually, however, the story unfolds differently. Of all Japanese brands present in Mexico, only Toyota, Isuzu, Subaru and Suzuki increased their sales between 2016 and 2017. Meanwhile, sales of Nissan, INFINITI, Honda, Acura and Mazda dropped in the same period and the decrease continued for Honda, Acura and Nissan during the first half of 2018. As Mexico’s top brand in the market in terms of sales, production and exports, Nissan has taken the largest hit from the downturn with a contraction in sales of 9.1 percent between 2016 and 2017 and of 16.2 percent between January and June 2018 compared to the same period in 2017.
According to Mayra González, President and Managing Director of Nissan Mexicana, the discontinuation of Tsuru in 2017 and Tiida in 2018 coupled with stabilization in the Mexican market were the main factors behind Nissan’s drop in market share. “We ended 2017 with a 23.4 percent market share and could not be more pleased,” says González. “Nissan remains the market leader with a difference of 7 points of market share against its closest competitor. The industry had grown nonstop since 2009 and it is natural to reach a peak.”
Tom Sullivan, President and Director General of Toyota Motor Sales de México, shares González’s optimism. “Toyota set a new sales record for the company in Mexico with over 105,000 units in that year and increased its sales by 1 percent in 1H18 compared to 1H17,” says Sullivan. The brand added new vehicles to its lineup as a strategy to face the challenges that the Mexican market presented. The company launched the C-HR to enter the compact SUVs subsegment and the Prius C to increase Toyota’s hybrid offering. Introducing these vehicles could prove a valuable strategy since SUVs and green vehicles are among the few segments that are growing despite the market’s retreat, according to data from AMIA.
Vehicle importer Subaru México has also increased its sales by betting on the right niches and growing aftersales services, says Dai Hosoya, President of Subaru’s Mexico subsidiary. “SUVs will be key for Subaru to materialize its business concept in Mexico,” he says. The company plans to reach a 1 percent share of the Mexican market by 2020 through a strategy that entails strong aftersales service, collaborating with more professional dealership groups and sticking to the strategic advantages that differentiate it in the market.
Not only are Japanese brands developing strategies to brave the sales downturn, but Toyota’s Apaseo el Grande assembly plant project and INFINITI’s recently established line in Aguascalientes could mean more business for automotive suppliers in Mexico. Gonzalo Esparza, SEO for Americas Region of Japanese seat manufacturer Tachi-S RHQ, says the company sees opportunities to eventually become a Tier 1 supplier to Toyota now that the company already supplies for INFINITI models in Aguascalientes. Similarly, Felipe Brondo, Corporate Vice President of DENSO México, says the arrival of new OEM investment to Mexico offers opportunities for local companies to grow and become true automotive suppliers. As González puts it, “Japanese automotive companies have found both a strategic partner and a second home in Mexico.”