Overcoming Barriers to Bolster Domestic Market

Q: While Mexico’s mass market has commonly viewed price as being more important than quality, what alterations to this trend has AMDA seen in recent years?

A: Even with the extreme competition in all market segments in Mexico, the market is still oriented toward consumer needs and demands. Price is the dominant factor, as shown by subcompact cars claiming 33% of the total sales in the country, as well as compact cars reaching 27% at an average cost per car of MX$250,000 (US$16,667). However, the competitiveness of the domestic market has forced OEMs to increase the quality of their cars substantially. It is now no longer enough to compete on price because further reductions are impossible, which only leaves the alternative of raising the quality of the vehicle and offering a better sale and post-sale service. Maintenance services, complementary financing services, insurance, and extended warranties are all part of a wider range of products now on offer.

Q: What factors led to the growth prediction of 6.1% in domestic sales in 2015, and why was there a decrease from the 6.8% predicted in 2014?

A: Despite the final figure of 1.135 million vehicles sold and 6.8% growth, the development of the market in 2014 was complicated. There was irregular behavior throughout the year, with a drop of 0.8% that was closely related to the implementation of the Financial Reform, which included a value added tax rise from 11% to 16% in northern frontier states and a reduction of deductibles for new vehicles. Its impact was directly reflected in Mexico’s Consumer Confidence Index, as it dropped from 93.6 in December 2014 to 90.3 in February 2015 according to Banco de México. In macroeconomic terms, there was no real explanation for the market variations. The drop in sales appeared due to fiscal changes that were expected to have deeper and longer repercussions. In order to turn things around, strong measures were taken to move inventories, to reassure consumers about the long-term value of automobiles, and to involve financial corporations associated with the automotive industry. As a result, we were able to achieve the sales goal that was set at the beginning of the year, gaining an increase of 13.1% from July to December and compensating for the drop in the first quarter. Now, after five years, Mexico has returned to the sales levels that were seen before the 26% drop in 2009, inching closer to the 1.139 million units sold in 2006. This does not necessarily reflect industry growth, but rather a recovery. That is why we expect sales to increase to 1.2 million units by the end of 2015, which will be equivalent to 5.4% or 6.4% of growth, but we should continue to take into account some limiting factors in relation to the domestic demand.

Q: What are the main factors hindering the growth of the domestic market today?

A: The primary issues affecting the industry have remained static for some time. Mexico is faced with a massive amount of used vehicles that are illegally imported from the US, as well as insufficient options for credit and financing, and a lack of fiscal incentives. The main topic that we must take into consideration in the short term is access to credit. In 2013, 56% of cars were bought with bank credit, rising to 60% in 2014. Even though this is an improvement, it is still below the 70% expected for the industry or the 90% seen in the US. One of the barriers that block the accessibility of credit is the informal economy. Even if clients in this segment have the necessary resources to apply for financing, they cannot prove their income without engaging in formal employment. In the case of imports, the problem is much more complicated. Given the oversupply of imported used vehicles, the domestic market is not able to compete, breaking the chain of vehicle renovation and keeping old cars in circulation.

Q: What is AMDA doing to make sure that the government applies the necessary changes to future regulations?

A: As for vehicle imports, improved regulations are now being implemented. In 2014, the Ministry of Economy, the Ministry of Environment (SEMARNAT), and Tax Admnistration Service (SAT) joined forces in order to make the regulation lineaments constitutional, preventing the use of injunctions as a means to violate commerce and emissions regulations. SAT now requires the expedition of export certificates from the US, helping to avoid the sale of stolen vehicles. Separately, SEMARNAT is now demanding a current emissions certificate no older than six months. Additionally, the hours for automobile importation have been reduced from 09:00-12:00, Monday to Friday, resulting in a reduction in the number of imported vehicles from 644,209 cars in 2013 to 455,372 in 2014.