Prices to Rise but Spikes UnlikelyThu, 09/01/2016 - 10:45
Q: What are Grupo Alden’s growth expectations and what are the impacting factors?
A: By May 2016, Mexico City, where most of our business is based, was down 5 percent in new car sales due to government measures limiting private car use, while Chihuahua grew 29 percent. The second half might show only small growth in Mexico City as taxes and rising ownership costs limit buying. The dollar-peso rate is making importing more expensive for those brands that do not manufacture locally and some are lowering production for Mexico as a result. For these reasons, experts speculate the market will slow but Grupo Alden believes growth rates will stay the same. The industry grew almost 20 percent in 2015, closing the year at approximately 1.4 million sold units. In the same period, we sold 30,000 vehicles compared with 25,000 in 2014 to keep pace. We strive to be on top of the industry but this level of growth was completely unexpected. That the majority of our business is based around Mexico City and the metropolitan area helps us.
Q: What strategies does Grupo Alden use to attack both the new and used car segments?
A: Statistics show a reduction in used car imports of 80 percent. This explains the recent growth spurt in the north as used cars are no longer invading the market. New car sales may be improving but a car costing MX$50,000 (US$ 2,750) can be attractive for many people with lower purchasing power. States like Michoacan and Chihuahua have an abundance of used cars and an 80 percent reduction opens up potential in the local market.
Q: How important are Hyundai and KIA, the latest entrants to the market, in Alden’s portfolio?
A: KIA has enjoyed the most successful launch in Mexican history with 5,000 vehicles sold in just one month. This company’s advantage is its plant, since manufacturing can quickly recover any capital lost to volatile exchange rates. Hyundai does not have local production yet so it relies solely on imports. We are satisfied with Korean car quality but we are hoping for a bigger supply to reach full potential. Nissan will continue to top the market along with GM and Volkswagen.
Q: What is your forecast for prices?
A: Prices will continue to rise although some brands might decide to delay increases. Fortunately, price spikes are minimal and few brands have experienced a drastic jump. General increases of 2 percent may occur throughout the year. Interest rates could also present a challenging situation as credit becomes more expensive. On the bright side, exports are enjoying positive growth and boosting the economy.
Q: How do growth rates of new and used cars differ across the industry?
A: Used car sales have grown in Grupo Alden, which keeps our inventory low. Having too many used cars can be a problem, although most dealerships do not consider used car sales important. In the US, the average is 10 new cars sold per five used vehicles so it does not rely on new car sales. Our northern neighbor profits highly from repairing used cars but Mexico does not. Our best distributor in the group has a 10:4 ratio and the rest have 10:2.5, which has proven successful. Used car sales in Mexico usually generate a 10 percent profit. If a company makes a real effort, it could make 15 percent at the most.
The used market in Mexico is unlikely to become as attractive as in the US. Our company invests in improving the used car image by offering credit, insurance, auditing and the use of mystery shoppers to evaluate agencies.
Q: How aligned is Grupo Alden to the industry’s sales and service transformation?
A: The industry is slowly unifying. Certain brands are uniform in their approach such as Toyota, Hyundai and KIA. Meanwhile, there are challenges for traditional brands as new companies try to please customers. Paradigms need to be broken and customers need to be treated perfectly. Service appointments are being incorporated in every dealership, leaving behind the long queues of the past. Some dealerships will even offer breakfast to make the visit more pleasant. Traditional automotive repair shops may be full of people, while new service shops are empty