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Analysis

Sales Slow Down but Production Rises Again

Fri, 09/01/2017 - 12:45

After a year of moderately successful results in terms of production and exports, Mexico is now back on a growing track fueled by longstanding players and the arrival of newcomer Kia. Sales, on the other hand, are now slowing down after two years of record-breaking growth

Beating the initial expectations from early 2016, the lightvehicle industry grew past its results from 2015 in terms of production and exports, albeit barely. Between January and May 2016, the picture was grim and the numbers suggested a possible contraction in overall results for the end of the year. However, a turnaround in June mainly fueled by Kia starting its manufacturing operations reinvigorated the industry, leading to continuous growth that maintained throughout 2017.

At the end of 2016, the industry achieved a 2 percent rise in production, according to AMIA. The group’s Executive President, Eduardo Solís, says internal industry factors kept the sector from better results. “Production was hampered by the reduction in vehicles produced as some OEMs switched vehicle platform.” Growth was mainly driven by Kia, which launched operations in May, as well as a 24.7 percent increase in production volumes from Honda and 33 percent from Toyota. Although Mazda presented considerable production growth of 78.2 percent by the end of 2015, its results fell 18.2 percent in 2016. FCA, Ford and Volkswagen also showed slightly lower figures, while GM and Nissan remained stable.

Exports, meanwhile, increased only by 10,000 units. Most brands decreased their exports with the exception of Honda and Mazda, which boosted their numbers by 26.6 percent and 33.6 percent respectively. Kia was the main reason why exports did not fall by the end of the year, considering the company contributed with 93,107 units against zero from the year before. Overall results do not include Audi’s numbers, though, since the company cannot publicly disclose localized information regarding production and exports until the parent releases its yearly earnings report. The latest figures Audi has reported for Mexico show production from September-December 2016 totaled 10,746 vehicles.

For 2017, projections are more positive. Solís says the industry is expected to grow its production to a total of 3.5 million vehicles and if the industry keeps its current momentum, that goal could be easily reached. Furthermore, according to Andrés Lerch, Advisory Partner and Leader of the Operations Transformation Area at EY Mexico's Automotive Center, the country could eventually overtake India and become the sixth-largest light vehicle producer globally. At the moment, the country occupies the seventh position behind China, the US, Japan, Germany, South Korea and India.

By July 2017, companies manufactured a total of 2.17 million light vehicles and almost all companies show signs of recovery. Kia keeps ramping up its operations and in seven months it has already produced more than in its first eight months of 2016. Ford’s negative streak continues, however, posting an 18.6 percent decrease in production, followed by Mazda with a 5.1 percent decrease. Meanwhile, after a year of growth, Honda is slowing down by 19.8 percent.

MEXICO'S LIGHT VEHICLE PRODUCTION, EXPORTS AND SALES (thousands of units)

Sales, however, show a reverse trend. After two years of strong growth of 19 percent in 2015 and 18.6 percent in 2016, the market is in neutral. Overall sales have incremented by just 1.4 percent between January and July 2017 compared to 2016 and some strong players are already on track for weaker results. Nissan, the best-selling brand in the country, has contracted by 1.1 percent, followed by GM with a 10.5 percent decrease, Volkswagen with 2.7 percent and Ford with 10 percent. However, the latest entrants Kia and Hyundai are keeping up their pace, reaching growth rates of 66.5 percent and 20.6 percent, respectively. The premium segment has also shown signs of strengthening since 2016. By the end of that year, the market had grown 18.6 percent with brands like Mercedes-Benz and BMW leading the charge with sales rising 34.4 percent and 20.1 percent, respectively. The trend continued into 2017 between January and July although at a somewhat tempered pace of 28 percent and 17.4 percent.

GLOBAL LIGHT-VEHICLE PRODUCTION ( GLOBAL LIGHT VEHICLE PRODUCTION (MILLIONS) millions of units)

Regardless of variations in sales numbers, the market split remains unchanged. Considering numbers between January and July 2017, Nissan holds a 25 percent market share, followed by General Motors with 17 percent and Volkswagen with 16 percent. The Nissan Versa still occupies the coveted position of best-selling model, followed by the Chevrolet Aveo, the Volkswagen Vento, the Chevrolet Spark and the Nissan March, replacing the New Jetta. While in the same period of 2016 Nissan had five models among the top 10 best-selling cars, the Tiida lost its footing, leaving the brand with only four best-selling models: Versa, March, Sentra 2.0 and Tsuru. This last remains strong despite Nissan halting its production earlier in 2017.

Guillermo Prieto, Executive President of AMDA, says that the most likely outcome will be to reach sales of 1.7 million units, which would represent single-digit growth for the end of the year. Although Prieto also has a best-case scenario in which the country keeps its double-digit growth for one more year, results presented by AMIA support his singledigit forecast.

GLOBAL LIGHT-VEHICLE EXPORTS (millions of units)