Carlos López
Director General
Grupo Alden
View from the Top

Small, Medium Firms Control Industry's Destiny

Fri, 09/01/2017 - 16:59

Q: What are your expectations for domestic market sales, considering economic deceleration forecasts?

A: The industry has grown since 2014 and in 2016, it reached unbelievable heights. Brands like Kia sold impressive quantities of vehicles and others like Hyundai were only limited by their own inventory. Brands like Kia and Nissan are barely coping with the demand. I thought sales would fall by 10 percent in 2017 but early results are positive. Each brand and analyst has different expectations but the industry will probably remain stable, allowing for slight variations of 3 to 5 percent. But even if my initial predictions hold true and sales fall by 10 percent, most companies would continue to feel positive about the 1.6-million result in 2016.

Q: How might different brands participate in the market’s evolution?

A: While certain brands are gaining ground in the local market, others might fall behind. Ford, for example, took a hit in 2017 mainly because of negative media attention around their plant construction’s cancellation in San Luis Potosi. Many clients canceled their orders and Ford was criticized on social media.

The rise or fall of the industry will depend on OEMs. Despite uncertainty created by US President Trump’s comments and potential changes in his country’s relationship with Mexico, there is still high demand. Companies are restructuring their sales strategies because it is not currently that attractive to sell cars in Mexico. Some brands may cap the number of cars they bring to the country to limit the financial losses they are incurring due to the peso’s weak position against the dollar. Toyota will probably import the same number or a few more cars in 2017 as in 2016 but Mazda announced it will import fewer. We have interminable waiting lists for several models but not all brands are interested in meeting that demand. Nissan plans to keep its momentum. Mexico is the fourth most important market for the company, now representing a market potential between 450,000 and 500,000 units.

Q: How will price increases impact the industry’s development?

A: It will all depend on how companies manage their sales strategies. Companies like Mazda, Toyota and Volkswagen might take gradual steps to reach their desired prices but other are taking extreme measures with sudden increases. Even though the most affected are importing companies, local manufacturers are also impacted by the weak peso.

Dealerships are facing problems as well. We borrow the money to buy cars from financial institutions, some of which are linked to OEMs, until we sell them, then we are charged the price plus interest. These rates are increasing along with prices, which means we pay more for every month the car stays in inventory. If the vehicle stays in the dealership too long, eventually we lose whatever profit we could gain from it.

Volatility in prices has also created another complication for automakers. Although we make sure we stay clear of these practices, several exporters are now buying vehicles from dealerships at standard Mexican prices and sending them to foreign markets such as Europe. This creates unfair competition since these people are selling units at much lower prices than clients would pay in a registered European dealership, but they are still making significant profits. Q: What opportunity do you see to incorporate Chinese brands into your portfolio? A: It is about time we get involved with Chinese companies. There might not be that many exchange-rate limitations with these brands if they start manufacturing in Mexico. We have already invested in risky ventures, so this would be no different. We must act now or possibly regret passing up an opportunity. People previously mistrusted Chinese vehicles due to negative safety perceptions. Standards in these brands were much lower than any other competitor in the market but I believe that has changed. Chinese companies are getting rid of their stigma for copying technology and the way they are perceived is changing. These still remain a risky investment but we are in a good position to take the bet.