Sustainability, Policy to Improve Sector’s Outlook

Q: Global issues continue to challenge supply chains. Given these circumstances, what is the outlook for the Mexican automotive industry, specifically in terms of sales?

A: During 1H21, vehicle supply and demand were balanced because there was sufficient stock. But by 2H21, the sector did not have enough vehicles to supply demand. During that time, dealerships had available inventory for 15 days, while before the pandemic they had enough inventory for 3.5 months.

The sector expected that supply chains would stabilize in early 2022, allowing inventories to regularize. This has not been the case. We faced an insufficient supply of vehicles in the first half of 2022. We closed 1H22 with a 0.4 percent decrease in sales as a result of lack of inventory compared to last year. Inventories improved in May and June but still remain scarce and are expected to remain so until the end of 2022. We expect to significantly close the gap between demand and supply in the second half of 2023.

Q: What role does AMDA play in supporting the industry during these complex times?

A: We work closely with associates to make operations and training more efficient, which is necessary even during these periods. We also continue to generate market analyses. AMDA generates many reports that are shared immediately with all our associates, allowing them to make better decisions.

AMDA has a responsibility to work with the government and with other industry groups, such as vehicle manufacturers and other members of the supply chain.

Q: What factors allowed June’s light vehicle sales to surpass AMDA's expectations?

A: This was thanks to higher availability as the country received more vehicles than previously estimated. The performance of each brand has varied from month to month, with brands in the Top 10 of market share climbing or falling four or five positions from one month to the next. This is linked to vehicle arrivals. Some months, dealerships are waiting for a ship that is delayed, which affects the entire distribution but that shipment will likely be sold the following month. 66 percent of vehicles sold in Mexico come from abroad, with only a third produced domestically. Consumers are often willing to wait two or three months for a vehicle before switching to another option.

Q: What would be the long-term impact on Mexico’s automotive industry if the regularization of “chocolate cars” spreads to more states?

A: The immediate risk is that the regulation of these illegally imported vehicles is expanded to the entire country and that the Sept. 20 deadline to do so is extended. Both possibilities could happen. The president argues that thousands of illegal vehicles are already present in the country, generating a social and public security problem since they are used for crimes because it is not possible to track the ownership of those vehicles.

The decision to regularize illegally imported vehicles is damaging the country’s automotive industry. Expanding and extending their regularization would further damage the sector because the authorization to regularize them was not accompanied by an order to prevent more vehicles from entering the country. More illegal vehicles have entered the country but they are not being regularized because the Public Vehicle Registry is a technologically obsolete system that does not have the infrastructure or personnel to carry out the work. There is corruption behind each vehicle entering the country and about US$1,000 in fees paid to organized crime.

We are coordinating with the entire industry despite not receiving a response from the government, which makes short-term decisions based on political interest. We have to continue shining a light on the damage that the chocolate car decree causes to the country, the economy and security. We have filed 15 amparos against the regularization decree.

Q: What incentives or policies are needed to facilitate Mexico’s transition toward electromobility?

A: We welcome the president’s declaration of intent to help reduce the environmental impact of vehicles in Mexico, which among other key provisions aims for electric and hybrid vehicles to represent 50 percent of production by 2030. We want to work with the presidency and the Ministry of Economy on a program that allows the country to fulfill that objective. There is practically nothing in terms of public policy to encourage the manufacturing of electric vehicles in Mexico. The opposite is happening.

A fundamental pillar for the manufacturing of electric vehicles in Mexico is renewable energy, such as wind or solar. This will allow the industry to meet requirements from the EU and the US on traceability during the production of electric vehicles. If Mexico does not have clean energy at affordable prices, it will be difficult for the automotive industry to produce electric vehicles in Mexico.

The country is betting on the generation of electricity from fossil fuels in contrast to other countries that are supporting the transition toward electric mobility. Those countries are also giving direct incentives to consumers to reduce the price gap between electric and internal combustion vehicles. In Mexico, this price gap is more evident and it has to be reduced through tax incentives. We have been proposing a zero rate of tax for electric vehicles that would give buyers an effective 16 percent reduction in the price of the vehicle. The private sector and the public sector also need to jointly invest in recharging infrastructure and support CONACYT to generate R&D in the matter to generate more solutions for electromobility.

The Mexican Association of Automotive Dealerships (AMDA) was founded in 1945 and now represents the interests of about 2,360 dealerships located in over 210 cities throughout the country.