Vehicle Sales Drop, Industry Transformation Could Favor MéxicoBy Alejandro Enríquez | Thu, 04/02/2020 - 10:19
Over the last decade, automotive industry in Mexico grew 134 percent in exports value! Should the industry really be worried about the sales downturn?
AUTO SALES IN MEXICO have fallen continuously for almost three years. At the beginning of 2020, small gains started to return. This year was supposed to be about stabilization, going upwards from the sales curve valley. However, that valley just got deeper. Should the industry, automakers, Tier 1 companies and the almost one million employees in the sector really be worried?
The Mexican automotive industry does not rely on sales of new units in the country. That is just a “small” part of it. In 2019, auto part manufacturing accounted for more than US$97 billion according to INA. We are the fifth – and some say fourth – largest auto part manufacturer in the world by value. Yet, most of those components share the same destination: the US.
Wards Intelligence adjusted its forecast from 16.8 million units expected to be sold in 2020 in the US to 11.4 million."
If the US market is weakened, so will auto parts manufacturing everywhere, not just in Mexico. The lesser the demand, the lesser the production will be. Wards Intelligence adjusted its forecast from 16.8 million units expected to be sold in 2020 in the US to 11.4 million, almost two thirds of the original expectation. Moody's also expects sales to fall 15 percent. March saw a reduction of 27 percent compared to February and April might be worse. Without a doubt, it is a troublesome sign.
Is the Mexican automotive industry really in danger in this scenario? The short answer is a bold no. The sector is stronger than ever, contrary to what it might seem. Looking at the bigger picture, 10 years ago, automotive industry exports accounted for just 17.33 percent of Mexico's yearly exports with a US$51.7 billion value. In 2019, they represented 26.3 percent of Mexico's yearly exports with a value of US$121.3 billion, a 134 percent increase.
Automotive exports by value grew from US$51.7 billion in 2010, to US$121.3 billion in 2019, a 134 percent increase!"
Car sales will inevitably fall everywhere in the world, including the US and China. At least for the US it is something the industry was already experiencing as car sales in 2019 saw a 10.9 percent decrease compared to 2018. It is true that COVID-19 will worsen the situation but it will also reshape supply chains in favor of a more regional approach.
Mexican suppliers, global suppliers based in Mexico and global suppliers not based in the country ought to see this situation as the opportunity of a lifetime as OEMs will look closer to high-quality and cost-competitive components. The automotive market will not be weakened in North America and Mexico is the place to be to make the most out of it.