Guillermo Rosales Zárate
Director General
View from the Top

Weak Internal Market Weighing Heavily on Distributors

Mon, 09/01/2014 - 13:41

Q: How have AMDA’s priorities evolved since its creation?

A: The Mexican Association of Automotive Distributors (AMDA) was founded in 1945 with the aim of representing vehicle distributors in both the light and heavy duty segments. Throughout its long history, the organization has witnessed Mexico’s changing marketing strategies, and we currently represent over 1,500 dealers from the biggest automotive brands. Nowadays, apart from representing distributors, one of our major aims is to strengthen the internal automotive market. American brands are predominant due to the proximity of the US, but there are approximately 40 brands and over 220 vehicle models in the market overall. In 2013, the domestic market broke the barrier of 1 million units sold, but this is a small amount for a country of 118 million people, generating fierce competition. Our estimates show that Mexico is at less than 60% of its vehicle sales potential. Therefore, we have to lobby the government to try and strengthen the internal market.

Q: How have you improved dialogue with the government about internal market constraints?

A: I was tasked with this very responsibility when I started working for AMDA. I quickly realized that we did not have a solid proposal with which to approach the federal government, but rather a list of complaints without studies to back them up and no practical solutions. Most branches in the association were working independently so we had to consolidate all areas to create a cohesive proposal. We needed solid evidence to present to Congress, as it directly influences the life of the distribution chain. We now do our own studies and collate them with the media before presenting them to the corresponding authorities. If you look at Mexico’s current conditions and consider the variables of population size, demographics, and GDP per capita, Mexico should be selling at least 1.6 million to 1.7 million vehicles a year. However, the goal of 1.7 million is very similar to the goals we had back in 2004, which means we have undergone a decade of stagnation. For every 1,000 people, we are only selling 8 new vehicles, which is similar to 1981. We have analysed the issue and reached several conclusions about why the market is stagnating. The first is the importation of used vehicles from US. In October 2005, the importation of foreign used vehicles into Mexico became legal and around 7 million vehicles have been imported since then. For every new vehicle that has been sold in Mexico, a used one has been imported from the US. In the past, analysts and public officials believed used car sales had nothing to do with the new vehicle market since the consumer segments were seen as being wholly separate. This theory was debunked by studies conducted by A.T. Kearney and the Ministry of Economy. A used car consumer is not a direct target purchaser for a new car, but the saturation of the market with used vehicles is having a clear impact. Almost 90% of those who buy a new vehicle will sell it after three to five years. The resale value of those cars is impacted heavily by the inundation of vehicles around nine years of age. Mexico has no technical inspection for cars and its auto parts market lacks specifications, so used cars can circulate ad infinitum until they finally break down. Close to 250,000 new vehicle sales per year are missed due to this phenomenon. AMDA has been generating public awareness on key issues. For example, there is a false perception in Mexico that technical inspections of vehicles only work in developed economies, due to the extra costs they generate for the owners. However, countries like Brazil, Argentina, and Panama are successfully developing stricter vehicular inspection. Mexico City only has verification requirements for pollutants, but another eight different types of verification exist in other parts of the country. This is totally absurd since it is possible to verify mechanical conditions and emissions at the same cost.

Q: How can AMDA help relations between OEMs and distributors to develop in an optimal way?

A: We look at these relationships from a standardized base. OEMs are fairly guarded, but we do know that OEMs and distributors share a common strategy for sales, customer service, motivation, and management. We try to work on those joint areas and stay out of more specialized issues like branding and certification for mechanics. We work on a triangular network in order to effectively communicate between OEMs and distributors. In recent years, we have started and continued to implement successful programs with Chrysler and Nissan in which they certify distributors. We are aiming to replicate the same system with other brands. This leads to significant savings for distributors in the long-term.