June 9, 2016

How Long Will Mexico’s Automotive Industry Boom Last?

Among all the economic sectors in Mexico, recent years have seen the automotive industry carry itself to greater heights in domestic sales, exports, foreign investment, increases in infrastructure, installed capacity, new job creation and global prestige. The question now is whether this trend will always continue or, as has occurred in other economic cycles, such tendency will be followed by a deceleration in growth. Forbes Mexico recently published an article responding to these questions. According to Forbes Mexico, recent new automotive final assembly plant production in Mexico could signal a prolonged period of success for the Mexican automotive cluster. Competitive labor costs as compared to the rest of the world and greater market demand in the United States could provide the required support for the industry. Economic recovery in the U.S. provides strong assistance to Mexico’s automotive export industry. According to Gabriela Siller Pagaza, Director of Economic and Financial Analysis of Banco Base, the Mexican automotive boom could last up to three to five more years based on the average fleet age of vehicles in the United States and the possibility of U.S. drivers needing to renew their vehicles. This view is somewhat contradictory to what one may observe in the streets, highways and roads of the U.S., where one can see that a large majority of vehicles are relatively new models. Regardless of this fact, the optimistic view of Mexico’s automotive industry is encouraging. Mexico occupies an important place on the list of automotive producers worldwide. According to the International Automotive Manufacturers Organization, Mexico is listed as the seventh largest manufacturer, higher than countries that have previously surpassed Mexico in the automotive field such as Spain, France and the United Kingdom. During 2012, Mexico became the fourth largest exporter of light vehicles and the fifth largest exporter of auto parts in the world. The global automotive sector is enjoying the benefits of Mexico’s low labor costs, proximity to the U.S. market and improvements in Mexican logistics and integration of its automotive sectors. For sure, good times in the Mexican automotive industry are based in part on its exports to the U.S. However, the continued sustained rhythm of growth will depend on Mexico’s domestic market sales, which should represent, according to Francisco Garza, the Vice President of Sales, Services & Marketing for General Motors Mexico, between 1.7 and 1.8 million vehicles, which is no small thing.