| VIEW FROM THE TOP
DECELERATION NOT CATASTROPHIC FOR THE INDUSTRY’S FUTURE GUILLERMO PRIETO Chairman of AMDA
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Q: Given the renegotiation of NAFTA, what are Mexico’s
anticipated sales due to market uncertainty. The election of
opportunities to improve its position in the international
a new president in the US, coupled with the renegotiation of
automotive market?
NAFTA and less than friendly rhetoric from the US toward
A: The automotive industry is a pillar of the Mexican
the Mexican automotive industry were key elements that
economy, representing 3 percent of national GDP and 18
kept sales from maintaining that aggressive growth.
percent of manufacturing GDP. It is also the main currency generator in the country, at over US$60 billion per year. The
The presidential elections here were another key factor that
regional integration between Mexico, Canada and the US is
increased the level of uncertainty in the domestic market.
critical and all industry participants are hoping for a fruitful
Between January and April 2018, sales contracted 9.3
renegotiation. This agreement must be advantageous for
percent compared to the same period in 2017. Considering
all three countries and we do agree that it needs to be
the growth levels seen in previous years, we expected
updated after 25 years. However, we also know that we
a decrease of 5-6 percent. The added volatility from
cannot measure NAFTA’s success based only on the deficit
the dollar-peso exchange rate contributed to the more
that the US may have with Mexico. The more trade we have,
pronounced fall.
the more successful our economies can be. Still, we do not see this 9.3 percent decline as catastrophic Regardless of these discussions, I think Mexico is in an
for the industry. This is just an adjustment and it is possible
excellent position in the global automotive industry. We
that we will see better results in the second half of 2018.
are already the seventh light-vehicle producer and the third
The second half of 2017 saw major sales decreases as well
exporter and by 2020 I expect the industry will have an
so, by comparison, this year’s numbers could be healthier.
output of 5 million light-vehicle units. Our challenge now is
In the end, it will all come down to the proposals outlined
to improve our logistics infrastructure to move an extra 1.5
by the new administration and how successful they are in
million units from manufacturing plants to the final user. Ports
boosting foreign investment and the country’s economic
and highways are already showing signs of over-capacity and
stability, while eradicating corruption and impunity.
the situation will only worsen as production increases. Q : H ow h a s t h e s a l e s d e ce l e rat i o n i m p a c te d Q: What do you see as the main causes behind the
dealership groups?
sustained drop in domestic light-vehicle sales?
A: Uncertainty has increased not only in the automotive
A: Over the past six years, light-vehicle sales grew at double-
sector but in most economic activities. Prices increased
digit rates. This growth was significant considering that in
as did interest rates following numerous revisions from
2012 we were selling less than 1 million vehicles per year
Banxico that pushed rates over 7 percent from 3 percent.
and we ended 2017 with total sales of over 1.5 million units.
These increments have an immediate and direct impact on
It is difficult to sustain such accelerated growth, especially
the costs of inventories for dealers because most sales-
considering the bar was set higher each year. In particular,
floor financing plans are linked to the Interbank Interest
2016 was an exceptional year with a growth rate of 18.6
Rate Balance. Inventories have also increased, although that
percent compared to 2015, which we think was caused by
has been dependent on each brand’s performance. While some brands have shown increments of 100, 200 or even 300 percent, comparing 2017 with 2016, the average has
The Mexican Association of Automotive Dealers (AMDA)
been 25 percent, moving inventories to 70 days from 56
was founded in 1945 and it now represents over 1,800
days. Some brands have reached inventories of 180 days,
dealerships
which combined with the increase in interest rates has led
groups
located
throughout the country
in
more
than
210
cities
to a significant cut in profit margins.
