Mexico Automotive Review 2019/20

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MEXICAN DEALERSHIPS HIT BY MARKET CONTRACTION GUILLERMO PRIETO Chairman of AMDA

Q: What factors are preventing the country from bouncing

in this sector are family-owned Mexican companies. They

back from its sales downturn?

are a key source of tax revenue and employment and

A: The sales downturn is a consequence of both internal

constantly invest in the country.

and external factors putting pressure on the Mexican vehicle market. While international geopolitical events such as

Overall, the Mexican automotive industry accounts for

USCMA’s negotiation have impacted Mexican consumer

2 million jobs, around 3 percent of Mexico’s GDP, 20

behavior, internal issues such as economic contractions and

percent of the country’s manufacturing GDP and is the

lower consumer confidence are also worthy of consideration.

main export-related currency generator with a positive

Macroeconomic factors such as inflation, exchange rate

trade balance of over US$70 billion.

volatility and high interest rates are creating uncertainty among consumers. People are becoming much more cautious

Q: What have depressed vehicle sales meant for Mexico’s

when making purchases of durable goods such as vehicles.

vehicle-financing sector? A: A drop in vehicle sales necessarily means a contraction

To reverse this situation, we need economic growth as

in the automotive financing market as approximately 66

well as more certainty regarding USMCA, which will have

percent of all car sales in Mexico are on credit. There are,

a positive impact on consumer confidence. Mexicans must

however, other factors hampering the vehicle financing

also increase their purchasing power. While inflation has

market. High interest rates make car loans more expensive,

been controlled, real salaries have lost ground. Additionally,

while overly elongated credit periods mean greater risks for

several austerity policies from the federal government have

the companies that offer them. Despite this situation, past-

had a direct impact on vehicle sales. If economic variables

due portfolios in the vehicle market are usually less than 2

improve, we could sell above projections. Segments such

percent of all loans, which has enticed commercial banks

as luxury and sports have identified a mature population

to offer more of these financing products and win ground

niche. However, the biggest potential for growth is in the

against financial branches and self-financing companies.

compact and subcompact segments. Q: How is digitalization impacting dealerships’ Q: How can the government participate in the development

business models?

of the national automotive industry?

A: The market is moving toward online vehicle sales,

A: Players in the Mexican automotive industry must be

which puts pressure on dealership groups to increase

attentive to government decisions. Automotive is already

efficiency and productivity and improve customer

an overly regulated sector in which dealerships must report

service. At the same time, vehicle ownership is no longer

to and meet regulations of Mexico’s Tax Administration

as alluring given the new mobility schemes that are

Service, the Ministry of Communications and Transport,

arising thanks to digitalization. Shared ownership and

the Federal Consumer Protection Office, the Ministry of the

the rise of ride-hailing services are changing the game

Interior, the Ministry for the Environment and the Ministry of

worldwide. In Mexico, however, the lack of competitive

Labor, among others. This means regulatory changes could

public transportation entices vehicle ownership among

pose new difficulties for the entire market.

local consumers.

AMDA is working to establish communication channels with the new federal government to raise awareness of

The Mexican Association of Automotive Dealers (AMDA) was

the importance of the automotive industry for Mexico’s

founded in 1945 and now represents the interests of around

economy. The country’s dealership sector, which AMDA

2,390 dealerships located in more than 210 cities throughout

represents, includes close to 2,300 dealerships. All players

the country

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