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Mexico's Awakening Is Good All Around

Mexico's Awakening Is Good All Around

The belated awakening of Mexico's new-vehicle marketplace is a big deal. It's good news all around, something that ought to put smiles on the faces of everybody in the global auto industry.

Certainly the biggest smiles are in Mexico -- new-vehicle owners, automakers, suppliers and dealers -- after 2015 sales there jumped 19 percent to 1.35 million and finally broke the record set in 2006.
But the recovery in Mexico's sales is ultimately also good for auto industry employees in the U.S., Canada and elsewhere.

For the past decade, Mexico has been out of balance when it came to automobiles. On the production side, it's been great. Light-vehicle manufacturing has boomed. Between 2005 and last year, output more than doubled to 3.5 million vehicles as several automakers expanded capacity or opened assembly plants.

Mexico built itself into an auto export machine, founded on not just low labor costs and geography, but also the Mexican government's pursuit of favorable trading pacts with dozens of other countries to supplement tariff-free access to the U.S. and Canada through the North American Free Trade Agreement.

But over the same period, sometimes labeled as a lost decade, the Mexican domestic auto market has been as dry as the Sonoran Desert. New-car volume was swamped by a flood of U.S. used cars after a 2005 legal change opened Mexico's northern border.
From a peak of 1.5 million used-car imports in 2006, the flow fell below 200,000 last year, and Mexican new-vehicles sales are jumping.

This new-found balance has stabilized the auto industry in Mexico and is a steadying influence throughout North America.
But the biggest impact on Mexico is going to be psychological and social. The automobile doesn't just fill people's wallets but now also their hearts.

Weird as it may sound, I'm convinced that new cars make entire neighborhoods, whole towns, feel better, more confident.
As a child, I saw it in my own neighborhood on Detroit's west side. Everybody had a car. But a new ride -- a car purchased new as opposed to used -- was a point of pride. Buyers just felt better about the world.

I saw it again in Central Europe last decade. In 2004, as 10 more countries joined the European Union, those smoky Trabants disappeared from the motorways. Vehicle production grew rapidly in Poland, the Czech Republic, Slovakia and Hungary and fed local economies.
Soon, low wages started to rise. As they did, more locals started buying cars, and slowly, more of them started buying new cars.

In short, the auto industry has long been a driving force in creating and building middle classes. It did in the U.S., Western Europe and Japan. It's been doing it in Eastern Europe, Korea, China and other developing markets, including Mexico.

One sure sign that those economies are taking off, that they are generating stable middle classes, is rising new-vehicle demand. And now that's happening in Mexico.
There's plenty of work to be done yet. Mexico's million-plus auto sales for 110 million people still pales next to the U.S. market, with triple the population but 13 times the car market.
But demand is burgeoning in Mexico while it's virtually flat in the mature U.S. and Canadian markets. For North American automakers and suppliers, a NAFTA growth market is a welcome sight.

Source: Automotive News
By: Jesse Snyder

Mexico Manufacturing Industry News

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