Chinese automakers have faced difficulties introducing their vehicles to the Mexican market. New contenders such as JAC and BAIC have now opened dealerships in the country and are manufacturing their first vehicles in the country, but several challenges lie ahead before they can reach the prominence they have in other markets.

Already, there have been two attempts to produce and sell Chinese vehicles in Mexico in the last decade that ended badly. New contenders aiming to play a bigger role in Mexico’s automotive industry and reach the coveted US market must now earn the trust of the Mexican consumer and not fall into the same pitfalls as their predecessors.

CHAMCO Auto – ZX Auto: Legal Problems Prevent Landing

In 2006, Chinese automaker Zhongxing Automobile (ZX Auto) partnered with US-based China America Cooperative Automotive (CHAMCO Auto) to jointly invest US$400 million in an assembly plant in Baja California where China-designed SUVs and pickups would be produced starting in 2009. ZX Auto would focus on manufacturing while CHAMCO would take care of selling the vehicles in the NAFTA region, mainly the US. The units would be sold at a starting price of MX$135,000 (US$7,400) and be the first Chinese vehicles to enter the US market.

The alliance forecasted production of between 110,000 and 150,000 units a year and employment for 2,800 workers. Furthermore, the companies expected their manufacturing line in Mexico would help them avoid paying duties while operating under NAFTA regulations. ZX Auto was reportedly awarded a license to import 50,000 vehicles to Mexico and CHAMCO planned to collocate close to 20,000 vehicles in Mexico in its first year.

However, only two years after the alliance was formed, ZX Auto broke all ties with CHAMCO after the projected vehicle importer was involved in legal issues in the US. No ZX pickup truck or SUV was ever sold in Mexico nor was the assembly plant ever built. The company reached out to GM and FAW in an effort to conquer the US market but saw no success.

FAW – Grupo Salinas: Low Penetration and Bad Timing

Though FAW’s light-trucks and commercial vehicles have been produced in Giant Motors’ Ciudad Sahagun plant since 2006, the brand’s light models failed to stick in the Mexican market.

After reaching a 56 percent market share in Mexico’s motorcycle market by importing Chinese motorbikes in 2007, Grupo Salinas tried to replicate its business model in the light-vehicle market. The company’s goal was to market low-cost vehicles among lower-income segments of the population and so, Grupo Salinas started looking for an OEM partner in China.

Grupo Salinas and FAW reached an agreement to import and sell cars in Mexico in 1Q08. With prices ranging between MX$69,000 (approximately US$6,570 at the time) for the F1 Basic Hatchback to MX$115,000 (US$10,950) for the F5 Luxury Sedan, the FAW-Grupo Salinas Alliance aimed at conquering a segment that had been traditionally left overlooked.

The agreement also contemplated an assembly facility in Michoacan with an annual production capacity of 100,000 vehicles. The plan was to import vehicles and start producing them locally by 2010. The cars would be sold in Grupo Salinas’ nationwide retail network Elektra, marketed through Grupo Salinas’ financial unit Banco Azteca and insured through Grupo Salinas’ insurance unit Seguros Azteca.

FAW vehicles, however, experienced low acceptance in the Mexican market due to their poor quality, non-compliance with DOT security and emissions regulations (which also made them impossible to sell in the US) and the economic difficulties caused by the 2008 financial crisis. The manufacturing project was delayed indefinitely and eventually cancelled and in February 2010 Grupo Salinas announced the suspension of sales of FAW light vehicles in Mexico.

BAIC and JAC: The Road Ahead

BAIC and JAC are the two new brave players looking to earn a place in Mexico’s competitive market. Meanwhile, Chinese hopeful GAC looks for dealership partners in the US, thus building positive expectations toward Chinese vehicles increasing their presence in North America.

As China builds a reputation as a reliable manufacturer, clients gradually change their perception of Chinese vehicles. In a news piece published by Expansión in 2017, Eugenia Solís, Commercial Manager of dealership network Grupo Zapata, said people are starting to go to Zapata dealerships and interact with JAC vehicles to test their quality: “They pull the handles and move the bumpers expecting them to break,” she says.

In an exclusive interview with Mexico Automotive Review 2017, CEO of BAIC de México, Patrick Yang said the company looked for the support of local auto part branches before introducing its vehicles. “Aftersales was a major area of opportunity for Chinese carmakers venturing into Mexico,” he pointed out. Meanwhile, Gerardo San Román, Head of Latin America at JATO Dynamics, told Mexico Automotive Review 2017 that Chinese OEMs are facing the industry head on. “Companies like BAIC and JAC are betting on the domestic market and eventually will take advantage of Mexico’s relationships to target the North and Latin American regions.”

Almost two years after the first BAIC dealership was opened through a collaboration with Grupo Picacho, the company now collaborates with other regional dealership networks to reach its goals of a 3 percent market share by 2020 and eventually expand beyond into the US market.

Don’t forget to follow us on twitter at @mexautomotive and @mexautomotriz for the latest industry news.

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