This is an excerpt from an exclusive article from the 2018 edition of Mexico Automotive Review to be launched on Sept. 12, 2018 at Mexico Automotive Summit. To read the full interview plus the insights of more key automotive characters, register now to get your tickets to the event and a copy of our latest edition!
Eduardo Solís is the Executive President of the Mexican Association for the Automotive Industry (AMIA), which is the civil association that represents the interests of vehicle manufacturers and brands present in the Mexican market. Solís holds a PhD in economics from Rochester University and has extensive experience in free-trade agreement negotiations. Prior to participating in the NAFTA modernization talks as the top representative of the automotive industry in Mexico, he negotiated FTAs with Costa Rica, Bolivia, Colombia and Venezuela and the Uruguay Round that transformed GATT into the WTO. Solís was also responsible for managing NAFTA and other trade agreements between Mexico and Latin America between 1995 and 2000.
Q: What is Mexico’s best opportunity to take advantage of the new conditions established by a NAFTA 2.0?
A: This treaty looks to modernize trade rules in North America. Considering that the automotive industry is the main success story stemming from the original NAFTA, our hope is that the new agreement maintains conditions to ensure growth and progress in all three countries. There is a good opportunity to reach an agreement. However, the aspirations put on the negotiating table by the US government push us away from reaching a consensus that could ensure Mexico’s ongoing success.
Q: What should the industry prioritize to ensure continued growth?
A: One priority should be to strengthen the domestic market. We need a healthy domestic market to keep boosting the industry and so far, 2018 has seen a deceleration in sales of almost 10 percent. Just like Chile and Argentina, what we need is to sell 20 new vehicles per 1,000 inhabitants and today, that rate is at 13 vehicles per 1,000 inhabitants. Controlling used-vehicle imports from the US is also critical because it has been one of the main contributors for domestic sales growth. Even though this has not been an excellent year, for the past three years domestic sales have thrived thanks to strict controls at the border and a strong financing strategy.
Q: What will be the impact on the national industry considering changes in preference toward SUVs and crossover models?
A: Mexico will be flexible enough to face changes in international demand. If the market wants us to manufacture hybrids, medium-sized cars or SUVs, we Will be there. Demand is changing and we will not cling to our production model if there is no market for it. Otherwise, we will face the same fate as Kodak. We are quite flexible regarding future changes in demand.
Q: What are your overall expectations for production and export results?
A: It is difficult to make a forecast given the complicated global scenario we are facing. As of June 2018, US President Donald Trump was still threatening to close the border and slap tariffs on vehicle imports from Canada and Mexico. We are on the brink of a pointless trade war that clouds whatever prediction we might make. If no Section 232 measure is implemented, we still see a possibility to reach production of 5 million light vehicles by 2020 and exports of over 4 million units. So far, we are producing over 4.1 million vehicles yearly, both light and heavy, and exporting over 3.3 million.
Q: Regarding domestic sales, how sustainable it is to maintain an aggressive financing strategy with elongating terms?
A: Financing must remain a pillar for the industry, mainly in the number of units that are financed out of total sales. Leasing also presents an opportunity for the domestic market, considering that this product represents only 10 percent of the total financing solutions offered. So far, we have not reached a 70 percent rate of financing, considering we have oscillated between 65 and 68 percent. The rate has undoubtedly increased, considering that years ago we were at 50 percent but our goal is to reach an 85 percent level, which is the international benchmark. There is a clear growth opportunity but regulations must also change to offer more certainty to credit institutions in countries like Mexico and ensure recovery.
As the closing speaker at Mexico Automotive Summit 2018, Eduardo Solís will address the impact that a shift in demand away from compact and sub-compact vehicles toward SUVs, as well as from traditional motorizations toward electrified vehicles will have on the Mexican automotive industry. Register now to find out more.