Domestic sales took another hit in October and the plunge does not seem to be likely to stop any time soon. Industry experts believe this is just an adjustment period after the years of double-digit growth the country experienced. But a new factor has come into play that could potentially jeopardize the eventual recovery of the market.
The latest reports from INEGI show national light-vehicle sales continue on a free fall that started in 2H17. Between January and October 2018, 1.14 million vehicles were sold, which represented a 6.9 percent decrease compared to the 1.23 million cars sold in the same period of 2017. Only the luxury segment, minivans and SUVs maintained an upward trend with increments of 2.3, 14.3 and 1.1 percent respectively for a total of 62,131, 12,681 and 267,748 units, while the compact, subcompact, sports and pickup segments all showed decreasing results of 8, 12.3, 25.5 and 6.8 percent respectively totaling 251,743, 393,958, 7,174 and 150,269 vehicles.
Although this could seem a worrying trend, analysts urge the industry to not see this as something negative. “As a culture, Latins have a problem understanding growth, business sustainability and competition,” Gerardo San Román, Head of Latin America at JATO Dynamics, told Mexico Automotive Review (MAR) 2018. “Markets like Mexico and Brazil are strong and have yielded good results. Yet, we are still not mature enough to recognize the cycles under which the industry operates.”
Between 2010 and 2016, the domestic market enjoyed uninterrupted growth, taking sales to a new all-time high of 1.6 million sold units in 2016. Both 2015 and 2016 were major successes because they finally represented a full recovery after the crisis of 2008-2009 that reduced vehicles sales by almost 25 percent. However, to reach such record-breaking numbers, the industry had to implement extremely aggressive marketing and financing strategies to entice potential buyers. OEMs started relying on rebates and discounts, financing became much cheaper and payment schemes increased from 32-48 months to 72 months. These measures disrupted normal purchasing cycles and slowed down the renovation of the national vehicle park, which means now it is time for the market to recover. “Sales strategies must change, focusing not on volume but on the experience the client has when buying a car,” says San Román. “At the same time, clients must learn they cannot keep purchasing vehicles under conditions as attractive as they have enjoyed so far.”
Mexico is not alone in this stabilization process, though, considering the two main markets in the world report negative growth in their domestic sales. US light-vehicle sales fell for the first time in 2017 since 2010 by 1.7 percent totaling 17.13 million vehicles. Between January and October 2018, total sales amount to 14.3 million units, which represents a marginal growth of 0.5 percent. Meanwhile, Automotive News reports that China’s sales are in a downward trend for a fifth consecutive month. If the fall continues, China could close the year with its first negative growth rate in over 20 years with a total of under 30 million units. Rising interest rates are hitting markets globally and the shadow of a trade war between the two largest economies in the world has put a dent in consumer confidence.
In Mexico there is still a potential to grow light-vehicle sales, even at the 2-million-unit rate the industry forecasted a couple of years ago. This will take time and a continuous focus on attractive financing conditions but San Román is confident the market will regain its balance by 2022 and will start growing again before 2025. The only problem now is the potential for a new measure that could unravel years of work dedicated to protecting the market and incentivizing new-vehicle sales.
For years, the industry and the government have worked intensively to strengthen importation practices at the border to avoid scrap vehicles from entering the country and between 2013 and 2017 the number of units crossing the border has decreased by 80.8 percent going from 644,209 units to 123,638, allowing for the considerable growth rates in new-vehicle sales. But these efforts could be jeopardized by a bill draft to regulate and increment used vehicle imports from the US presented by PRI Senator Sylvana Beltrones. Representatives from AMDA including Deputy Director General, Guillermo Rosales, have met with heads from the Tax Administration Service, the Ministry of Finance and governments from border states to explain the seriousness of this issue but at the moment the matter is still under review, mainly because of the transition period toward Andrés Manuel López Obrador’s administration.
Negotiations continue according to Rosales and the association has reiterated multiple times the danger of used-vehicle imports for the well-being of the market. “These cars have been a cancer for the national industry that we have worked to exterminate,” said Guillermo Prieto, Chairman of AMDA to MAR 2018. “We do not ask, however, for the border to be closed. We merely want control to be maintained so we do not become the dumpster for US vehicles that are no longer permitted to circulate in that country.”
The data used in this article was sourced from Mexico Automotive Review, Automotive News, INEGI, Statista and AMDA.