After months of uncertainty and constant threats to free trade, 2018 is inching toward its end. Now comes the promise of a brighter future for the automotive industry, at least on paper. Before moving on to 2019, join us in reliving the most important events of year, a year that could represent a breaking point for the industry’s dynamics.
A Historic Transition
After two failed attempts, Andrés Manuel López Obrador (AMLO) finally won the federal vote and was elected President of Mexico on July 1. AMLO entered office on Dec. 1 but even before that, the new president was already exerting his power to change the course of the nation. Through a popular consultation, for example, AMLO deemed the NAIM project unnecessary and canceled it to the detriment of commercial air traffic and logistics operations.
National Light-vehicle Results
Results were mixed for the Mexican industry. On the sales front, the downturn continued. According to data from AMIA, between January and November, sales reached 1.28 million units, which represents a 6.7 percent drop compared to the same period in 2017. If the trend continues, the year might close at total sales of around 1.43 million units and a decrease of 6.6 percent compared to 2017.
For most of the year, production seemed to be on its way to beating last year’s figures. However, dips in individual results and a flood at Honda’s plant that halted operations for five months put a dent on yearly results. Between January and November, production totaled 3.67 million units, an increase of 0.04 percent compared to 2017. December results will determine if figures remain stable but the trend from the past three months suggest a possible dip in overall yearly results.
Exports, however, have been more resilient. Between January and November, 3.17 million units were exported, a rise of 6.3 percent compared to 2017. Even after a slight dip in November results, yearly figures will probably top 2017 with a gain of 5.5-5.8 percent.
NAFTA, USMCA and Trade Peeves
On Nov. 30, Former President Enrique Peña Nieto, US President Donald Trump and Canadian Prime Minister Justin Trudeau signed the new US-Mexico-Canada Agreement (USMCA), putting an end to the renegotiation of NAFTA. The mandataries barely made the last deadline they had to submit the agreement to the US Congress and before Mexico’s power transition on Dec. 1.
The deal is now under ratification in all three countries and though expectations are positive, there is still uncertainty regarding possible changes to the treaty now that Democrats control the US House of Representatives. The deal is also incomplete in the eyes of Mexico and Canada since tariffs imposed by the US on steel and aluminum are still in place, despite these being a coercive measure to force an expedited agreement.
Over 2018, the US also started a trade war with several countries but most importantly with China, the largest economy in the world and its largest trade rival. Tariffs gradually escalated until December when both countries agreed to a cease fire. Tariffs are now on hold as the US and China try to find common ground. China has already agreed to reduce and possibly terminate tariffs on US vehicle imports and OEMs like Mercedes-Benz and BMW have already announced price reductions as a result.
Good and Bad Decisions
In April, Ford’s President and CEO Jim Hackett announced the company would leave sedans behind to focus on supplying the growing demand for SUVs, crossovers and pickups in the US. Investors applauded the company’s decision and Ford has already started repurposing plants, including those in Mexico. In 2019, Ford’s plant in Cuautitlan will cease production of Fiesta and begin the necessary modifications to manufacture an electric model by 2020.
GM also announced changes in its production scheme, although far more drastic. The company announced the potential closure of five plants in North America – four of them in the US and one in Canada – in an effort to cope with changes in demand and to put a stronger focus on electrification and self-driving technology. The announcement did not go well with US President Trump, who criticized the company and threatened to terminate incentives to electric vehicles.
The year also was not that good for the Nissan-Renault-Mitsubishi Alliance. Carlos Ghosn, Former Chairman of the Alliance and Nissan and CEO of Renault and Mitsubishi, was charged with financial misconduct and arrested in Japan. Ghosn was behind the Alliance’s resurgence but both Nissan and Mitsubishi were quick to demote him to avoid further complications. This, however, did not prevent Nissan from being indicted along with Ghosn in December. Renault is the only member of the Alliance that has not outed Ghosn as CEO, although the French government is already looking for a replacement.
Tesla was also under the spotlight, mainly because of its front man Elon Musk. Even though the company reached its production goals with the Model 3, the company did not celebrate long. The US Securities and Exchange Commission launched an investigation of the company following several Musk tweets saying the company would go private and that Tesla had the money to back up the operation. The investigation found Tesla guilty of fraud, which led Musk to mock SEC via twitter, making matters worse. Both Tesla and Musk were fined US$20 million each and Musk was forced to step down as Chairman of the company.