Thursday, July 30, 2009

Market Overview

The automotive industry experienced a significant and rapid decrease in profitability due to declining sales, increased competition, and the higher price of raw materials such as steel and oil. The slowdown of the U.S. and Mexican economies has resulted in dramatic changes in the industry and has forced automakers in Mexico to reduce their production. Market realities have led to new trends in car manufacturing, including smaller car sizes and increased fuel efficiency. Furthermore, the spare parts market will increase as used-vehicles are allowed into Mexico because of NAFTA. As a result, opportunities exist for U.S. exporters of spare parts, equipment and new technologies oriented to reduce costs.

Mexico’s auto part industry is closely related to the U.S. industry. There are approximately one thousand auto parts manufacturers in Mexico and about 70% of these are subsidiaries of foreign corporations, mainly from the United States. Fifty eight percent of the automobiles sold in Mexico are imported, of which 75% come from the U.S. Total production of vehicles in Mexico in 2008 was 2,102,801.Parts, equipment and first and second tier components from the U.S. have experienced an increase in exports due to increased Mexican production of new models that have shifted from U.S. assembly plants.

The total market for auto parts in Mexico has shown a slight growth from 2007 to 2008 as per estimates. The economic outlook for 2009 is for less growth. While estimates vary, the Mexican economy will likely experience a slight contraction, in contrast to 1.9% growth for 2008. Eduardo Solis, Chairman of the Mexican Auto Association, acknowledged that the industry’s situation would worsen in 2009 but expects that it should recover by the end of June. He added that production will fall by 20% during the first half of the year and that a similar decline is expected in sales.

To offset the fall in sales, the industry and the government will have to work on other strategies to target niches in the domestic market. The industry might also ask the government to reduce taxes for purchasing and owning a car. Despite the decline in demand and production, many automotive companies announced large investments in Mexico last year. This is due to Mexico’s advantage in low labor costs and recent technological development in the auto industry. In addition, companies are looking for lower manufacturing and export costs.