Mexican Vehicle Sales Fall 3.5% in 2007, Production Up 2.2%

Mexican light-vehicle sales slumped 10% year-on-year (y/y) in December to 126,350 units, down from 140,374 units in December 2006. The poor performance in December, traditionally by far the biggest-selling month of the year, left the already lacklustre domestic market down 3.5% to 1,099,866 units for the full year 2007, compared to 1,139,718 units in 2006. The president of local industry association AMIA, César Flores, remains optimistic for the Mexican market heading into 2008, however. "Nevertheless, I think 2008 brings a good outlook for the automotive industry", Flores said. AMIA had earlier in 2007 revised down its target for the domestic market, forecasting growth of 1-1.5% last year.

Domestic production meanwhile fell 1.9% y/y in December to 127,146 units, but rose 2.2% y/y in the full year 2007 to a record 2.02 million vehicles, breaking the 2-million-unit barrier for the first time as solid exports underpinned the gains. The improvement was again well behind AMIA's optimistic targets for production and export growth, which were revised downwards several times in the year to between 10% and 12%. Earlier in 2007, the association had been expecting production growth of between 20% and 23%, and export growth of between 25% and 30% in 2007.

Exports grew by 6.7% y/y in December to 121,383 units, from 113,718 units in December 2006. This left exports for the full year up a solid 5% y/y in 2007 to 1.61 million vehicles. Flores admitted that although both production and exports reached records in 2007, they fell somewhat short of the association's hopes.

By manufacturer, Mexico's production gains in 2007 can largely be attributed to Nissan and Volkswagen (VW). Nissan's full roll-out of the compact Versa model boosted its production by 90,000 units in 2007 to 498,000, a 22% y/y increase, and lifting it above General Motors (GM) as the biggest producer in the country. As for VW, more focused marketing and better pricing lifted exports and production of its Jetta model, which saw production at its Peubla plant rise 18% to 409,000 units, putting the company in third spot behind GM, overtaking Ford in the process. GM's production fell 6.9% y/y to 467,000 units, Ford's production declined 13.1% to 304,000 units, and Chrysler reported a 9.4% drop in output to 283,960 units.

Outlook and Implications

The rate of decline in Mexico's domestic market accelerated during December, the largest-selling month in volume terms by some margin. The domestic market came under pressure from external and internal factors in 2007. The market is heavily weighted towards small cars, imported mainly from Brazil. Due to the appreciating Brazilian real, these models are uncompetitive for local buyers, and any disruption to import sales has a negative effect on the marketplace, as witnessed by the fall in the B segment. Additionally, the Mexican government is encouraging consumers into home-ownership, and banks are restricting credit lines so as not to allow over-indebtedness, all serving to reduce the domestic market. Furthermore, uncontrolled imports of used cars from across the border are continuing to have a detrimental impact on the new car market. Alfredo Llorente, general director of Mexico's dealer association (AMDA), said in November that the decline in sub-compact sales had been due to "indiscriminate imports of used vehicles from the U.S.". The fall in sales in 2007 was led by the subcompact B segment, Mexico's largest, which declined 16.8% compared to 2006, according to AMDA.

However, ever optimistic, AMIA is predicting a recovery in the domestic market in 2008, based on anticipated investment in infrastructure and improvement in the economy, forecasting a 2% rise in domestic sales. The Communications and Transport Ministry has budgeted US$3.64 billion for construction and renovation of roads in 2008. "Once the investment in infrastructure begins, I think the economy will pick up somewhat rapidly, and the automotive industry will reflect that", Flores said. However, AMIA has not yet announced a forecast for exports this year, due to the current uncertainty regarding the U.S. economy.

As it turned out, Global Insight's forecast of a 1.1% decline in domestic sales in 2007 was itself too positive. The 3.5% decline was largely due to a disastrous December, which saw the lowest total for the month for four years. The domestic market continues to show little sign of improvement, and with growing economic concerns in North America we are predicting a relatively flat year for sales in 2008.

On the production side, the situation is a little better and the medium- to long-term picture is positive thanks to continuing investment in facilities and products in the country. As a result, output in 2008 should finish slightly ahead of the 2007 total, following an exceptional 21.9% increase in 2006. For the most part, Mexican output will increase over the next five years as the major manufacturers continue to renew products in the country. This forecast production increase for 2008 would still result in the second-highest calendar-year total ever recorded in Mexico. New capacity and new products will increase the country's share of total North American output to nearly 15% in 2011, from 12.8% in 2006.

Find out more about Same-day Analysis