Mexico shifting production of compact cars to SUVs/pickups to meet the US demand
New president could threaten economic outlook, ratification of USMCA facing obstacles
2019/04/11
- Summary
- 3.91 million units produced, 88% exported, 1.42 million units sold domestically, imports account for 65%
- GM outperforms Nissan in production and exports
- GM, Nissan, FCA, VW, Hyundai-Kia, Ford, Toyota and Mazda’s activities in Mexico
- 74% of exports destined for the US, sales of Mexican-made SUVs increasing in the US
- Domestic market led by Renault-Nissan, GM, VW, Hyundai-Kia, Toyota
- Mexico’s new president: policy shifts could dampen foreign investor confidence
- USMCA with additional regional and labor value content requirements
- New light vehicle trade agreements with Brazil, Argentina
- Production Forecast by LMC Automotive: Mexican production to be 3.97 million units in 2022
Summary
According to the Mexican Auto Industry Association (AMIA)/ Instituto Nacional de Estadistica y Geografia (INEGI), light vehicle production volume in Mexico was 3.91 million units in 2018, about the same as last year’s output, while exports from the country increased by 11.2% year-over-year (y/y) to 3.45 million units, hitting a record high. Mexican light vehicle sales in 2018 fell for the second consecutive year, declining by 7.1% y/y to 1.42 million units. Imports to Mexico grew to 930,000 units in 2018, up by 2.6% y/y, expanding the ratio of imports to total sales to 65.4%.
While “the US-Mexico-Canada Agreement (USMCA)” was signed to replace the North America Free Trade Agreement (NAFTA), it is still uncertain whether the new agreement will come into force through ratification procedures and how the new president’s economic policies will affect the Mexican market. Moves to end the production of sedans and compact cars to meet a change in demand in the U.S., Mexico’s main destination, have become prominent among major automakers that are building vehicles in Mexico. Some OEMs are shifting their production operations to the U.S. to follow President Trump’s policy to increase employment in his country. At the same time, other OEMs are increasing production in Mexico. In 2019, BMW will open a new plant with an annual production capacity of 175,000 units and Toyota will start production at a new plant with a capacity of 100,000 units per year.
On December 1, 2018, the new president assumed office in Mexico. President Lopez Obrador, who belongs to the new left-wing party, criticized the existing neoliberal economic policies which would attract foreign investment and increase exports from Mexico as these policies have spawned corruption. He, instead, mapped out domestically oriented policies which could dampen investor confidence in the new administration and cloud economic outlook.
The leaders of the US, Mexico and Canada signed a new trade agreement “USMCA” on November 30, 2018. While the USMCA maintains most of the regulations of the NAFTA, new requirements for non-tariff trade were added, including a higher regional value content requirement and a minimum wage requirement that more than 40% of the automobiles must be made in a factory that pays a minimum of USD 16 per hour. These new requirements will affect the OEMs’ production plans in North America. The USMCA will take effect subject to ratification, but the all three countries are expected to face obstacles before the agreement can be ratified.
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| The Chevrolet Blazer launched in the US in January 2019 (produced at the Ramos Arizpe Plant) (Photo: GM) | The Nissan Kicks released in the US in June 2018 (built at the Aguascalientes Plant) (Photo: Nissan) |
Related Reports:
OEM Operations in the U.S. in 2018 (Dec. 2018)
United States-Mexico-Canada Agreement updates NAFTA (Oct. 2018)
U.S. trade policy and tariffs under the Trump administration (Sep. 2018)
Mexico: OEMs advance plans to increase production, consider diversifying export destinations (Sep. 2017)
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