Identifier
Created
Classification
Origin
07MEXICO270
2007-01-19 17:54:00
UNCLASSIFIED
Embassy Mexico
Cable title:  

MEXICAN AUTO SECTOR OPTIMISTIC

Tags:  ECON EIND EINV ELAB ETRD MX 
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DE RUEHME #0270/01 0191754
ZNR UUUUU ZZH
P 191754Z JAN 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 4991
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 0383
RUEHOT/AMEMBASSY OTTAWA 2270
RUEHKO/AMEMBASSY TOKYO 0449
RUEHON/AMCONSUL TORONTO 0020
RUCPDOC/DEPT OF COMMERCE WASHDC
UNCLAS SECTION 01 OF 03 MEXICO 000270 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND EINV ELAB ETRD MX
SUBJECT: MEXICAN AUTO SECTOR OPTIMISTIC

REF: MEXICO 7032

Summary
-------

UNCLAS SECTION 01 OF 03 MEXICO 000270

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EIND EINV ELAB ETRD MX
SUBJECT: MEXICAN AUTO SECTOR OPTIMISTIC

REF: MEXICO 7032

Summary
--------------


1. (U) Experts on the Mexican auto industry believe the
industry will not only weather the expected slow down in U.S.
demand, but will maintain its competitive edge over cheaper
labor countries in Asia and South America. While production
and exports will likely hold steady, domestic sales figures
are likely to remain sluggish. In 2006, Mexico's auto sector
experienced increases across the board, but fell short of
production, export, and sales objectives. Production
increased 23 percent, while auto sector exports came closest
to meeting the goal with a 29.5 percent increase. Domestic
sales rose less than 1 percent due to a variety of factors
decreasing demand. Investment in the sector also increased as
auto makers expanded operations across the country. End
Summary

Production Increased 23 Percent in 2006
--------------


2. (U) According to figures from the Mexican Association of
the Automotive Industry (AMIA),Mexico's total light vehicle
production for 2006 was 1,978,771 units, a 23 percent
increase over 2005 production, but less than the Secretariat
of Economy's (SECON) goal of 2 million units.


3. (U) General Motors maintained the lead in production
(502,544 units - 17.3 percent increase) but Ford motors
experienced the largest yearly gain with a 137 percent
production increase for a total of 349,901 units, due in part
to the popularity of the new Ford Fusion brand which is
exclusively produced in Ford's Hermosillo, Sonora Plant.
Nissan and
Volkswagen produced 408,439 and 347,020 units, respectively,
increases of 17 and 15.5 percent. Toyota, which opened its
first Mexican plant in late 2004, produced 33,209 units in
its first ever annual posting. Honda produced 24,262 units,
a 3.1 percent increase. The two companies that saw declines
are Renault, which was previously produced in Mexico by
Nissan and has since ceased production, and Daimler Chrysler,
which saw an 8.8 percent decrease (313,387 units).

Exports Rose 30 Percent
--------------


4. (U) With 1,536,768 units, exports were closest to reaching

the SECON goal of 1.6 million units, a 29.5 percent increase
over 2005. Ford Motors (and the Fusion brand) was the
driving force behind the rise with a 185.6 percent increase
in exports for a total of 302,780 units in 2006. Ford's
strong posting also moved its export market share from
5th to 2nd place, tying Daimler Chrysler at 19.7 percent.
General Motors maintained its leading market share at 26.9
percent and 412,807 units (23 percent increase). Nissan's
exports grew 33.5 percent to 208,820 units and a 13.6 percent
market share, while Volkswagen's 18.5 percent export increase
gave it a yearly total of 283.564 units and an 18.5 percent
market share. New entrant Toyota exported 10,111 units for a
.7 percent market share, and is expected to surpass Honda
(15,107 units, 4.2 percent increase) in the near future.
Renault's small export numbers fell 57.3 percent to 138
vehicles, while Daimler Chrysler's 303,441 units was a 9.2
percent decrease from 2005.


5. (U) Except for the Caribbean, exports to countries outside
North America increased in 2006. Experts still stress the
need for Mexico to reduce its dependence on the U.S. market
for auto sales. Carlos Ghosn, Chairman of Nissan-Renault,
said that Mexico lacks the logistics and infrastructure to
send products to Europe and South America. He suggested
that Mexico continue investing in infrastructure to make such
operations more efficient and competitive. In 2006, exports
to Mexico's NAFTA partners were 1,349,768 units or 88 percent
of all Mexican exports, a 26.8 percent increase from 2005.
Exports to Europe grew 51.3 percent to 122,898 units, mainly
attributable to Volkswagen's increased exports. Exports to
South America increased 83 percent to 54,112 units.

Domestic Sales Remain Sluggish
--------------


6. (U) Domestics sales for 2006 were 1,139,718, a .7 percent
increase, and below the goal of 1.2 million. GM and Nissan
continued to dominate the market with 21.5 (245,090 units)

MEXICO 00000270 002 OF 003


and 20 percent (228,315 units) market share, followed by Ford
(15.6 percent - 177,595 units),Volkswagen (11.8 percent -
135,027 units),and Daimler Chrysler (11.3 percent - 128,446
units). Among the 11 most popular auto brands in Mexico
(those with sales totaling more than 10,000 annually),only
four - Daimler Chrysler, Honda, Mitsubishi, and Toyota - saw
sales increase for 2006. Toyota experienced the largest
sales gain at 70.1 percent, a result of increased Mexican
promotion.


7. (U) According to Emilio Mosso, Director of Automotive
Industry at SECON, the apparently stagnant sales numbers are
a result of two main factors that affected demand during

2006. First, many consumers chose to defer vehicle purchases
because of the uncertainty inherent in a presidential
election year. Second, with the strength of the construction
and housing markets during 2006, many Mexicans chose to
purchase homes instead of new vehicles. He explained that,
although fewer cars were purchased, the cars were generally
higher quality and more expensive, which bodes well for
future years' sales projections.


8. (U) Conversely, the Mexican Association of Automobile
Distributors (AMDA) and AMIA are up in arms about a recent
change in the tax law that reduced the tax exemption for new
car purchases (reftel). They claim the reduction -- to cars
valued at less than 175,000 Mexican Pesos, MXP (16,204 USD)
from the previous 300,000 MXP (27,777 USD) -- will push even
more Mexicans to import used cars from the U.S. and further
threaten domestic auto sales. Adres Ocejo, president of
AMDA, said that the tax coupled with the Used Car Import
decree of 2005 that allows Mexicans to import and register
U.S. cars between 10-15 years of age, could lead to 50,000
fewer cars being sold in 2007.

Investment Strong in 2006
--------------


9. (U)Despite the anticipated slow down in U.S. demand,
investments in 2006 were strong as companies sought to expand
production at Mexican plants. The auto industry announced
investments for 2006 totaling more than 4 billion USD for
modernizing and expanding production lines. Daimler Chrysler
announced a 1 billion USD investment for modernizing its
Toluca plant. Ford invested 2 billion USD in its Sonora auto
parts plant. Toyota announced a 37 million USD investment in
its Baja California plant to increase production capacity.
Honda's 64 million USD investment in its Jalisco plant was
also geared towards increasing operations.


10. (U) Cesar Flores, president of AMIA, told EconOff that
continued investment is a product of continued demand for the
models produced in Mexican factories. These tend to be
smaller, cheaper, and more gas efficient than the models
produced elsewhere. Demands for these models would show
smaller decreases even as total U.S. auto demand declined.
He expected Mexico to see a period of short, slow growth, but
was optimistic that the U.S. deceleration would not lead to
problems for the Mexican auto sector.

Technology Key to Maintaining Competitiveness
--------------


11. (U) The industry is looking to technology to increase
their global competitive edge. Rodulfo Raul Leon, in charge
of auto industry investment at SECON, explained that Mexico
is poised to become a North American auto engineering center
due to its overabundance of automotive engineers and the U.S.
shortage. He explained that SECON is supporting joint
automotive engineering hubs between the National Autonomous
University of Mexico (UNAM),the University of Windsor in
Ontario, and the University of Michigan, that it hopes will
increase Mexico's desirability with U.S. automakers while
providing additional opportunities for Mexican students. He
also said that Mexican companies are liaising with
universities to set up their own centers. These centers aim
to give students hands on experience which in turn would
produce better job candidates for the businesses. For
example, Technological Solutions of Mexico has established a
research and development center in a Guadalajara university
run jointly by students and company engineers.

Comment
--------------


12. (U) Comment: The auto industry in Mexico can expect to
continue its promising path. Even if oil prices decline, the

MEXICO 00000270 003 OF 003


Ford Fusion, PT Cruiser, Volkswagen Jetta, and other small
models produced in Mexico will maintain their popularity. As
the Big 3 continue reacting to rising production costs in the
U.S., they can be expected to at least sustain their
profitable production centers south of the border.


13. (U) The threat of Asia and South American competition is
small, though constantly growing. Vehicles produced in
Mexico, which has a more developed industry and a longer
history of producing cars for export, are of much higher
quality than the competitors, particularly those produced in
China. However, as the competition increases production,
their quality will improve. Proximity to the U.S. also
remains important, but lack of infrastructure and high energy
costs keep Mexico from taking full advantage of its
geographical advantage. Many companies wishing to expand
find themselves constrained by the cost of shipping inputs
and finished product via truck or the rundown rail systems
that cannot handle increased traffic. If Mexico can solve
these problems, while persisting in its efforts to increase
the technological value added to its products, the auto
industry will be able to maintain its edge in the global
market. End Comment.


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