The change in demand for light passenger vehicles produced in Mexico is leading the country’s auto manufacturers to supply more trucks and SUVs to the US market.
According to information released by AMIA, the Mexican Automotive Industry Association, in the January and February of this year six out of each ten vehicles produced in Mexico were trucks (for the most part SUVs). Just one year earlier, the ratio of SUVs and trucks to light passenger vehicles produced was four in ten. These numbers diverge from those of ten years ago when light vehicles represented seven of every ten autos produced. Furthermore, during the first two months of 2018, 369,349 trucks were manufactured in Mexico. According to AMIA, this number represents a 36.5% increase over numbers recorded during the same period of 2017
This past January, Fiat Chrysler Automobiles (FCA) publicly stated that it will move its manufacture of pick-up trucks to the United States from Mexico. This move appears to be the result of the Trump Administration’s corporate tax cuts, which are making the United States more competitive in the manufacturing sector. Despite this, Mexican automotive industry manufacturers have shifted their focus from the production of light vehicles to the production of trucks and SUVs.
Industry experts maintain that Mexico’s change in automotive industry production strategy to a growing world demand for trucks and SUVs. Of this type of vehicle produced in Mexico, almost a full 70% of the units sold outside of the nation are sent to buyers in the US. At present Americans are choosing SUVs and trucks over light passenger vehicles more and more as a result of affordable and stable fuel prices. Guido Vildozo, a senior manager that specializes in the forecast of light passenger vehicles sales in the Americas with the consulting firm IHS, asserts that the producers have “realigned the production to meet the needs of a changing market.”
In response to current market demands, mainly in the United States, Jeep Compass and the Chevrolet Equinox began to be produced in Mexico at the beginning of this year. As of this writing, they represent 2 of the five vehicles most sold outside of the country. In fact, these two vehicles, along with the Honda HR-V, represent almost 31% of the export sales of this type of automobile.
During the first two months of this year, 317,357 trucks were produced in Mexico and sent to lucrative export markets This represents a more than thirty-five percent increase over 2017 figures for the same time period. Of this total, the number light passenger vehicles manufactured in Mexico was 189,711 units. This data evidences an eighteen percent drop in production when compared to the numbers recorded in January and February of 2017.
Mexico has more capacity to manufacture trucks and SUVs
IHS’ Guido Vildozo explains that should conditions in the market (mainly in the US) warrant it, the capacity to manufacture more trucks and light vehicles can be increased. He is of the belief that this is possible because “65% to 70% of the market for imports into the US is dedicated to the consumption of trucks and SUVs.”
Positive about NAFTA
Presently, Mexico is the 8th largest global manufacturers of automobiles and the third largest producer of vehicles in the West. According to Wikipedia, “forty-two automakers have official representation in Mexico with four hundred different models.” These numbers make Mexico “one of the most varied automotive markets in the world.”
Industry watchers believe the NAFTA renegotiations will reach a favorable conclusion. If the accord is not renegotiated successfully, however, Mexican automotive manufacturers will take advantage of the large number of free trade agreements that Mexico has negotiated over the course of the past two decades to continue to export vehicles to world markets. Most notably Mexico has free trade accords with every of the country in the European Union. Also, it is noteworthy that the country currently has a free trade agreement with Japan. Mexico is seeking to cut similar trade deals with other nations in the region as well.
As a sign of continued expansion and growth, a number of automotive plants opened in Mexico in 2017. These include an Audi factor at which the Q5 crossover will be produced in Mexico in the state of Puebla and a new Kia plant to be sited in the northern industrial city of Monterrey. Other automotive companies that are finishing up on initiation of new facilities in Mexico include BMW, Toyota and an Infiniti- Mercedes joint venture. The three factories will be in Central Mexico.