Mexico is more than just a friendly neighbor to the south – it’s an important geo-political ally of the United States. It’s a country rich in heritage and tradition. Most important, it is the third largest trading partner of the United States, and increasingly, it has become an important factor for U.S. aftermarket companies.
Over the past two decades, the Mexican aftermarket has developed a cohesion that has made it attractive to U.S. manufacturers. As such, it also has attracted the interest of U.S. program distribution groups who have found new sources for growth in that market. As Mexico’s aftermarket continues to evolve, it will offer many opportunities for U.S. suppliers.
The growth of Mexico into a world economic power has been an important growth driver for the aftermarket. Since 1990, Mexico has seen a five-fold increase in GDP from U.S.$262 billion to 2013’s U.S.$1,260 billion. In 2014, Mexico ranked as the 15th largest economy in the world. Although the economy has improved, Mexico is still a significantly poorer country than the U.S.
Economic growth in Mexico has not been limited to one sector. In 1980, petroleum exports accounted for almost 75 percent of Mexico’s exports, but today that number is only 7 percent. Industry now constitutes a third of the nation’s GDP. The automotive sector is among the strongest. The U.S. Big 3 have been manufacturing cars in Mexico since the 1930s, and in recent decades they’ve been joined by Volkswagen, Nissan, Toyota and others. In 2013, both BMW and Volkswagen announced billion dollar investments in Mexican plants. Mexico has signed free trade agreements with more than 44 countries, and can export cars duty free to every continent. In 2014, two-thirds of the 3.2 million vehicles produced in Mexico were shipped to the U.S.
This rising economic tide in Mexico has lifted many boats. And it has put cars in driveways, too. Since 2000, Mexico has seen a surge of motor vehicles in operation. Fifteen years ago, there were roughly 16 million cars, trucks and buses on the road. By 2014, that number has more than doubled to 33 million. The mixture of vehicles found on Mexican roads is quite diverse.
Given the proximity of the United States and the lengthy land border between the two countries, vehicles in Northern Mexico tend to skew more towards what you might see in the Southwestern states. But as you move south from the U.S. border, the vehicle parc becomes more diverse. While there will still be a fair amount of U.S. brands, you are much more likely to see Nissans and Volkswagens that are not commonly offered in the U.S. Many of those vehicles are locally produced in Mexico.
Nissan/Renault has become the dominant car company in Mexico with a 28 percent market share. GM and Volkswagen each have about 18 percent of the market, while Ford and Chrysler each command about 10 percent. The remaining 16 percent of the market is scattered amongst all the remaining brands.
Aftermarket growth drivers
Several important factors are promoting aftermarket growth in Mexico. The rapid growth of the vehicle population is the biggest driver of growth. The second factor is the overall age of the vehicle population. It’s estimated that the average light duty vehicle in Mexico is 14 years old. Considering the general state of disrepair of the roads – even major highways throughout Mexico – that provides all the ingredients for a very robust aftermarket. And that is exactly what is taking shape.
The growth in the market notwithstanding, the average age of the Mexican vehicle parc is quite high. Unlike China, where rapid vehicle population growth has led to an ever declining average age of vehicles on the road, the vehicles in operation in Mexico tend to skew older. It is typical for the average vehicle age to be higher in developing countries. There are reasons for this.
Up until 2007 it was relatively simple and inexpensive to import used cars from the U.S. to Mexico. But under a law signed by former president Felipe Calderon, importation fees began rising with the 2008 model year. Cars that are 2007 or older cost a minimum of $1,000 to import. Newer cars could cost much more. Regardless, millions of used vehicles have been imported from the U.S. over the years. And many people simply drive across the border with their used cars, never bothering to register them officially with Mexican authorities. These are the so-called “Chocolate Cars,” a term derived from children playing games, where one participant “doesn’t really count” in the score keeping. It’s estimated that there are millions of these “Chocolate Cars” operating near the border region of Mexico.
A convergence of factors is making these very good times for Mexican parts distributors. The growth of the vehicle population, the older age of these vehicles and the general disrepair of many roads has made this a boom time for the aftermarket. And this hasn’t escaped the notice of U.S. based buying groups. In fact, there are now at least 25 Mexican distributors affiliated with U.S. buying groups. This number has more than doubled in the past eight years.
Being part of a buying group has advantages for Mexican distributors. “Program groups exist to benefit members and suppliers by creating efficiencies in marketing, purchasing and other administrative areas through collaboration,” says Rusty Bishop, CEO of Federated Auto Parts. He feels that the model would work anywhere, but cautions, “There is no question that it is more challenging when dealing with different currency, language, culture, etc. and often different suppliers and vehicle types.”
Having access to, more or less, the same types of marketing programs, product offerings, and negotiated terms and pricing that U.S. distributors have has helped Mexican distributors differentiate themselves from each another. Aftermarket suppliers have been largely supportive of these efforts. Many programs adapted easily to supplying Mexican distributors with little to no fine tuning needed. But some others had to come up with whole new programs for that market. However, the consensus among executives at the buying groups is that the programs have been hugely successful.
Regional powerhouse
The strength of the Mexican aftermarket has made it an attractive destination for global suppliers hoping to capture some of that business. As Mexico has moved up to the seventh largest vehicle producer in the world, leapfrogging past France, Spain and Brazil in just a few short years, suppliers have rushed in to set up factories to support their OEM customers. Mexico has free trade agreements with over 45 nations around the world, compared to only 20 for the U.S. This free flow of goods without duties makes Mexico an ideal hub for aftermarket suppliers seeking to sell regionally.
Automechanika, a leading brand of global aftermarket trade shows, operates the PAACE Automechanika trade show that’s held in Mexico City each year. “PAACE was originally established for U.S. automotive manufacturers wanting to enter the Mexican market. Following our entrance into the market the event was repositioned as an international platform for international companies to enter the Mexican and Latin American markets. The show took on more of a regional presence,” says Bridget Ferris, show director for PAACE Automechanika.
Indeed, during her involvement with the PAACE show, Ferris has seen many changes in the way things are done in Mexico. She says, “Mexican shops are becoming more and more sensitive to training and product knowledge. Due to the average age of vehicles, the aftermarket base has grown overall and international manufacturers have continued to invest in Mexico to increase market share.” And this is precisely where U.S. suppliers have excelled for decades. Either through their own established channels, or in conjunction with U.S. buying groups, U.S. suppliers have been increasing the amount of training that is offered to technicians.
The market changes experienced in Mexico have been more evolutionary than revolutionary. Mexico has followed an accelerated timetable in the way in which its market has reorganized itself to resemble their neighbors to the North. For U.S. based suppliers, this has simplified the way they look at their backyard markets. Canada, Mexico and the United States now comprise one market for them. With the NAFTA agreement, the free flow of goods between the countries has translated into better coordination with their channel partners in terms of product offerings, marketing programs and promotions.
PAACE Automechanika is looking at these opportunities on a broader scale. “As the Mexican industry continues to develop standards for the aftermarket, we believe more and more foreign companies will invest in the Mexican market in all phases of the aftermarket. Our goal is to work closely with the industry associations, our current exhibitor base and our visitor base to clearly identify the needs of the market and direct our focus towards these new opportunities,” Ferris says.
The Mexican market has never been stronger. The aftermarket is more organized, and a stable and steady economy has brought millions of people into automotive ownership in Mexico. Aftermarket distributors in Mexico are enjoying a growing market, and seeing their businesses grow with the influence of North American buying groups. For U.S. suppliers, now is the time to formulate their strategies regarding this rapidly emerging market.
Subscribe to Aftermarket Business World and receive articles like this every month….absolutely free. Click here.
