The Overseas Automotive Council (OAC) recently shared insights on the Mexican market from John Price, managing director of Americas Market Intelligence and a 22-year veteran of Latin American competitive intelligence and strategy consulting. In this month’s column, Price shares some of the key insights from his report.
Mexican voters are growing impatient with their country’s economic underperformance. For the last decade, Mexico has stood in the shadow of Brazil and other high-growth resource markets like Colombia, Chile and Peru. Desperate for economic growth, voters brought the much-derided PRI (Partido Revolucionario Institucional) back into power when they elected Enrique Peña Nieto.
In 2000, the PAN (Partido Acción Nacional) had broken the PRI’s 70 year winning streak when President Fox was elected, but neither he, nor his PAN successor, Felipe Calderon, were able to legislate the reforms needed to modernize Mexico. Peña Nieto promised both bold reforms and the political machinery to get contentious reforms through congress.
During the last 20 months, five important reforms have been passed in Mexico. If implemented well, these and pending reforms will raise Mexico’s capacity to grow by attracting record investment to some of its most important infrastructure industries: energy, telecom and transportation.
Mexico is forecast to grow at 4 percent to 5 percent per year for the next several years, a laudable pace for a middle-income country and ahead of the Latin American average. Future Mexican growth with reforms is as much as two percentage points ahead of the rate it would have been without reforms.
The market has been positively shocked by the depth and breadth of Mexico’s most promising reforms: telecom and energy. Most surprising is the imposition of a 50 percent market share cap on operators in telecoms and television. Carlos Slim, one of the wealthiest men in the world, is forced to sell off about 20 percent market share from his cellular phone assets (América Móvil). Two new television networks will be allowed to operate and a 700 MHz shared mobile network will be created, designed to accommodate ultra-fast WiFi, the ilk of which is found in South Korea today.
Energy reform consists of both electrical power and oil and gas exploration and distribution. Opening up power generation to private suppliers combined with the right to pipe U.S. liquefied natural gas into Mexico will create vast new investments in gas fired generation in northern Mexico. Industrial electricity costs 80 percent more in Mexico than it does in the U.S. Bringing down pricing is key to Mexican manufacturing competitiveness. Mexico’s difficult-to-reach deep-water oil deposits now will begin to be exploited, both by Pemex and a half dozen Mexican industrial groups who are likely to team up with global oil companies and technology suppliers.
Mexico has traditionally attracted $20 billion to $30 billion USD per year in foreign direct investment (FDI). FDI flows starting in 2015 should exceed $50 billion USD and could remain that high for four to five years into the future as Mexico modernizes much of its infrastructure. Those investments are key to raising Mexican productivity.
In 2015, investment will drive economic growth in Mexico. Consumer spending will grow more moderately next year but will pick up dramatically in 2016, along with additional expansion of credit. The combination of broad based consumer growth and easier access to credit will expand the pool of potential car owners in Mexico as well as help an ambitious middle class trade up for a higher value vehicle.
In 2014, vehicle sales in Mexico will exceed 1 million units and total annual production in Mexico should exceed 3 million vehicles by the end of 2015. With auto sales falling rapidly in Brazil, the auto sector is relieved to see Mexico returning to a high growth mode.
To view the entire analysis of the Mexican market from John Price and Americas Market Intelligence, click here. For more information about the Automotive Aftermarket Suppliers Association (AASA) and its global outreach services, visit www.aftermarketsuppliers.org or contact [email protected].
Editor’s note: John Price is managing director of Americas Market Intelligence and a 22-year veteran of Latin American competitive intelligence and strategy consulting: [email protected].
Curtis Draper is the vice president of industry analysis, programs and member services at the AASA and executive director of AASA’s international aftermarket councils: the China Aftermarket Forum (CAF) and the OAC.
The CAF is a consortium of full-service suppliers that meet on a quarterly basis to discuss opportunities within the Chinese aftermarket and to identify ways to address challenges in the growing segment. For more details about CAF programs and initiatives, click here.
The OAC promotes the sale in foreign markets of automotive and heavy-duty products manufactured in North America. Those products include components, accessories, chemicals, hand and power tools, service maintenance and repair equipment, and paint and body supplies for both cars and trucks. OAC has more than 350 members in more than 40 countries. More information is available through its website, www.oac-intl.org.
AASA exclusively serves manufacturers of aftermarket components, tools and equipment, and related products, which support 710,000 employees in the U.S. AASA is the light vehicle aftermarket division of the Motor & Equipment Manufacturers Association (MEMA).
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