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Last Updated Monday, March 30 2015

Mexican auto industry recovers

As vehicle production in Mexico heats up, the market for paint and coatings is poised for positive growth.

By Charles W. Thurston

Published March 15, 2006
Mexico's automotive industry, which is absorbing mounting volumes of paint and coatings as the second-largest auto center in Latin America, could expand production by 12% this year to 1.8 million units, an industry association suggests. Last year, Mexican vehicle production increased 6.6% to 1.6 million cars and light trucks, reversing a four-year run of shrinking numbers, according to the Asociacion Mexicana de la Industria Automotriz (AMIA), the national industry association, in Mexico City.

The outlook for paint and coatings vendors is upbeat. "Over the short term, we expect the market for automotive paints and coatings in Mexico to grow, perhaps at one to two percent over GDP," said Ernesto Vior, the general manager of PPG Industries De Mexico S.A., in San Juan del Rio, in Queretaro state. "One limit to this growth will be the reduction in exports of larger engines to the U.S.," he said.

In the after-market refinishing segment, Vior sees good opportunity for PPG over the coming year. "While after-market sales are strong, the average age of the fleet is getting younger, and insurance rates are increasing, which could limit segment growth to a point or two below GDP expansion," he said.

PPG operates a production facility, a training center and two service centers in Mexico. The company does not break out sales for Mexico, Vior said.

Export sales of Mexican-made vehicles-primarily to the U.S.-are expected to be up 15% this year, following an eight percent rise in 2005 to 1.2 million units, the first increase in five years, according to AMIA. "In terms of global competitiveness, no country can compete with China when it comes to low cost, but no country's automotive industry is closer or provides faster access to the U.S. auto market than Mexico," said Vior.

Domestic sales also are helping boost Mexican auto production. A total of 1.13 million automobiles were sold in Mexico last year, up 3.3% from the year before, according to AMIA.

Rising GDP growth should help domestic sales increase even faster this year. Per capita GDP is rising and should hit $7,193 this year, up from $7,051 last year, which is much higher than the $4,636 regional average. Mexico's gross domestic product is expected to warm this year to 3.9% from the three percent registered in 2005, according to the Latin America analyst team at UBS Warburg led by Michael Gavin, in Stamford, CN. More significantly, the industrial production index-of which about 20% is based on the automotive industry-should rise to 3.2% from 1.5% last year.

Over the mid term, a potential $3 billion in new investments by Ford and Volkswagen-as well as an assembler not yet present in the country-could more than double production to some 3.5 million units, according to recent statements by Sergio Garcia de Alba, the minister of economy. Similarly, new investments in the auto parts, ranging from $2.5 billion to $5 billion, are under discussion, he indicated.

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