In March, Mexican production of light vehicles dropped 25.5 percent compared to the March 2019 production level, according to statistics from the Instituto Nacional de Estadística y Geografía (INEGI), the national statistics agency.
Mexico’s first quarter 2020 production also was off strongly by 10.9 percent to about 297,000 vehicles, compared with about 333,000 vehicles in the first quarter of 2019, according to the Asociacion Mexicana de la Industria Automatriz (AMIA).
Among global manufacturers with the greatest production slowdown were Jaguar at 62 percent, Subaru at 49 percent, BAIC at 46 percent, Acura at 42 percent, BMW at 29 percent and Ford at 28 percent, according to the trade association.
The forecast for April production in Mexico is also dim. Within the North American Free Trade Agreement zone, including Mexico, the U.S. and Canada, forecaster LMC Automotive expects only about 140,000 units to be produced in April, down from 1.47 million in March 2019, Jeff Schuster, LMC’s president of Americas operations and global vehicle forecasting, told Wards Auto. Mexico is expected to manufacture most of the regional April total, about 100,000 units, the report says.
Among key auto assemblers in Mexico, Ford had announced an April 6 restart at its Hermosillo assembly plant but postponed that date pending a reduction in the spread of the virus. “The health and safety of our workforce, dealers, customers, partners and communities remain our highest priority,” Kumar Galhotra, Ford president-North America, said in a news release.
Similarly, new model manufacturing also has been delayed. Initial production of Ford’s small SUV – the Bronco Sport – at Hermosillo has now been delayed from July to September, at best, according to a report by Automotive News.
Slower Paint and Coatings Sales in Mexico
The virus impact is expected to affect U.S. suppliers of parts and materials – including paints and coatings – for months to come. Meanwhile, the global rate of increase in automotive paint and coatings products had been predicted by MarketWatch to exceed 5.0 percent per year over the next few years.
Among the largest suppliers of automotive paint and equipment to Mexico are AkzoNobel; Axalta Coating Systems; BASF; Kansai; KCC; Nippon; PPG Industries; Sherwin-Williams; Strong Chemical and Valspar.
While part of the slowdown was related to worker absence due to the virus, most of the assembly pace reduction is the result of lower exports to the US, Mexico’s largest export market. In March only about 286,000 units were exported, in an 11.9 percent drop compared with March 2019, the largest drop in four years. Around 80 percent of the light vehicles produced in Mexico are exported to the US, according to the AMIA.
There are nearly four dozen automotive assembly and parts plants in Mexico, employing almost one million workers in 11 states, according to one recent analysis. The sector is responsible for nearly four percent of the gross domestic product. On March 30 Mexican President Manuel Obrador ordered all nonessential businesses to close. As of mid-April, there were more than 5,400 COVID-19 cases, more than 330 deaths, and another 10,000 suspected cases, according to the national Secretaría de Salud, the health ministry.
“A lower demand in the United States, caused by the coronavirus, affects Mexican companies, as it is the main destination market for the national industry,” Brais Alvarez, the automotive account manager of JD Power Mexico told El Financeiro.
The impact on the domestic auto sales market is also profound. Visits to distribution centers have plummeted 85 percent and appointments in auto maintenance shops have dropped 60 percent since mid-March, Guillermo Rosales, deputy director-general of the Associacion Mexicana de Distribuidores de Automotores (the Mexican Association of Automotive Distributors - AMDA), told the Mexicanist.
Awaiting Political Recovery Plans
COVID-19’s impact may also be delayed long after the virus has ceased to spread.
“It is evident that this will have to happen in a magnitude that will depend on the economic impacts that the productive plant of the country suffers. The most serious will not be paralysis during the contingency but the ability to respond later,” Rosales told El Financeiro.
There has been a limited economic benefit to Mexico’s auto industry as China’s auto industry ground to a halt. One parts supplier to Mazda, for example, shifted production of some parts to Guanajuato State to make up for a Chinese production shortage. The auto supplier increased production at its Mexico plant by 50 percent in March, Reuters reports.
Pressure on President Obrador may open the auto industry in Mexico earlier than other sectors. In April, four leading Mexican automotive industry associations sent a letter to the federal health ministry asking to be considered an “essential industry” for the economy in the face of the pandemic, and to be permitted to return to operation as soon as possible.
The associations stressed that the manufacture and distribution of vehicles and auto parts in Mexico are essential for the resumption of activities in value chains throughout North America. The industry in Mexico represents over 20 percent of all manufacturing in the country, and is the main generator of foreign currency for Mexico, generating a trade surplus of $88.9 billion last year, the associations noted. The letter also pointed out that the automotive industry provides two million direct and indirect jobs.
The letter was signed by AMIA, AMDA, the Industria Nacional de Autopartes (the National Auto parts Industry - INA), and the Asociación Nacional de Productores de Autobuses, Camiones y Tractocamiones (National Association of Truck and Tractor-Truck Producers - ANPACT).
New Investment vs. Capital Flight
New investments in Mexico’s automotive sector may help regain production growth. Toyota, for example, has announced plans for a late 2021 production move for the Tacoma truck from San Antonio, Texas to Guanajuato, Mexico, where assembly began in December, Wards Auto reports. Toyota Motor Mfg. de Baja California, Mexico, has been assembling the Tacoma since 2004, it notes.
Mexico also has been poised to initiate the production of multiple lines of electric vehicles (EVs), but this startup may falter. Ford, for example, announced plans to launch its fully electric SUV, the Mustang Mach-E, during the second half of 2020 based on production in Mexico. This is one of nine EVs that were slated for production in the country.
On the other hand, some investors in Mexico are pulling in their horns. Analysts at BBVA Corporate and Investment Banking said that an estimated $7 billion outflow of Mexican government securities holdings in March was the biggest since the central bank began publishing holdings data in 1994, according to the Financial Times.
BBVA’s Claudia Ceja González, a rate and currency strategist at BBVA, said that this type of exit could continue if the authorities do not generate policies to change this matter, the FT reported. Investors now await President Andrés Manuel López Obrador’s stimulus program details.
The pressure on Obrador is growing. Mexico’s economy is predicted to slow by 6.6 percent this year due to the impact of COVID-19, compared with a 0.1 percent retraction in 2019, according to a mid-April alert by the International Monetary Fund.