Charles W. Thurston, Latin America Correspondent09.07.20
Mexico’s automotive industry is making a slow restart at recovery, posting gains beyond earlier predictions, based on regional demand, resumed production lines, and a continued flow of new investment.
Figures from the national statistics agency, Instituto Nacional de Estadística, Geografía e Informática (INEGI), suggest the auto industry is already back at a full production rate, despite an estimated 30 percent decline early in the COVID-19 crisis.
National numbers for the July production of automobiles and other light vehicles were up by a slight 0.65 percent, compared to the same month in 2019, boosted by runaway gains by several major assemblers.
BMW production was up nearly 230 percent, while Ford was up 58 percent in the month-to-month comparison.
Component materials for the auto industry thus should not necessarily contract this year, including paint and coatings.
Statista last year reported a general 3.7 percent annual increase in Mexico’s automotive paint demand, a 6.3 percent increase in wood coatings, a 12.3 percent increase in maritime and industrial maintenance, a 14.7 percent increase in transit and road sectors, and a 17.6 percent annual increase in metal coatings.
Mexican auto exports are lagging the production uptake, with exports down 5.4 percent in July compared to the prior-year month. The vast majority of these exports are destined for the U.S. market. The slower flow of Mexican parts to the United States had a financial impact on top manufacturers like General Motors.
“Working capital unwind of $5 billion was higher than expectations, since supply chain constraints in Mexico pushed some of our North American production to later in June,” said Dhivya Suryadevara, GM’s CFO, in a July 29 earnings call.
Meanwhile, domestic car sales in Mexico have been warmer of late than expected.
“We estimate the sale of 964,400 units this year, a figure higher than the 922,000 previously forecast; this adjustment is the result of the behavior observed in June and July, which is better than what we had estimated,” said Guillermo Rosales, the deputy general director of the Mexican association of automotive distributors, Asociacion Mexicana de Distribuidores de Automotores (AMDA), according to El Financiero.
New Auto Investments Continue
Among international companies continuing to invest in the Mexican auto industry is Swiss parts maker Adval Tech, which has begun an expansion of its factory in El Marqués, in Querétaro State, expected to be completed by July 2021.
The general director of the Swiss-Mexican Chamber, Christian Michel, commented that “Currently the arrival of these kinds of investments is quite important; Switzerland is betting on the automotive sector,” according to a report by Cluster Industrial.
Similarly, Bombardier Recreational Products is investing $136 million in its manufacturing capacity in Ciudad Juarez to meet the demand for off-road vehicles. “Despite the pandemic, demand for our products has remained strong, and even surpassed last year’s figures for the same period,” said José Boisjoli, president of the company.
Following the slowdown from COVID-19, retail sales of BRP’s off-road vehicles went up by over 35 percent in May, compared to the previous year, the company said.
There are nearly four dozen automotive assembly and parts plants in Mexico, employing almost one million workers in 11 states, according to one industry profile.
The auto industry in Mexico represents over 20 percent of all manufacturing in the country, and is the main generator of foreign currency, generating a trade surplus of nearly $89 billion last year.
Consumer Spending Targeted
In other industries, like the DIY market, new investments are targeting consumers who may be shopping in new ways. Home Depot, for example, will invest $121 million in Mexico this year.
“During 2020 projects that allow linking physical stores with electronic commerce will be implemented, thus improving communication with customers and serving them at any time and any place in a more agile and timely manner,” the company said in a statement.
However, overall consumer spending still is down. In July Moody’s Investors Service predicted that, “Consumer spending in Mexico is unlikely to pick up before year’s end as the Mexico City area, the country’s core consumer market, continues to suffer a high tally of coronavirus infections and deaths.
Analysts at the credit rating company expect the Mexican economy will shrink up to 10 percent this year.
Other Sectors Struggle
While the auto industry is poised for a substantial recovery, other infrastructure industries are far worse off. Air transportation, for example, is still devastated by the COVID-19 crisis.
Grupo Aeroportuario del Centro Norte (OMA), an airport operator in 13 airports in Mexico, reported a passenger volume decrease of nearly 73 percent in July, amounting to 613,000 passengers, compared to 2 million passengers in the year-earlier month.
In late July, Peter Cerdá the vice president of the International Air Transport Association for the Americas (IATA), said that Mexican airline losses had gone down $8.7 billion, a 61 percent drop in comparison with 2019.
“We have the protocols at the moment that were not there four months ago, and these will allow us to open safely and responsibly. If the restrictions or closure of borders continues, in September or October we have the possibility that a large majority of our airlines will begin to disappear,” Cerdá said, according to El Economista.
The energy sector also has continued to slow.
In mid-July, Mexico’s Comision Federal de Electricidad (CFE), the state electricity regulator, suspended plans to build four new generation plants because of the economic impact of the coronavirus pandemic.
The government’s contract offers and financing for the Salamanca, Baja California Sur VI, San Luis Potosi and Los Humeros III Fase B plants were included, Reuters reported.
Similarly, state oil monopoly Pemex expects to cut its planned $10 billion investment this year by about $2 billion.
Also, Pemex expects to receive about $6.5 billion in measures to mitigate the impact of COVID-19 and falling oil prices, according to OilPrice.
COVID-19 Deaths Climb
Mexico has had a stark increase in deaths from the coronavirus, topping 53,000 as of early August.
On July 31, Bloomberg reported that “Mexico has overtaken the UK to become the country with the third-most deaths due to COVID-19, according to data released by the Health Ministry.”
Mexico has a population of almost 130 million, ranking it 10th among all nations in population total.
Per capita income in Mexico is nearly $9,900 per year within the national gross domestic product of nearly $1.3 trillion.
On the heels of a mild recession in 2019, Mexico is expected to experience its largest economic retraction since the 1930s, if the current 10 percent retraction prediction holds.
Figures from the national statistics agency, Instituto Nacional de Estadística, Geografía e Informática (INEGI), suggest the auto industry is already back at a full production rate, despite an estimated 30 percent decline early in the COVID-19 crisis.
National numbers for the July production of automobiles and other light vehicles were up by a slight 0.65 percent, compared to the same month in 2019, boosted by runaway gains by several major assemblers.
BMW production was up nearly 230 percent, while Ford was up 58 percent in the month-to-month comparison.
Component materials for the auto industry thus should not necessarily contract this year, including paint and coatings.
Statista last year reported a general 3.7 percent annual increase in Mexico’s automotive paint demand, a 6.3 percent increase in wood coatings, a 12.3 percent increase in maritime and industrial maintenance, a 14.7 percent increase in transit and road sectors, and a 17.6 percent annual increase in metal coatings.
Mexican auto exports are lagging the production uptake, with exports down 5.4 percent in July compared to the prior-year month. The vast majority of these exports are destined for the U.S. market. The slower flow of Mexican parts to the United States had a financial impact on top manufacturers like General Motors.
“Working capital unwind of $5 billion was higher than expectations, since supply chain constraints in Mexico pushed some of our North American production to later in June,” said Dhivya Suryadevara, GM’s CFO, in a July 29 earnings call.
Meanwhile, domestic car sales in Mexico have been warmer of late than expected.
“We estimate the sale of 964,400 units this year, a figure higher than the 922,000 previously forecast; this adjustment is the result of the behavior observed in June and July, which is better than what we had estimated,” said Guillermo Rosales, the deputy general director of the Mexican association of automotive distributors, Asociacion Mexicana de Distribuidores de Automotores (AMDA), according to El Financiero.
New Auto Investments Continue
Among international companies continuing to invest in the Mexican auto industry is Swiss parts maker Adval Tech, which has begun an expansion of its factory in El Marqués, in Querétaro State, expected to be completed by July 2021.
The general director of the Swiss-Mexican Chamber, Christian Michel, commented that “Currently the arrival of these kinds of investments is quite important; Switzerland is betting on the automotive sector,” according to a report by Cluster Industrial.
Similarly, Bombardier Recreational Products is investing $136 million in its manufacturing capacity in Ciudad Juarez to meet the demand for off-road vehicles. “Despite the pandemic, demand for our products has remained strong, and even surpassed last year’s figures for the same period,” said José Boisjoli, president of the company.
Following the slowdown from COVID-19, retail sales of BRP’s off-road vehicles went up by over 35 percent in May, compared to the previous year, the company said.
There are nearly four dozen automotive assembly and parts plants in Mexico, employing almost one million workers in 11 states, according to one industry profile.
The auto industry in Mexico represents over 20 percent of all manufacturing in the country, and is the main generator of foreign currency, generating a trade surplus of nearly $89 billion last year.
Consumer Spending Targeted
In other industries, like the DIY market, new investments are targeting consumers who may be shopping in new ways. Home Depot, for example, will invest $121 million in Mexico this year.
“During 2020 projects that allow linking physical stores with electronic commerce will be implemented, thus improving communication with customers and serving them at any time and any place in a more agile and timely manner,” the company said in a statement.
However, overall consumer spending still is down. In July Moody’s Investors Service predicted that, “Consumer spending in Mexico is unlikely to pick up before year’s end as the Mexico City area, the country’s core consumer market, continues to suffer a high tally of coronavirus infections and deaths.
Analysts at the credit rating company expect the Mexican economy will shrink up to 10 percent this year.
Other Sectors Struggle
While the auto industry is poised for a substantial recovery, other infrastructure industries are far worse off. Air transportation, for example, is still devastated by the COVID-19 crisis.
Grupo Aeroportuario del Centro Norte (OMA), an airport operator in 13 airports in Mexico, reported a passenger volume decrease of nearly 73 percent in July, amounting to 613,000 passengers, compared to 2 million passengers in the year-earlier month.
In late July, Peter Cerdá the vice president of the International Air Transport Association for the Americas (IATA), said that Mexican airline losses had gone down $8.7 billion, a 61 percent drop in comparison with 2019.
“We have the protocols at the moment that were not there four months ago, and these will allow us to open safely and responsibly. If the restrictions or closure of borders continues, in September or October we have the possibility that a large majority of our airlines will begin to disappear,” Cerdá said, according to El Economista.
The energy sector also has continued to slow.
In mid-July, Mexico’s Comision Federal de Electricidad (CFE), the state electricity regulator, suspended plans to build four new generation plants because of the economic impact of the coronavirus pandemic.
The government’s contract offers and financing for the Salamanca, Baja California Sur VI, San Luis Potosi and Los Humeros III Fase B plants were included, Reuters reported.
Similarly, state oil monopoly Pemex expects to cut its planned $10 billion investment this year by about $2 billion.
Also, Pemex expects to receive about $6.5 billion in measures to mitigate the impact of COVID-19 and falling oil prices, according to OilPrice.
COVID-19 Deaths Climb
Mexico has had a stark increase in deaths from the coronavirus, topping 53,000 as of early August.
On July 31, Bloomberg reported that “Mexico has overtaken the UK to become the country with the third-most deaths due to COVID-19, according to data released by the Health Ministry.”
Mexico has a population of almost 130 million, ranking it 10th among all nations in population total.
Per capita income in Mexico is nearly $9,900 per year within the national gross domestic product of nearly $1.3 trillion.
On the heels of a mild recession in 2019, Mexico is expected to experience its largest economic retraction since the 1930s, if the current 10 percent retraction prediction holds.
