Will Mexicans wave goodbye to traditional vehicle ownership?
Alfredo Hernandez, country director for Autorola Mexico reveals how the new and used car markets continue to grow amid changing car procurement trends.
The Mexican new car market reached an all-time high in 2016 at 1.6 million units and with a fair wind behind it could match this figure again in 2017. There are some car makers that believe the new car market has further to go and could hit two million in the future fuelled by a continually growing economy and low inflation.
Nissan, GM and Volkswagen are the dominant players in the new car market, which has generally remained stable during 2017 based on a better than expected economic performance in the first six months this year. Even the two strong earthquakes experienced in September – which the country is still dealing with – haven’t impacted the markets showing that the country is being more resilient than in previous years.
Despite President Donald Trump’s threats to introduce trading sanctions, the country exported 1.16 million vehicles to the US in the first half of 2017, according to the Mexican Automobile Industry Association. BMW continues with its plans to open a new car factory in Mexico in 2019 that will build the 3 Series and feed demand in north America while Ford announced plans to scrap its $1.6 billion investment in a car plant in Mexico.
Car ownership is changing in Mexico with the 35-70-year-old age group keen to buy their cars, keep them for five to 10 years and then buy another car. This trend has been further aided by more auto loans being made available to consumers. They may sell their car through a website to another consumer or they may source their next car online, but still they are nervous about completing the entire car transaction online.
This apathy has meant that there has been very little to no growth in personal leasing in Mexico, which has proved popular in so many countries around the world. For many car makers, personal leasing has contributed to a growth in car sales across the globe but not in Mexico.
The market is quite traditional; drivers still like to see the whites of the owner’s eyes during the used car transaction. They also like to kick the tyres and give the car a once over before they commit to buy, which is why few consumers will commit to buying a big-ticket purchase online without first seeing the car. That’s what has kept physical auctions popular with consumer buyers.
That compares with the B2B market where Autorola is helping many car makers sell their ex-management and ex-rental cars directly online to their dealers via its online portal. This adoption of the online buying and selling process has been based on the understanding that buyer trust can be achieved with accurate vehicle descriptions supported by images.
Buyers know if there is a problem it will be sorted quickly and that buyer funds automatically go into an escrow fund and are only released to the vendor once they have taken delivery of and are happy with the car. Car makers are now approaching us to understand how we can roll out online auctions for their dealers. Autorola has started to influence the market and change buying and selling trends in the 18 months it set up its Mexican subsidiary.
Meanwhile the younger members of society in their early 20s are choosing to utilise the growing number of car share services, such as Uber and Camplify, that have sprung up, particularly in Mexico City in the past 12-18 months. The younger generation seem to like the flexibility of being able to call up a car as and when they need to make a journey rather than automatically aspire to owning a car. There are even more tailored car share services, for instance one that is run by women for women passengers, such is the demand for mobility services.
No-one quite knows how many used cars there are in Mexico owned by the 110 million population, guesstimates range from 30-45 million. The Mexican Automobile Distributors’ Association has reported that used car imports continue to fall to less than 200,000 in 2015 compared with 1.6 million used car imports 10 years earlier.
And while a used car industry continues to grow and buy and sell Mexican cars, so the entire automotive industry is more capable of standing on its own two feet. The entire Mexican market has not stopped changing for sure, with Autorola’s range of online inspection and auction services continuing to support those changes and helping to keep increasing the professionalism of the used car industry.
The Mexican economy’s better-than-expected performance in H1 was due to resilient household consumption and renewed momentum in the manufacturing sector. However, leading data suggests some of the tailwinds that boosted growth in H1 faded in Q3. Although August’s trade report and PMI indicators for the July-to-September period still paint a bright picture of the manufacturing sector, data for consumption suggests the long-touted moderation in private spending may have finally arrived.
Retail sales barely expanded for a second consecutive month in July, while auto sales continued to contract through August, reaffirming the narrative that multi-year high inflation is denting households’ real income growth despite a tight labour market and robust remittance inflows. Q3 growth will also reflect the economic impact of the two earthquakes that devastated Mexico in September, although reconstruction efforts are expected to shore up economic activity in the quarters to come.
The economic outlook remains clouded by uncertainty linked to the renegotiation of NAFTA and the elections scheduled in Mexico for next July. While resilient in H1, GDP growth should moderate in H2 due to the immediate effects of the earthquake on economic activity and slower private consumption growth. Our panel expects growth of 2.2% in 2017. Next year, the economy is expected to benefit from stronger government consumption ahead of the election and softer inflation. FocusEconomics Panelists see GDP growth at 2.3% in 2018, which is up 0.1 percentage points from last month’s forecast.
Remittances totalled US$2.3 billion in September, a 1% drop from the same month last year, contrasting the 9.3% year-on-year increase recorded in August. The 12-month trailing sum of remittances reached a total of US$28.2 billion in September. This represented a 7.5% increase compared to the same period last year, which was below the 9% expansion in the 12 months up to August. September’s decline was likely due to the natural disasters that hit Mexico and the US in September.
Remittance inflows have underpinned household consumption so far this year, contrasting the effects of rising inflationary pressures and weakening credit growth. The good shape of the labour market in the US has pushed wages up, which has translated into stronger remittance flows despite fears of a crackdown on immigration in the Northern neighbour.
Notwithstanding the risk of tougher measures against Mexican immigrants in the US, analysts continue to expect remittances to increase further this year and to reach US$29.9 billion by the end of 2018. For 2019, the panel sees remittances rising to US$31.1 billion.
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