LA Times. Mexico's economy is vrooming
MEXICO CITY ? Dressed in a blazing pink jacket with purse to match, car shopper Erika Amador Martinez is the embodiment of Mexico's auto market ?
sizzling.
The lawyer from Puebla arrived at an auto show here this month to browse among dozens of models. Topping her list is a Ford EcoSport, a sport utility
vehicle that she covets for its practicality, not to mention the kicky red paint job.
"I'll pay part in cash and finance the rest," said the 27-year-old, who is tired of cadging rides from her boyfriend. "It's a lot easier to buy a car
than it was a few years ago."
Armed with credit and spoiled for choice, consumers like Amador have turned Mexico into North America's hottest auto market. Although sales in the
United States and Canada have stalled, Mexico is experiencing double-digit percentage increases in 2004, with buyers projected to purchase a record
1.05 million new vehicles by year's end.
That's more cars and trucks than will have been sold in Australia by the end of this year and in all but a few European countries. Some expect Mexico
to overtake Canada in annual vehicle sales by the end of the decade.
The auto boom is indicative of a rebounding economy, lots of young drivers and years of pent-up demand. Banks scorched by Mexico's mid-1990s peso
crisis are back and lending billions of dollars to consumers, whose choices rival anything in U.S. showrooms. Lured by free trade agreements and
Mexico's sales potential, nearly 40 car brands are fighting for a piece of the market.
Already a major vehicle manufacturer and exporter, with companies such as Ford, General Motors, DaimlerChrysler, Volkswagen, Honda and Toyota
operating plants here, Mexico's growing domestic market could provide an added incentive for automakers to expand production in the country.
Not all are thrilled, however. Environmentalists are appalled by the prospect of more smog, sprawl and gridlock, particularly in this car-choked
capital city. Some worry that lenders are making loans they shouldn't.
Still, for better or worse, Mexico is no longer just a low-wage auto assembler, but a big-league buyer as well.
"It's a market that has definitely arrived," said Gabriel Renero, head of automotive consulting for advisory firm Deloitte in Mexico.
But will it stick around?
Mexico has a history of lurching from one economic crisis to another, tantalizing automakers with dazzling gains that quickly vanish. In 1995, for
example, new vehicle sales plunged 70% after a peso devaluation that destroyed the finances of millions of Mexican households. Interest rates soared,
and some hapless car owners saw rates on their adjustable auto loans shoot higher than 100%. Thousands defaulted. Lending ceased. Dealers presided
over vacant showrooms.
"It was devastating," said Oscar Tame Yapur, manager of his family's Ford dealership in the capital. "It's a miracle that we survived."
But the last decade has seen a retooling of Mexico's economy. The 1994 North American Free Trade Agreement created hundreds of thousands of
manufacturing jobs, attracted billions of dollars in foreign investment and turned Mexico into an exporting powerhouse.
Today the peso is sound. Inflation is relatively tame. The world's fifth-largest oil producer is reaping a windfall from elevated crude prices.
Although still dogged by high unemployment and entrenched poverty, Mexico nevertheless is enjoying a measure of economic stability it hasn't seen in
years.
That in turn has emboldened lenders who have jumped back into the market, providing much of the juice for Mexico's auto boom. Edwin Vega, director of
retail lending for Scotiabank Inverlat in Mexico, estimates that banks, auto-finance companies and others will have lent $4.5 billion to Mexican car
buyers by the end of this year. Aided by better underwriting and Mexico's stable economy, lenders are offering something every bit as revolutionary as
Henry Ford's assembly line: fixed interest rates.
Most Americans would choke at the prospect of paying 15% interest on a car loan, a competitive rate in Mexico. But for consumers haunted by the
triple-digit nightmare of the mid-1990s, it seems a bargain.
Some buyers have done even better. Urologist Raymundo Toledo Figueroa is paying a mere 4.7% to finance his new $27,000 Ford Freestar minivan. He had
to plunk down 36% of the purchase price in cash, and he gets only two years to pay off the note.
But watching his four children in the showroom bouncing in the seats of their new family van, a giant red bow stuck to its gleaming white hood, the
proud father couldn't believe his good fortune.
"Never in my life did I think I would see a rate this low in Mexico," Toledo said. "I wouldn't have bought it otherwise."
Toledo's family was one of several milling around Tame's Ford dealership on a recent afternoon, slamming car doors, peering under hoods and sizing up
trunk space. December is the biggest month for car sales in Mexico, thanks to a labor law that requires many employers to pay workers year-end bonuses
that can amount to more than a month's pay.
But the bonanza started early this year. Mexican car dealers had the best month in their industry's history in November, selling nearly 100,000 new
vehicles. Sales through the first 11 months of the year were 10.9% ahead of the same period last year.
By contrast, automotive forecaster J.D. Power-LMC predicts U.S. car and light truck sales will have barely budged in 2004, and vehicle sales will have
fallen slightly in Canada.
The vast majority of new cars purchased by Mexicans this year have been compacts and subcompacts that sell for as little as $7,000. Most Americans
have never heard of the Nissan Tsuru, Ford Ka or Volkswagen Pointer, which are geared for developing markets and reflect the modest incomes in nations
like Mexico, where many still earn less than $5 a day.
Still, luxury car maker Mercedes-Benz reports that its Mexican sales are surging 15% this year, with minivans and SUVs the fastest-growing segments in
the market.
Ford dealer Tame said he had a waiting list 10 deep for the new $26,000 Mustang and could barely keep the $16,000 EcoSport SUV in stock. He said he
would move 10% more cars off his lot this year than in 2003, but he had to work harder because of burgeoning competition.
Mexico has almost as many car brands and models fighting for a slice of its turf as does the United States, whose market is 16 times bigger. Thus car
companies are offering everything from free auto insurance to home appliances to get Mexicans into a set of their wheels.
"In the old days, it used to be the Big Three, Nissan, Volkswagen and that's about it," Tame said. "Now the whole world is here."
And more are coming. Russian car maker Lada said it would begin exporting its Niva SUV to Mexico in the spring. Japan's Mazda Motor Corp. plans to
open its first five Mexican dealerships in the third quarter of 2005.
Japan recently inked a free trade agreement with Mexico, joining more than 40 other nations with liberal access to its market. Experts say such deals
are a sweetener in attracting car companies to Mexico. But none would bother if not for Mexico's enormous potential, said Carlos Gomes, a Scotiabank
auto industry analyst based in Canada.
Although the U.S. remains the world's foremost car consumer, its drivers are aging and its market is saturated. By comparison, half of Mexico's
population is younger than 25 and most of its 65 million driving-age citizens don't yet own a car.
Vehicles sales have nearly doubled here since 1990, but fewer than two of 10 Mexicans possess a vehicle today. That compares with nearly eight of 10
in the U.S.
"Mexico is and will be the star of North America," Gomes said. "That is really where the growth will be."
Some are thrilled at this affirmation of Mexico's development and at the prospect of luring more manufacturing plants and high-quality automotive
jobs.
Toyota Motor Corp. opened a $140-million plant near Tijuana this year to make Tacoma pickups and truck beds. Although most of that production will end
up in the United States, the growing Mexican market helped sway Toyota to locate there, plant operations chief Joe da Rosa said this year.
But others are aghast at the possibility of millions more vehicles choking streets in places such as Mexico City, whose traffic snarls and abysmal air
quality are among the worst in the world.
"What we need is more spending on public transportation," said Isabel Bustillos, an organizer with a citizens group trying to promote "rational" use
of the car in Mexico City.
She has her work cut out for her.
Autos are arriving faster than infants in the capital, with two new vehicles purchased for every baby born. One researcher has suggested that the
nation's declining birth rate is directly linked to rising auto sales, with couples opting for the sedan over the stroller.
Cars dominate nearly every square inch of Mexico City's public space. Vehicle owners double- and triple-park on the streets, to say nothing of curbs,
sidewalks, gardens, alleys, boulevards and bike paths. The signature public works project of Mexico's popular mayor, Andres Manuel Lopez Obrador, is a
second level for the city's main north-south highway that's fast nearing completion.
The auto has so thoroughly co-opted the culture here that a planned revitalization of Chapultepec Park, Mexico City's weathered but magnificent oasis
of green, calls for the construction of a miniature motorway where children can drive pint-size cars.
Indeed, for some Mexican youths, the future is clearly motorized.
Settling into the leather guts of a Cadillac Escalade this month at the Mexico City auto show, Octavio Jiminez Marquez and his buddy Saul Enriquez
pictured the road ahead.
The 22-year-old engineering students would love to find careers in the Mexican auto industry and make enough to buy their own gigantic Escalades
someday. To describe the car is to describe the dream.
"It's big," said Jiminez.
"It's big," echoed Enriquez.
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