Mexico's crossover production adds to trade tensions

Sunday, 15 October 2017 22:01 Written by  Read 8 times
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2000s, and the diminutive cars that replaced it helped fuel years of sales gains that culminated in a record 1.6 million auto deliveries last year.

Likewise, Mexico has long been a reliable export platform for the no-frills Nissans and four-cylinder Fords whose slim U.S. margins are more easily met south of the border.

But the auto industry here is outgrowing those stereotypes as it joins global trends on the showroom floor and the shop floor. A generation of new light trucks is being made and sold here, upending traditional notions of Mexico's place in the North American auto industry.

The nation's success beyond the econoboxes that once defined its aspirations is fueling anxiety over the North American Free Trade Agreement — which President Donald Trump may eventually kill — even as it makes the regional trading bloc more competitive overall.

"This is really evidence, if you put it all together, of a maturing Mexican automotive industry and a growing base of capability, which means it's also growing as a competitor for the various automotive manufacturing regions in the U.S. and Canada," said Bernard Swiecki, an analyst at the Center for Automotive Research.

An employee in assembly at the Audi plant in San José Chiapa applies the Audi rings to the Audi Q5.

"One reason why we do have so much focus on this NAFTA renegotiation is that automotive is the main contributor to the [U.S.] trade deficit with Mexico," Swiecki said in an interview. "That's not lost on the people at the table, and automotive jobs just happen to be particularly valuable."

The implications of this are all too clear 2,000 miles away in Ingersoll, Ontario, where a labor strike at General Motors' CAMI assembly plant centers on union fears that GM could shift production of the hot-selling Chevrolet Equinox crossover to Mexico.

2018 Chevy Equinox

The Equinox shares a platform with the GMC Terrain, which shifted from CAMI to a plant in Mexico this year.

As part of booming investment in the auto sector this decade, Mexico landed a new Audi Q5 crossover plant in the state of Puebla, a Mercedes-Infiniti crossover factory in Aguascalientes and a coming Toyota Tacoma pickup plant in Guanajuato that could also produce a future SUV.

2018 Volkswagen Tiguan

Production shifts mean Mexican plants are also taking on the redesigned VW Tiguan, the new Nissan Kicks subcompact crossover and the redesigned Jeep Compass crossover. Those crossover additions are on top of a massive new Kia car plant in Nuevo Leon and a BMW sedan factory under construction in San Luis Potosi.

2018 Jeep Compass

Local demand

A major reason for Mexico's success in drawing nontraditional investments from high-end German automakers is the ability to export tariff-free to Europe and other markets. The U.S. doesn't have the trade deals to match that, even if it could compete on costs, Swiecki said.

In contrast, the investments in production of more affordable crossovers are based on demand within Mexico and North America, said Guillermo Rosales, co-director of the Mexican Automobile Distributors Association.

"If you look at the last five years, there has been a gradual increase in the participation of utility vehicles in the sales structure," Rosales said, rising to 22 percent of Mexico's light-vehicle market this year from about 16 percent earlier in the decade.

The compact crossovers arriving in the market are basically displacing compact cars, whose share of the Mexican market has dropped to about 23 percent from 30 percent five years ago, Rosales told Automotive News.

"There's a change in consumer preferences that has accompanied a generational change," he said. "The younger the consumer, the more likely they will seek out a utility vehicle for versatility and performance."

Nissan, a longtime maker of no-frills cars in Mexico, is joining the light-truck trend.

Affordability

A key factor is price, Rosales said. Crossovers have become more affordable to Mexican consumers seeking utility vehicles, as they are built on car platforms. Moreover, more are being made in Mexico, including the Honda CR-V and HR-V, Chevy Trax and Nissan Kicks.

So far this year, the only auto segment that has notched any sales gains is the multiuse category that Mexico uses for utility vehicles, with an 11 percent rise. Subcompact cars are down 17 percent and compact cars are off by 19 percent from a year earlier.

The trend is likely to continue as more of Mexico's growing production moves into light trucks to feed demand across North America and other global markets.

Mexico's auto exports through September of this year rose 12 percent from a year earlier to a record 2.29 million units, according to the Mexican Automotive Industry Association. The split was about even — 1,161,301 light trucks vs. 1,126,595 cars — not including figures from Audi's crossover plant; 76 percent of vehicle exports went to the U.S.

In the same period three years ago, car exports exceeded light-truck exports by more than 230,000 vehicles.

With more higher-value vehicles being exported, Mexico's trade surplus in automotive goods rose 12 percent in the first nine months to $38.8 billion, with the bulk of the imbalance coming from the U.S.

That surplus is Exhibit A in the trade talks being pursued by the U.S., with Trump's explicit goal being wiping out the U.S. trade deficit with Mexico.

Automotive News

Automotive News is a weekly print newspaper written for the automotive industry, primarily individuals associated with automobile manufacturers, suppliers and manufacturers. Based out of Detroit and owned by Crain Communications Inc, Automotive News is considered the newspaper of record for the automotive industry. The brand has a team of more than 55 editors and reporters worldwide.

Website: www.autonews.com/