Bullish Views Playing Out As Market Remains Strong

Light vehicle production increased 5.1% year-on-year (y-o-y) in Mexico over the first six months of 2013, to 1,488,162 units. BMI maintains our bullish view on the market, forecasting 9.7% growth in passenger car production and 5.7% growth in light commercial vehicle production in 2013 on the back of the strong sales and export outlook.

There are a number of strong fundamentals underpinning our bullish production view, including low labour costs; relative weakness in the peso, which will serve to make exports more competitive; a high number of free trade agreements (FTAs); and comparative weakness in the productive capacity of Mexico's regional competitors (s ee 'Regional Production Hub To Continue To Attract Investment', March 5 ). We believe that these factors should continue to attract autos investment in the country, particularly for export-orientated production.

Exports Drive Output Growth

Regional Production Hub
Mexico Light Vehicle Export Destinations H113, %

Light vehicle production increased 5.1% year-on-year (y-o-y) in Mexico over the first six months of 2013, to 1,488,162 units. BMI maintains our bullish view on the market, forecasting 9.7% growth in passenger car production and 5.7% growth in light commercial vehicle production in 2013 on the back of the strong sales and export outlook.

There are a number of strong fundamentals underpinning our bullish production view, including low labour costs; relative weakness in the peso, which will serve to make exports more competitive; a high number of free trade agreements (FTAs); and comparative weakness in the productive capacity of Mexico's regional competitors (s ee 'Regional Production Hub To Continue To Attract Investment', March 5 ). We believe that these factors should continue to attract autos investment in the country, particularly for export-orientated production.

Regional Production Hub
Mexico Light Vehicle Export Destinations H113, %

Exports Drive Output Growth

Mexico's autos exports in H113 declined 1.2% y-o-y, to 1,160,881 units. We expect to see export volumes increase over the year, despite this moderate decline, due to relative weakness in the peso and a pick-up in demand from US and Latin American markets later in the year.

Vehicle exports to the Latin America region, Mexico's second largest trading partner after the US, declined 32.8% y-o-y, to 137,608 units. This is primarily on the back of new trade agreements coming into force earlier this year in its two largest export destinations in the region, Argentina and Brazil, leading to substantial declines in export volumes to these markets ( see 'Production Slowdown As Regional Trade Agreements Bite', March 7). We expect this decline to moderate somewhat over the course of the year, but we expect autos export to the region to remain weak in comparison to 2012 levels.

In contrast, autos exports to the US increased 4.5% y-o-y in H113, to 773,972 units. This constitutes 66.7% of Mexico's exports in this period ( see graph). As sales in the US continue to increase, additional gains are likely in the coming months, and we maintain a bullish outlook. Indeed, a significant portion of commercial interest in the country is for production for export to the high-growth US market ( see 'Audi Considers Output Expansion To Achieve US Growth', May 8).

Bullish Sales View Playing Out

Light vehicle sales in Mexico increased 8.6% y-o-y in H113, to 501,987 units. BMI forecasts passenger car sales to increase 6.6% and LCV sales to increase 8.0% in 2013, predicated on our expectation for an increase in total private consumption in the latter part of the year ( see 'Sales Continue To Grow', February 22). We expect the growth rate to moderate somewhat towards the end of the year as the marked increases in Q412 are unlikely to be replicated ( see sales graph).

Sales Remain Strong
Mexico Monthly Light Vehicle Sales, CBUs

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This article is tagged to:
Sector: Autos
Geography: Mexico, Mexico, United States, Mexico, Mexico
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