Heavy truck sales in Mexico declined 40.5% year-on-year (y-o-y) in January 2014, to 671 units. Manufacturing and construction activity in January came in below expectations. BMI believes that this, combined with the Q413 surge in heavy truck sales as sentiment in the market improved, has created a surplus in the segment. We expect to see a correction in the coming months and sales are likely to remain poor. Accordingly, we are revising down our 2014 sales forecast to a decline of 10%.
|Far Below Peak|
|Mexico Heavy Truck Sales Data And Forecasts, Units|
One of the main reasons for the drop-off in January truck sales is the strong growth seen in the latter months of 2013; purchasing decisions were brought forward, prompting strong sales increases in Q413. BMI expected to see a 'resurgence in the segment in the final months' of 2013, on the back of low base effects and improving manufacturing and construction figures following a period of weakness earlier in the year. This played out, with December registering a 30.5% y-o-y increase ( see 'Positive Momentum To Buoy 2014 Heavy Truck Sales', January 22).
We had expected this positive momentum to continue into 2014 as growth in the construction sector and industrial production on the back of stronger investment and strengthening US demand for Mexican manufactured goods boosted the segment.
However, economic data suggests that the Mexican economy has seen a few months of weaker-than-expected industrial production on the back of reduced external demand ( see 'Tax Hikes And Manufacturing Dip Pose Downside Risks To Growth Outlook', February 12).
BMI expects manufacturing to improve due to strengthening US demand in the coming months, although the recovery could be more muted than we initially anticipated. A resurgence in industrial production is likely to lead to modest improvements in heavy truck sales over the year, but we expect the market to remain fairly weak.
However, economic data released in the coming months will signal whether a period of more protracted weakness in industrial production is taking place in Mexico. This presents downside risks to our sales forecast.
Some relief to the segment will come from low base effects, as heavy truck sales contracted on a y-o-y basis in most months in 2013. Moreover, the market is some way below its 2007 peak ( see of graph) and, following several years of sustained declines, pent-up demand in the segment may serve to help boost sales.