Mexico’s Domestic Auto Market Remains Small, But So What?

Commentary by Doug Donahue

A recent Economist blog post nicely summarized the benefits that foreign companies are realizing by setting up operations and plunging into Mexican manufacturing:
• Low labor costs
• Proximity to the world’s largest car market
• Growth of car sales in other parts of Latin and South America

The post also comments on the juxtaposition of Mexico itself as a small domestic market for cars, in contrast to its presence as the world’s 8th-largest carmaking nation (soon to be 7th). Mexico is already the world’s 4th-biggest exporter of cars, behind Germany, South Korea and Japan. Yet the domestic market remains small potatoes, with barely one new vehicle in Mexico for every 150 people, compared to more than one for every 20 citizens in the US.

The contrast of Mexico as a big vehicle exporter with little domestic activity may be stark – but so what? For tier suppliers looking to set up operations in the auto corridor in central Mexico, the Mexican domestic market is far from the main draw. In fact, it’s a bonus.

From the standpoint of suppliers to the OEMs, putting the spotlight on the small size of the domestic market in Mexico is missing the point altogether. The main reason suppliers are coming to Mexico is because of the country’s presence as the leading hub for both North and South America. That’s why when you travel through cities like Guanajuato, Querétaro or Aguascalientes you see a mix of foreigners – Koreans, Japanese, Germans, French, etc. – who are now living here and are excited about the opportunities.

This blog post also mentions the recent opening of Nissan’s $2 billion assembly complex in Aguascalientes. Though the post doesn’t state it, it’s worth noting that Nissan isn’t a luxury brand. They make affordable, reliable cars for the general market. That’s the exact type of vehicle that is affordable for middle-class Mexicans, whose ranks are growing tremendously, and it could do quite well in the country.

Source: The Economist

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