Mexican vehicle exports have fallen by 16% over the course of April for a number reasons. One main fault behind the
drop is that Americans are buying more light trucks which are not normally produced in Mexico. The Mexican Automotive Industry Association released a report today that says that car exports have fallen from 233,515 in April 2015 to 197,020 in April 2016 because of the industry trend. In the first fourth months of 2016, Mexican auto exports have fallen from 922,029 to 854,118 vehicles as part of the downward trend in Mexican exports. Exports to the United States represent three quarters of all Mexican production, so the downturn has spelled negative consequences for the Mexican economy because the auto industry plays a large part in the economy as a whole. Because light truck consumption in the United States has increased 11 percent in light of a 5.5 percent drop in demand for automotives over the course of the last four months in 2016, the Mexican auto industry has suffered tremendously from the decrease in exports to the United States. This recent development highlights some of the topics that we covered with Thomas Klier last week about global auto production and the intersection between Mexican production and American consumption. It’s important to keep in mind that changes in American tastes and preferences have large effects on the auto industry in other countries who rely on American exports for much of their market share. I find this recent trend in light truck demand and the implications for the Mexican economy to be interesting and relevant.
Thomas Barnett
Source for anyone interested: http://www.autonews.com/article/20160509/OEM01/160509887/mexico-auto-exports-off-16-in-april-on-unfavorable-truck-mix
Another large part of the Mexico vs. USA production machine is tariffs and country relations. The USA and Mexico have a free trade agreement as trade flows freely across the border. I assume that Mexico has better relations with countries in Central and South America for trading. In those parts of the world there is a higher demand for smaller cars. American’s have always liked larger cars and companies produce cars closer to the markets. It is much cheaper to ship materials to assemble than ship a larger car. For this reason, the F150 plant is in Dearborn as we toured today.
Is the United States the main importer of Mexican vehicle exports? I am interested to see how Central American demand for cars has been over the past few quarters and whether or not that has been a reason for the 16% decrease in exports.
Why are light truck not produced in Mexico while passenger cars are? It will be interesting given American preferences for larger cars, which will likely not change in the short run as gas prices remain low, will compel US automakers to produce larger cars and light trucks in Mexico to save on labor costs.
In response to Michael, I think the main reasoning is infrastructure. As we saw in Michigan last week, Ford uses its largest and most capable plant, the Rouge, to produce the F150 because it’s Ford’s best selling vehicle and is in the highest demand. In contrast I doubt the Mexican auto industry has the infrastructure in place to be able to accommodate such a large demand for light trucks in the American market. Most of the best and largest production facilities are located in the US whereas in Mexico facilities were constructed to make cars as the truck market was already firmly in place in the US.
I would assume a priori that the fall was due to weak demand in South America. But if so Automotive News would normally make that clear.
Of course Thomas Klier spoke to what is/ought to be made where: small cars are a natural fit for Mexico as the market in the US is comparatively small.