Mexico Autos Report Q1 2008

BMI has lowered its full-year sales forecast for the Mexican car market in 2007. The new car market shrank in 2007, as the number of used vehicle imports, mainly from the US, continues to rise. However, while we are concerned about the impact of imports on the market, positive results in the areas of exports and production are enough to allay any fears about the long-term stability of the industry.

According to data from the Mexican automotive industry association, AMIA, new car sales reached 86,545 units in September 2007, down by 6.0% year-on-year (y-o-y). During the period January- September 2007, 778,666 units were sold, a fall of 2.6% against the same period a year earlier. General Motors de Mxico (GM) took the top spot, despite a 7.0% downturn in sales. According to AMIA, GM sold 162,465 units during the first nine months of the year. The carmaker's sales this year have been buoyed by models such as the Chevy C2 and a stronger performance in the compact-vehicle and luxury segments. Second-ranked Nissan sold 152,956 units during the nine-month period, presenting an increasing challenge to GM's top spot. Ford, ranked third, also reported a fall in sales, of 15.0% y-o-y to 108,728 units.

BMI's new forecast for vehicle sales in 2007 stands at 1.15mn units, which is slightly below the number of sales registered in 2006. Our expectations are in line with those of AMIA, which has cut its initial forecast set at the beginning of the year by some 200,000 units. AMIA attributes the downturn in 2007 to used vehicle imports, of which an estimated 1,500,000 units are expected to be sold in the country this year alone. Moreover, AMIA says a new corporate tax will discourage companies from purchasing vehicles in the final two months of the year.

In BMI's view, the most significant industry development in H207 was Volkswagen's (VW) announcement that it is to set up a bank in Mexico. In line with its strategy for growth, VW will offer attractive financing and banking services via its dealership network in the country. The entity, Volkswagen Bank, will entail a total investment of MXN765.4mn (US$70.0mn) over a two-year period.

The bank is expected to commence operations in early 2008. The venture in not only an indication of the automotive market's potential for growth, but a positive endorsement of Mexico's business environment.