Mexico Autos Report Q2 2008

Mexico's automotive industry is poised for further growth in 2008. According to BMI's latest Mexico Automotives Report, carmakers operating in the country such as Volkswagen and Honda reported record gains for 2007 and positive results have already been obtained in the first two months of 2008.

Nevertheless, the state of the US market and the effect declining sales there could have on Mexican vehicle exports remains a primary concern.

As illustrated in this report, Volkswagen de Mxico (VW) enjoyed record levels of production in 2007.

According to company sources, output reached 411,129 units last year, up by a solid 18% on 2006. The result was the second best in the country's history and was close to the record achieved in 2000 when some 425,703 units were produced. VW is among the manufacturers that have made a positive start to 2008. According to data from the Mexican automotive industry association AMIA, VW made 39,084 units in January 2008, a massive increase of 106.4% year-on-year (y-o-y). According to VW sources, during the period January-February the carmaker made 77,157 units. VW is bidding to make 450,000 units this year.

Fresh developments concerning investment this year also relate to VW. In line with Mexico's standing on BMI's new Business Environment Ratings Index, where the country receives a favourable score thanks to its trade links with countries such as the US, VW has earmarked investment of US$1bn in the country up to 2010. A tough operating environment in Western Europe, including a strong euro making exports more expensive, has led VW to focus on its Mexican plant in accordance with its strategy for growth in the US.

VW is expected to use the capital to boost production and exports as well as seize a larger slice of the Mexican market.

According to industry data, vehicle production during the first two months of the year rose by 25.9% y-oy to 166,149 units. BMI is currently forecasting total production of 2.16mn units for 2008. The outlook has been improved by the announcement that production is set to get underway at General Motors'
(GM) new plant, located in the state of San Luis Potos, in April 2008. GM has invested US$650mn in the plant, with the relevant state and federal governments pumping a further US$102mn into the project.

Output is expected to reach 30 units per hour. GM will use the plant to supply the domestic market and for exports, underlining the advantages of producing vehicles in Mexico.