How the Economic Crisis is Affecting the Passenger and Light Commercial Vehicle Market in Mexico

The Economic Decline Puts the Brakes on the Passenger and Light Commercial Vehicle Market in Mexico

With the economy sloping downwards, the consumer confidence index has taken a plunge. This scenario has caused a dip in the volume sales of passenger and light commercial vehicles compared to the sales levels in 2007. This situation is not likely to ease in the near future due the high interest rates offered by financing institutions, the credit crunch, and the perception that automobiles are long-lasting goods. In 2007, Mexico's automobile credit fell by 1 percent, while in 2008, it decreased by 12 percent. It is not only the financial institutions that are reluctant to offer credit, but automotive and banking institutions are also placing restrictions on money lending. In 2009, Frost & Sullivan expects vehicle sales of 800,000 to 850,000 units, which represents a fall of 17 percent and 22 percent from 2008.

The Mexican Federal Government has offered the automotive industry a bailout package, so they stay afloat in these trying conditions. "Approximately 60 big companies bonded to the automotive industry are looking to benefit from the Technical Stops Program developed by the Mexican Federal Government, which is designed to help companies by paying a third of the total payroll to avoid dismissals," says the analyst of this research. "However, even with these measures, Frost & Sullivan expects Mexico's economy to shrink by 3 to 4 percent in 2009."

The Federal Government has also instituted a program to promote the renewal of obsolete public service vehicles by replacing the older vehicles with new or semi-new ones. The government hopes to make its fleets more competitive and productive, as well as promote a better ecology by polluting less and lowering the number of accidents. The program is directed at transport companies that wish to modernize their fleet. "This federal program offers a fiscal stimulus that can be utilized for the down payment or a reduction on the payments while buying a new unit," notes the analyst. Mexico City's Government also launched a similar program for taxi drivers and passenger bus drivers. The objective is to modernize the fleets by compensating owners for their vehicles, which must at least be 10 years old.

Market Sectors

Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:

Passenger vehicles

• Entry cars
• Small hatchbacks
• Medium hatchbacks
• Small sedan
• Medium sedan
• Big/Large sedan
• Medium station wagon
• Big/Large station wagon
• Mono cab
• Grand cab

Light commercial vehicles

• Small pick up
• Big pick up
• Sport utility vehicles
• Mini vans
• Vans