The demand of automobiles in Mexico after the economic crisis

Abstract:

The demand for automobiles in Mexico after the economic crisis
Facultad de Contaduría y Administración
Universidad Nacional Autónoma de México

GERPISA International Colloquium, 2011, 8-10 june. París

Lourdes Alvarez Medina

The automotive industry in Mexico provide two relevant markets: the United States market which has had a temporary recovery after the 2008 economic crisis and the domestic market which due to lack of jobs, income inequalities, lack of financing and the entrance of used car imports from U.S. sales, will recover in 2013 the sales levels of 2007.

The automotive industry's production in Mexico has had a significant recovery in 2010. Production reached 2.2 million units (49.9%) more than in 2009 and 7.5% higher than 2008. In fact he industry reached its highest peak of production in the history of the industry in Mexico. Likewise the production of auto parts reached a record 60, 000 million dollars, representing an increase of 45% compared with 2009. Exports reached almost 1.9 million, representing an increase of 52% compared with 2009 and 11.6% more than in 2008. Although the domestic sales grew 9% to 820.000 units (of which 409.147 were imported) they were 25.4% lower than 2007 when it reached the largest retail of new cars (1, 099.866) (AMIA, 2010; INA, 2010).

The aim of this work is to analyze the effects of the economic crisis in the demand of automobiles in Mexico. Specifically we analyze the factors that shape demand such as household income, financing and the entry of used vehicles from the United States.

Since the beginning of the 1980s the economic growth of the GDP per capita in Mexico has been unsatisfactory (0.9% between 1980 and 2007) and macroeconomic stability has not resulted in increasing the standard of living of its population, create new jobs, and keep a solid currency. Several reasons has been exposed: a) the structure of the export oriented manufacturing sector, which is not linked to the local economy, has caused a polarization process and growth has been limited to an extremely small group of firms and households b) the financial sector is not working as it should and therefore is a lack of financing for the private sector c) there is a low investment growth in technology and human capital formation.

Employment is one of the most important issues related with the internal demand of automobiles. Mexican economy generated an average of 305 000 jobs annually between 1991 and 2009 whereas the Economically Active Population increased one million. The quality of the formal employment has deteriorated substantially and real minimum wages in 2008 represented less than 30% of their 1980 level and real wages have lagged behind labor productivity.

The Gini coefficient has in crease from .385 in 1977 to 0.498 in 2008. We can see the inequality of the distribution in the national patters of income where the first six deciles, which are the 60% of households, amount for only 26.7% of total income while 10% of the households amount for 36% of the total income. The main components of current spending of households are food, beverage and cigarettes (33.6%), transport and communication (18.4%), education and recreation 13.5% and 15.5% in the same period, housing and fuel (10.0%).

The inequalities of household income have shaped consumption demand in a specific way. The main share of loans is aimed at the demand of non-durable goods, which are purchased through credit cards. Past due accounts grow up in crisis periods, but in the last year they have shrunk.

Pick ups an SUV’s were the category that has experienced the largest rate of growth between 1990 and 2010, and it seems that it will keep the same pace of growth. This demand comes from the VII to X deciles where the richest Mexican households are.

Income and social inequalities will remain much the same because the current administration has failed in setting adequate economic growth paths. For the automobile industry, it will remain growing depending on the US market and the demand of the domestic market.