From NAFTA to USMCA: conditions and challenges of automotive financing in Mexico.

Keywords:

Abstract:

In the face of the eventual transition from the North American Free Trade Agreement (NAFTA) to the new United States-Mexico-Canada Treaty (USMCA), this paper analyzes the conditions of automotive financing in Mexico, and the impact of the additions and new provisions contained in the USMCA on financial services could have for the automotive industry in Mexico (AIM). The work contains a characterization, by origin and activity, of the automotive companies with presence in the debt and capital markets in Mexico. Subsequently, the analysis focuses on the financial institutions that carry out auto financing activities in Mexico and that issue and quote their securities in the Mexican Stock Exchange (MSE) to characterize the presence of these institutions in the debt and equity markets and the conditions of local automotive financing within the framework of the regulations and provisions contained in the NAFTA. Finally, the modifications and new regulations contained in the USMCA and its possible implications for automotive financial institutions in Mexico are reviewed. This review allows us to anticipate that, given the current characteristics of automotive financing in the Mexican market, and considering the new provisions contained particularly in chapter 17 of the new treaty, the transition from NAFTA to USMCA could mean, for foreign branded financial institutions, greater opportunities for access to capital, debt and auto financing markets. On the other side of the coin and considering the same conditions, a scenario with fewer opportunities for access and permanence for Mexican automotive financial institutions is proposed, despite the prevalence of national treatment and most favored nation principles that guarantee that financial services companies receive equal treatment in the region of the trading partners of that agreement. Introduction The intensification of policies, and modifications and new regulations for the liberalization of capital (particularly in the form of direct foreign investment) prior to and within the framework of the entry into force of the North American Free Trade Agreement (NAFTA) was and it continues to be inevitably related to the impulse of the "prototype" of industry that, driven under an export regime, would lead to economic growth and development in Mexico: the automotive industry. The deployment of tangible and intangible assets, which took place during the period in which the trade agreement between the nations of North America has been in force, resulted in the intensification of a restructuring process in the automotive production structure in Mexico, which continues to be subject to deep analysis not only in terms of production, marketing, labor relations, value chains and a wider range of issues and problems that are placed in the productive field of the industry. In recent years, a process of analysis has also begun in a field that has been little or no explored within the automotive industry in Mexico: the financial sphere. As a framework of general analysis, it is convenient to refer to the inclusion of Chapter XI in the NAFTA, which guarantees the national and most favored nation treatment that must be granted to investors and investments of the signatory countries, the elimination of performance requirements, and the establishment of the free transfer of resources related to foreign investment (NAFTA, Articles 1102, 1103, 1106 and 1109). In this context, the IAM boosted its production in the terminal industry, from 85.5 thousand in 1994 to 3.9 million units in 2018, while in the local market the commercialization of finished units went from 400.2 thousand to 1.4 million units in the same period (INEGI, Annual Series). The inclusion of chapter 14 on Financial Services in the NAFTA provides the framework of references to analyze and understand the automotive trading dynamics and financial integration processes that developed within the framework of that agreement, but that have generally been left out of the analysis field. about the intensified restructuring process also occurred during the effectiveness of this treaty. The current conditions of automotive financing under the NAFTA and the forecasts that are coming before the amendments and additions on the regulation of the Financial Services contained in chapter 17 in the new USMCA (still to be ratified) will allow to approximate a vision on the direction that the process of financial integration will take for automotive financing in Mexico.

Full Text:

From NAFTA to USMCA: conditions and challenges of automotive financing in Mexico.

[1]

Aurora Marcial Flores

[2]

In the face of the eventual transition from the North American Free Trade Agreement (NAFTA) to the new Mexico-United States-Canada Treaty (TMEC), this paper analyzes the current conditions of automotive financing in Mexico, and the impact that the additions and new provisions on financial services contained in the TMEC could have for the automotive industry in Mexico (IAM). The work contains a characterization, by origin and activity, of the automotive companies with presence in the debt and capital markets in Mexico. Subsequently, the analysis focuses on the financial institutions that carry out automotive financing activities in Mexico and which are listed on the Mexican stock exchange (BMV). Once the presence of the AMI in the debt and capital markets of the Mexican securities sector is characterized, the current conditions of automotive financing and the relevance of the automotive financial institutions as conductors of that activity are described, to reflect the effects of the regulations and provisions contained in the NAFTA that gave way to such conditions in this industry. Finally, the modifications and new regulations contained in the TMEC and its possible implications for automotive financial institutions in Mexico are reviewed. This review allows us to anticipate that, given the current characteristics of automotive financing in the Mexican market, and considering the new provisions contained particularly in chapter 17 of the new treaty, the transition from NAFTA to TMEC could mean, for foreign branded financial institutions, greater opportunities for access to capital, debt and auto financing markets.

Introduction

The entry into force of NAFTA in 1994 meant, for the automotive industry in Mexico, the intensification of a process of productive restructuring that would result in the formation of an industry with a clear export profile, an important recipient of foreign direct investment and with a new dynamic of production and commerce. The national and most-favored-nation treatment that should be granted to investors and investors of the signatory countries, the elimination of performance requirements and the establishment of the free transfer of resources related to investment abroad, were a series of guarantees contained in Chapter XI of the treaty (NAFTA, Arts 1102, 1003, 1106 and 1109) and that allowed the development and consolidation of the presence of this industry in Mexico. In addition, the inclusion of chapter 14 on Financial Services in the NAFTA provided the framework for this industry to also venture, develop and consolidate its financial arm in the Mexican financial system.

In the Mexican stock exchange sector, specifically in the debt and capital markets, and in the automotive financing market in Mexico, the presence of automotive corporations (of the terminal industry and automotive parts and components) have contributed to characterize the a role that Mexico assumes in its integration with the global financial system, and that could be intensified by the new provisions on Financial Services contained in chapter 17 of the new TMEC treaty. Considering these dispositions and the current regulation and operation schemes in the stock market in Mexico, an outlook is anticipated with greater opportunities of access and permanence for branded automotive financial institutions, against greater difficulties for the Mexican automotive financial institutions, despite the prevalence of national treatment and most-favored-nation principles that ensure that financial services companies receive equal treatment in the NAFTA region. The possible ratification of the T-MEC in the terms in which it is currently drafted would also mean the intensification of a profit appropriation scheme via the interest rates that can be imposed in the current financing schemes executed by automotive financial institutions in Mexico.

Automotive Companies in the Stock Market

With the entry into force of NAFTA, the IAM intensified a process of productive restructuring that in the course stimulated the production and commercialization of finished units. The production of light vehicles tripled, from 1.09 million units in 1994 to 3.9 million units in 2018, while the commercialization of light vehicles in the local market increased from 593,292 units in 1994 to 1,421,458 units in 2018. (AMIA, 2018). As a characteristic of this new dynamism and also the result of productive restructuring, i) the production has been mostly exported to the US market, ii) the units sold in the local market are mostly imported, and iii) the productive structure It has a weak capacity to generate endogenous conditions of capital accumulation in a context in which the rate of participation in profits is very high, close to 87 percent. (Marcial, 2016, Marcial and Ortiz, 2018).

On the financial front, Mexico went through a series of financial reforms, before and during NAFTA, which, justified by the theoretical argument of insufficient local savings to finance economic growth (Krugman and Obstfield, 2001), promoted and facilitated the transition towards a financial market model characterized by the development of stock markets and institutional investors. Later, financial reforms at the beginning of the century, commonly referred to as "third generation", gave way to the emergence of global financial conglomerates operating in the stock market (Vidal and Rodriguez) and the presence of corporations and companies in the automotive industry. in the Mexican financial sector.

To facilitate the analysis of the presence of AMI in the financial area, two perspectives on the structure of the financial sector will be considered, which will also allow us to consider the possible implications that this presence could have in the economy given the possible transition towards a new commercial agreement with Canada and the United States under new rules of the game regarding financial services.

Two common ways (among several others) of observing the structure of the financial sector are: i) constituted by the debt and capital markets, and ii) constituted as a primary market and a secondary market. Theoretically seen as a structure composed of the debt and capital markets, the financial sector explains the most common ways of obtaining external funds to the company to finance their investment projects. From another theoretical perspective too, the financial sector is a structure composed of i) the primary market, understood as the space where the new issues of securities (mainly bonds and shares) occur and where the initial buyers attend, and ii) the market secondary, the space where the securities that were previously issued in the primary market are resold. (Mishkin, 2008).

a) The capital market.

The process of integration of the Mexican financial sector with the global financial system achieved greater consolidation with the implementation of the International Quotation System (SIC) in 2003. This system is a mechanism designed to quote on the local stock exchange the external values that are not subject of public offering in Mexico; These securities were issued in other stock exchanges in the world, but they can be listed on the Mexican stock exchange in accordance with the provisions established by the National Banking and Securities Commission (CNBV). The securities that are issued in Mexico and that are traded in other securities markets are also considered part of the SIC (BMV, 2017).

Currently the BMV registers 140 Mexican stock issuers and 7 foreign issuers in the capital market, against 964 foreign companies that quote shares in Mexico. This means that of the total of the companies that quote their shares in the stock market in Mexico, only 15 percent of them issued their shares in it. In another way, through the implementation of the SIC, the Mexican securities sector houses only a small number of Mexican companies so that they can obtain capital income in their own market, that is, resources for financing and for the execution of investment projects that are the ones that contribute to economic growth.

From another perspective, the integration process of the Mexican financial sector with the international financial system implied that the Mexican sector was assigned to carry out operations in the secondary market, that is, executing primarily securities resale operations. While the initial sale of securities occurs mostly in other large exchanges in the world, such as New York, Tokyo, Germany, London, etc., (Table 1), investment banking appears in the Mexican market mainly for execution of secondary operations, that is, receiving money in exchange for the resale of securities in the Mexican market, but without remitting new funds to the corporations that issued those securities. In the development of this activity, the secondary market (the stock market in Mexico) also contributes to making the securities issued in the other stock exchanges of the world more attractive by facilitating the space for them to become more liquid assets; that greater liquidity obtained by the resale activity in Mexico makes them more attractive and easier to sell when the corporations issue them in the primary markets.

The current structure of issuing and quoting corporations in the Mexican securities sector also allows us to observe that the so-called "global integration process" has had as a clear focus the facilitation of the presence of US companies in the Mexican financial sector through a broader range of operations. in the secondary market. Of the total of foreign companies that quote their shares in the Mexican market through the SIC, 46% have a parent in the United States. Among these, there is a significant number of corporations in the automotive industry that operate in various branches of activity (terminal sector, components and auto parts), including some automotive financial entities. All of them can quote their shares in the BMV without any restrictions other than those stipulated in the general provisions applicable to the international quotation system and the provisions contained in the NAFTA because they have their parent in the free trade area.

According to Table 1, as of March 2019 there were at least 34 companies related to production, commercialization and financing activities in all sectors of the automotive industry that quote their shares in the BMV; only three of them, Mexican, made their initial public offering in Mexico. Table 1 reveals that, until before the entry into force of the SIC (2003), only two Mexican companies in the automotive industry could make capital gains in this market and only two more could register in the capital market with operations of  primary market at the time the SIC was launched: Nemak and Unifin; No public emissions have been recorded by national automakers. In contrast, the SIC opened the door for other foreign automotive companies, mainly from the terminal industry and auto parts, to make an appearance in Mexico for the resale of their shares. Just one year after the launch of the SIC, as of 2004, 100 percent of the shares that were registered to be listed on the BMV were issued on other international exchanges, basically in the country of origin of those automotive corporations.

b) The debt market.

In the same area of analysis, but now in the debt market, there are 51 debt instruments of various foreign companies in the Mexican stock exchange sector. Of these instruments, 63 percent were issued in the financial market of the United States and the rest in diverse stock exchanges of the world; none of these instruments was issued in Mexico. In contrast, Mexican companies have 287 debt instruments issued in the BMV, but only 7 of them quote their instruments in other international exchanges as part of the SIC. The absence of debt instruments of international corporations issued in the Mexican market allows us to observe that this market has been unattractive (or restricted) for international corporations whenever they can (or should) be established as local national companies to access external resources of financing in the form of debt, in the Mexican market. The global automotive industry has managed to take advantage of this resource in Mexico; Currently, there are more than 10 financial entities in the Mexican debt market (Table 2) which, although they are incorporated in the national territory, are clearly extensions of the financial arm of the automotive corporations whose parent company is abroad. this, from now on, will be called "branded automotive financial institutions" (IFAM)

[3]

.  These corporations have taken advantage of the figure of the Multiple Purpose Financial Society (SOFOM)

[4]

to become local companies. Their registration in the National Securities Registry classifies them as regulated entities (E.R.)

[5]

, with which they have the guarantee of being able to access external financing resources in the Mexican stock exchange sector for the financing of their activities of commercialization of automotive units mainly.

The presence in the Mexican stock exchange sector of practically all automotive assembly corporations that carry out production and commercialization operations in Mexico through extensions of its financial sector, and through the constitution of this presence in the form of Mexican financial entities also allows us to observe a relevant aspect of the strategies that these corporations have configured and deployed for their permanence and expansion as automotive producers in the global sphere.  In addition to the traditional strategies of installing their production plants, their labor schemes and practices, and their sales network to the countries where their subsidiaries are located, it has also become essential and common to transplant their financial institutions through which they can access financial income. in the Mexican debt market, not precisely for the funding of commercialization or production activities, but rather, particularly in Mexico, to deploy a new strategy of appropriation of profits, that is, through automotive financing.

II. Automotive financing in Mexico.

The acceleration of the productive restructuring in the IAM during the NAFTA was facilitated by the principles of national treatment, most favored nation and by the new provisions on regional content, the elimination of performance requirements and the strong impulse to foreign investment inflows. direct, all this contained in the commercial agreement signed by the countries of North America. In this phase of intensified restructuring, the automotive production structure had to assume an export profile, with the United States as the main destination for its production, and had to be inserted into a global productive dynamic that brought as a balance, among other problems, a weak capacity to generate conditions endogenous of accumulation, despite registering a high share of profits in the product, close to 87 percent. (Marcial and Ortiz, 2018). This ability to generate a wide profit margin in Mexico is explained, in part, by the presence of the financial entities of practically all the corporations that execute automotive production and marketing activities through financing schemes in this market. The dynamics of automotive financing becomes relevant then to begin to measure the presence and relative importance of companies in the automotive industry in the Mexican financial sphere.

a) Structure of automotive financing.

According to Chart 1, the volume of commercialization of automotive units in Mexico, specifically light vehicles, is determined by the dynamics of automotive financing. The total volume of light vehicles sold in Mexico grew steadily between 1995 and 2006, going from 226.5 thousand units to 1.1 million units during that period; Between 2005 and 2006, 62.5 percent of the units sold were made through automotive financing schemes. The global financial crisis that began towards the end of 2007 was reflected not only in the contraction of production, but also in a lower volume of commercialization of units derived from the contraction in automotive financing for the final consumer. In 2009, automotive financing covered the sale of only 403,452 light vehicles; the impact was a loss of its participation in the total units sold through financing schemes, falling to only 53.4 percent and a contraction in the total commercialization of units that reached its historical minimum during the period of financial crisis with only 754.9 thousand units sold. The "exit" from the crisis as of 2010 meant a rebound in the commercialization of units through automotive financing schemes, achieving a maximum in 2016 with 1.07 million units, which represented 66.5 percent of total sales of light vehicles in that year. In 2017 and 2018 there was again a contraction in the total of light vehicles marketed in the Mexican market; Although this was derived from a new contraction in the number of units sold through financing schemes, the share of auto financing increased to 68.3 percent in 2018.

The dynamics and structure of automotive financing for the sale of light vehicles in the Mexican market allows us to visualize and dimension, from another angle, the importance of the presence of the automotive industry, commonly analyzed from the productive sphere, in the analysis field. financial. With the expansion of its financial sector in Mexico, automotive corporations not only secure financial income in the debt and capital markets, but have also been able to consolidate a different strategy of appropriation of profits outside the productive scope of the industry. , that is, the appropriation of direct profits in the last phase of the commercialization of automobiles: automotive financing.

Who have been the main winners of the growing automotive financing market in Mexico? With information available as of 2005, the activity of automotive financing in Mexico has been carried out in three ways: i) Banks, ii) Automotive financial institutions, iii) Self-financing. According to Table 3, automotive financial institutions are the main drivers and winners in the sale of light vehicles through financing schemes, whose participation went from 58.8 percent in 2005 to close to 70 percent in 2018. In contrast, bank financing fell from 30.2 percent in 2005 to 28.5 percent in 2018, while self-financing schemes, colloquially known as "automotive tandas" in Mexico fell from 11.0 percent in 2005 to only 3.8 percent in 2018; as a general balance, banks and self-financing companies have been gradually displaced by brand finance in the automotive financing market in Mexico (Table 3).

Previously it was mentioned that the organization scheme used in Mexico to have presence in the debt and capital markets, under the international quotation system, is the constitution of companies in the local area, but with a parent abroad; in the automotive industry, this practice has become recurrent for financing, particularly in the terminal industry. Table 4 shows the five main institutions for the financing of automobiles in Mexico, highlighting the presence of four brand finance companies (subsidiaries of their automotive assembly companies) but constituted as SOFOMes in Mexico (Ford, Nissan, GM and VW) and only one banco (BBVA) established as a multi-banking institution also in Mexico

[6]

. It is worth noting that, of the financial companies with headquarters in the United States, GM consistently ranks among the top 5 automotive financing institutions, while Ford disappeared during the period 2010-2012 and has gradually strengthened its presence as of 2013 in this area. Ford has significantly contracted its participation in the automotive financing market in Mexico (it went from 14% in 2005 to 3.4% in 2018) while GM has remained steadily, but with a clear contraction during 2009-2012, and with an important growth in the capture of this market during the period 2013-2018. In contrast, Nissan-Renault and VW, along with others that are not yet listed in the top five (eg Toyota), have become the clear drivers of the growth of automotive financing in Mexico, the first to go from 12.3% to 18.6% and the second, going from 4% to 11.7% during the period 2005-2018, respectively. (Table 4).

Despite the difficulties observed in the dynamics of automotive financing in Mexico executed by the subsidiaries of automotive corporations with headquarters in the United States, Ford and GM, a broader explanation of this dynamic will make it possible to assess the relevance of the existence of a own financial institution so that automotive corporations can deploy their strategies of permanence and expansion in the global scope, and so that they can consolidate their strategies of appropriation of profits where they install their subsidiaries, of particular interest, in the Mexican territory.

The composition of Table 4 does not only speak of the relevance of the market share of auto financing in Mexico; it also reveals that, in the fight for the automotive financing market, the presence (or not) of the financial entities incorporated in the national territory, but directly linked to the financial entities of their parent companies, is key for the development and consolidation of this new strategy of appropriation of profits.

b) Relevance of automotive financial institutions. The cases of Ford and GM.

The disappearance of Ford in the list of the top 5 automotive financial companies during 2010-2012 was the result of a global strategy designed and executed from its parent company

[7]

that consisted in focusing the activities of Ford Credit (the financial entity in Mexico) in the financing of its eligible distributors (of the brands Ford, Lincoln / Mercury and Volvo) while the retail financing was transferred to a new financial company chosen by the parent company. This meant that in the first quarter of 2010 Ford Credit in Mexico suspended retail financing, but in November 2013 the corporation (the parent company) decided to retake the financing to retail customers again. (Ford Credit, 2013). Although this return to retail financing occurred in the last two months of 2013, its return in this year meant a market share of 0.6 percent, enough to place it soon within the top 5. During the period in which Ford was absent from automotive retail financing in Mexico, the volume of its local production maintained an upward trend, but the volume of its local sales did not recover after the downward trend observed since 2003; Out of a total of 89,699 units sold in 2002, a historical minimum of only 17,987 units was reached in 2009 (Marcial, 2016). The strategy implemented by the parent company for its operations in Mexico and which began to be effective in 2010 (consisting in channeling the financing through the distributors) was enough so that its sales in Mexico began to increase again thereafter, but this absence in the market of automotive retail financing was clearly exploited by Nissan, BBVA Bancomer and VW (Table 4). The loss of the market in automotive financing, and the total cancellation of income and profits derived from this activity could be the factors that Ford considered to redirect its strategy and return to this field again.

The case of GM illustrates even more clearly the relevance of the presence, or absence, of the automotive financial entities, not only in the global scope, but also in the Mexican terrain. In the global sphere, GM executed a bankruptcy declaration in 2008, but prior to this declaration, it is necessary to recognize the key factors that, beyond the reasons given in the public discourse, had a decisive impact on its complicated financial situation and that led to a "bank-like" bailout during the most acute phase of the global financial crisis.

In 2005, GM had announced its intention to sell a controlling stake of its financial services subsidiary General Motors Acceptance Corporation (GMAC) in order, according to the corporation, to strengthen its credit rating and renew its access to low-cost financing; his plan was to retain significant interests in this entity to continue supporting his automotive business (GM Annual Report, 2005). That same year, the sale of 51 percent of GMAC was executed, citing liquidity problems (generation of cash flows in its productive sector).

What factors led to this sale, and what were its repercussions? Since 2003 GM had been recording global net losses, despite reporting increasing total revenues and more than 80 percent of this income was due to its automotive operations. Another face of that reality was that the corporation registered a constant decrease in its volume of vehicle sales in its main market, North America, and it was precisely its automotive sector that accounted for its huge losses and lack of liquidity. On the other hand, the corporation had begun to record total net gains from mortgage operations as of 1997, which during 2002-2004 determined an impressive rate of increase in the total net profits of the corporation; in 2005, automotive net profits had a significant decrease, going from close to 1,500 million dollars in 2004 to just over 500 million dollars in 2005; but the collapse was much greater for its financial sector, registering a loss of net flows of 16,882 million dollars (mainly due to its activities of purchase / sale of mortgage loans), and housing a bulky volume of financial liabilities of 296,835 million dollars; In that same year, the corporation executed the sale of 51 percent of its financial institution (Marcial, 2016).

Despite the loss of control of GMAC, total sales of units continued their upward trend until 2007; however, the loss of the North American market was accentuated until 2009. During that period there was a significant decrease in total revenues, from 179,984 million dollars in 2006 to only 54,474 million dollars in 2009; net losses dominated during that period, reaching close to 40,000 million dollars in 2007, charged to the automotive sector, and, although in 2006 and 2007 there was positive liquidity (due to the partial sale of GMAC), in 2008 the problem of lack of financing for buyers and lessors of vehicles sharpened reflecting a loss of net cash flows of 13,133 million dollars. (Marcial, 2016). The lack of liquidity in the automotive sector and the inability to pay off their debt eventually led to the corporation's bankruptcy filing in June 2009.

Although the sale of GMAC was aimed at divesting itself of the division that contained its main financial liabilities, at the same time it meant the loss of its main instrument to reposition itself in its main business (production and automotive sales) and in its main market (North America). ; With the sale of its largest stake in GMAC, GM substantially broke away from the automotive financing business worldwide.

For the exit of bankruptcy, GM required financial assistance from the government of the United States, the Government of Canada and the DIP Facility; it also demanded the constitution of a new GM that in practice acquired all the assets and only certain liabilities of the former GM. The new GM was required to reconfigure its dealer network and refocus its brand strategy on the North American region (GMAC, Annual Report, 2010). Just one year after its bankruptcy filing, in October 2010, the new GM acquired 100 percent of AmeriCredit Corp, an automotive financial institution that, upon acquisition, changed its name to GM Financial Company Inc. (GM Financial). Its objective was to strengthen leasing offers and GM sales in the United States and Canada for retail customers; These activities had previously been provided by Ally Financial, a non-GM entity (Marcial, 2016). GMAC's subsidiary in Mexico (41 percent owned by GM since 2005) continued to authorize retail loans but failed to prevent sales volume from contracting during the period in which GM lost control of its entity. financial (2005-2009). With the acquisition of its own financial institution in 2010, the volume of sales in Mexico began a new dynamic of recovery.

The case of these two EFAMs with a parent company in the United States show the importance for the automotive corporations of the extension of their financial practices in the field where their subsidiaries are located. The particularity in the case of Ford is that, specifically in Mexico, it was losing ground in the automotive financing market. The strategy that followed to reposition itself, eliminate retail financing to strengthen wholesale funding (from distributors) managed to increase its sales volume in the Mexican market, but at the expense of revenues and direct profits from retail financing. In the case of GM, the sale of 51 percent of its financial institution only complicated deteriorated financial situation. Its financial rescue came hand in hand with a key strategy to reposition itself and guarantee its operation in the world: holding 100 percent of its financial institution. While Mexico had to resort to external financial institutions for automotive financing, its sales volume contracted and only returned to a growing trajectory when it executed automotive financing operations with its own financial institution. The relevance of its own financial institutions, and automotive retail financing, were essential factors for automotive assembly companies with headquarters in the United States as part of their strategies for expansion and appropriation of profits in the Mexican territory.

III. Implications of the NAFTA-TMEC transition for automotive financial institutions.

The presence of financial institutions in the IAM described above has been facilitated first by chapter 14 of the NAFTA, which stipulates that investors can establish financial institutions in the territory of their partners with the legal modality that they choose, they can participate widely in the financial market involved to provide various financial services, expand geographically and have financial institutions where they are established without having to subject themselves to the property requirements established for foreign financial institutions (NAFTA, Art. 1403). The implementation of the SIC in the scope of the BMV clearly opened the doors wide open to secondary market operations for foreign capital, meaning this high volatility for financial operations, but with limited economic value. In the debt market, the SIC was fully exploited so that the financial arms of the automotive corporations would be present in the BMV using as debt instruments the securitization of its assets, both in retail and wholesale credits. (Marcial, 2016). This practice intensifies the execution of a model that Marshal (2016) typifies as "originate and distribute", that is, the financial institutions of automotive corporations in Mexico have the ability to convert a loan (an automobile loan) into a bond that can be sold to third parties.

The enormous opening for the arrival and expansion of these institutions in the IAM still had a greater impulse thanks to the financing schemes that could be deployed in the Mexican territory, which had as main characteristics: i) the imposition of interest rates until seven times higher than those imposed in the United States for the purchase of a car, and ii) the imposition of the purchase of other financial products (various types of insurance and guarantees, among others) on purchases of financed cars. (Marcial, 2016).

Some of the modifications and additions contained in the TMEC that clearly seek to ensure both the market and the advantages that these operating schemes have brought to the financial institutions with headquarters in the United States for the commercialization of automobiles in Mexico are:

a)     

The new inclusion of Chapter 33 that places macroeconomic stability as a central part of economic and exchange policy: the parties must agree on a market exchange regime, refrain from a competitive devaluation and strengthen the underlying economic fundamentals to reinforce the conditions that lead to the macroeconomic and exchange stability. Since this implies price stability, the effect would also be direct for real interest rates in the financial market, that is, for automotive financial institutions. For the active interest rates, it means the assurance of profits, and market share (or expansion) thanks to the financing schemes that the automotive financial entities have been able to deploy in Mexico, while, for the passive interest rates, The possibility of securing external financing resources in the Mexican debt market is extended.

b)     

The inclusion of Art. 17.18 of the TMEC, which allows the growth or expansion of automotive financial institutions to be anticipated, since this article eliminates the requirement for financial institutions to use or locate computer facilities for the conduct of business where such entities are installed. The article contributes to this end also by establishing that, whenever it is for regulatory purposes, the financial regulatory authorities can access immediately, directly, completely and continuously the information processed or stored in the computer facilities outside the national territory, but within of the free trade zone.

c)     

Art. 17.5 of TMEC also guarantees access to financial institutions in the region to establish financial institutions in any of the member countries, but unlike NAFTA, it also guarantees access to investors seeking to establish those institutions and cross-border providers of financial services, canceling the imposition of limitations on the number of financial institutions or cross-border providers (either in the form of numerical quotas, monopolies, exclusive providers or the requirement of an economic needs test), on the number or total value of transactions, of assets, of the total amount of the production of financial services, of the total number of natural persons that may be employed, or of the specific types of legal persons or joint venture for a financial institution or cross-border provider to provide its service. This means that the introduction of the full range of insurance and related insurance services, as well as of all loan products, leases, guarantees and commitments, marketing on their own behalf or of others (customers) in the various markets of the financial system, participation in issues of all types of securities, and a wide range of other auxiliary financial activities, products and services, as described in Art. 17.1 of the TMEC.

Conclusions

The presence of the automotive industry in the Mexican financial system is observable, although of little relevance in the capital market, since 1984. The provisions contained in the NAFTA were not attractive enough to achieve a greater presence of the automotive companies in the country. financial sphere; However, this treaty provided an annex so that by December 31, 2003, the situation regarding trade and investment in the automotive sector in the region would be reviewed. The revision would be aimed at establishing actions that could be taken to strengthen the integration and global competitiveness of the sector (NAFTA, Annex 300-A); In that same year (2003) the BMV implemented the SIC and the financial presence of the automotive corporations would begin to expand significantly in the Mexican financial system (Tables 1 and 2) and in the automotive financing market.

Within the framework of NAFTA, the integration of the BMV with other stock exchanges in the world through the SIC has implied important improvements in the communication infrastructure for the Mexican stock exchange and, consequently, pressures in the cost structure for the participants of the SIC; The confrontation with a high cost structure in the financial sector in Mexico clearly limits the possibilities of entry and permanence to automotive financial companies that are not branded, particularly to Mexican companies, so that they can access external financing resources, in the form of expansion of capital or access to debt, in order to strengthen or expand its automotive financing activities in Mexico. Furthermore, given the high level of integration with larger and more complex financial markets in the world, the stock market in Mexico must resist pressures in the cost structure for the SIC participants and the risk of suspensions in the market of origin or suspension of the main quotes of the issuing companies in other stock exchanges of the world.

The possible ratification and entry into force of the TMEC, combined with the financial integration that the presence of the SIC already brings with it in Mexico, would also intensify the pressure for the access and permanence of the automotive financial entities whose social capital is mostly Mexican if it is considered that the new treaty would allow the entry of a wide range of additional financial products or services and would force the introduction and development of similar products or services with the consequent increase in costs that this entails. On the other side of the coin, branded automotive financial institutions have managed to introduce, develop and exploit financing schemes that, with the advent of the TMEC, will allow them to secure their new form of expropriation of profits: automotive financing.

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