The
year 2000 brought sweeping changes to Mexico. On December 1, 2000 Mexican President
Vicente Fox Quesada was sworn in as the first democratically elected president
in 71 years. The Mexican economy has grown and the Mexican Peso has even gained
against the U.S. Dollar. This once strongly nationalistic country with a semi-closed
economy has showed its willingness to change with the times by signing the European
Union (EU) – Mexico Free Trade Agreement which entered into force on July 1,
2000. This has been a significant boon for European luxury automobiles to be
sold in the Mexican automobile market.

When one thinks of the Mexican automobile industry, cars such as Volvo, BMW,
Mercedes-Benz, and Jaguar are not the first names that come to mind. Gone are
the days when most Mexican consumers could only purchase U.S. or German automobiles
in Mexico. Today, with the implementation of the EU-Mexico Free Trade Agreement,
there will be increased competition among carmakers to corner the Mexican luxury
market.

According to the Mexican Automotive Industry Association (AMIA), there has
been a significant increase in the amount of European produced cars sold in
Mexico. See Figure 1.

Figure
1 – Automotive Industry: Vehicle Sales by Nameplate (Mexico), 1998-2001

\svf
Growth
2000
Growth
2001
VF
1998
1999
99/98
(%)
00/99
(%)
(Jan-Feb)
Audi
1,054
1,728
63.9
2,457
42.2
377
BMW
2,172
2,796
28.7
4,903
75.4
1,090
Chrysler
94,850
90,439
-4.7
121,329
34.2
17,978
Ford
103,606
115,003
11
147,528
28.3
23,078
GM
175,118
181,409
3.6
214,298
18.1
36,031
Honda
13,645
19,191
40.6
25,536
33.1
4,612
Jaguar
100
234
134
363
55.1
81
Mercedes-Benz
1,170
2,743
134.4
2,658
-3.1
463
Nissan
145,347
144,102
-0.9
175,800
22
32,492
Porsche
13
9
-30.8
9
Renault
213
VW
108,913
124,354
14.2
172,019
38.3
14,408
Volvo
308
1,506
389
214
TOTAL
647,986
684,315
5.6
870,406
27.2
131,037
Source:
Asociacion Mexicana de la Industria Automotriz (AMIA)

So what is the driving force behind all of these sales in this the land of
enchanted Mayan beaches and mariachis? It is the fact that the free trade agreement
between the EU and Mexico helped eliminate many of the tariffs and restrictions
that once established a barrier to many of these fine luxury automobiles from
entering the market. Before the EU-Mexican agreement, it was downright hard
if not almost impossible, to own a European made auto, unless of course, you
had significant money and the right contacts.

The EU-Mexican agreement made clear stipulations that allowed European vehicles
to come into the country in 2000. Section C of the EU-Mexican automotive tariff
quota states that the minimum size of the tariff quota shall be:

(i) for each year until 31 December 2003, a quantity equivalent to 14 percent
of the total number of motor vehicles listed in paragraph 5 [of the agreement
can be] in Mexico during the previous year.

Section 2.1 states that preferential customs duty applicable on imports into
Mexico of motor vehicles listed in paragraph 5 originating in the Community
under the tariff quota shall be:

(i) 3.3 percent ad valorem from the date of entry into force of the Decision
until 31 December 2000;

(ii) 2.2 percent ad valorem from 1 January 2001 until 31 December 2001;

(iii) 1.1 percent ad valorem from 1 January 2002 until 31 December 2002; and

(iv) these customs duties shall be completely eliminated by 1 January 2003

Despite the tariff reductions, most Mexican consumers still find the average
new automobile overpriced. In a nation where the average per capita income is
just over $8,500 how are these automobile dealers getting customers to acquire
a brand new European luxury automobile? It does not necessarily mean that more
Mexicans are coming home with more money in their pockets, but that those who
can already afford a car of this caliber are refocusing their attention from
U.S. luxury cars such as Lincoln-Mercury and Cadillac to Volvo and BMW.

Mexican dealerships are using a very good system to retail their automobiles
to Mexican consumers. For example, the website established for Volvo Auto de
Mexico, S.A. de C.V. (www.volvocars.com.mx) shows pictures of large spacious
dealerships, elegant waiting rooms for clients, sophisticated sales associate
offices, and immaculate repair facilities. It is obvious that Volvo and other
European manufacturers are in the business to win over upper-middle and upper-class
clientele in Mexico.

European automakers have entered Mexico with the intention to win sales from
the old base of customers that could not or would not purchase a European automobile
because of the high tariffs placed on the cars. Today is a different story,
European luxury autos abound in the Mexican marketplace. Go to any major city
and you will find, usually in the nicest suburbs, a Volvo, BMW, or Mercedes-Benz
dealership. Mexicans, just like their North American counterparts enjoy luxury
automobiles, and have made the necessary adjustments to their economy to get
them.

Author: By Alfred Ortiz


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