<IMG align=right height=90 hspace=10 src=”/images/features/july/gm-mexico-q-a.gif” vspace=10 width=120>Interviewed by Marc N. Scheinman of just-auto.com

Mexico has become a growth pole for automobile production in North America over the last ten years; helped by a competitive currency, low labour rates and, crucially, the impact of NAFTA. As part of Latin America, the country looks south as well as to the ‘colossus to the north’. Arturo Elias, President, General Motors de Mexico, spoke exclusively to Marc Scheinman on behalf of just-auto, about prospects for Mexico’s auto industry, vehicle market and GM de Mexico.

just-auto.com: How many vehicles did General Motors de Mexico (GMM) build in calendar year 2000?

Arturo Elias: We produced approximately 445,000 passenger cars and trucks, 34% more than the 331,000 units we manufactured in 1999.

just-auto.com: What percentage of your output was allocated for exports and what percentage for the domestic market?

Arturo Elias: 75% of our production was targeted for exports and 25% for local consumption.

just-auto.com: Last year the Mexican automotive industry established a production record by manufacturing 1.92mn vehicles. What is your forecast for 2001?

Arturo Elias: 2001 industry output should be the same as last year.

just-auto.com: According to the January-April 2001 figures released by the Mexican Motor Vehicle Manufacturers Association (AMIA) and Heavy Vehicle Manufacturers Association (ANPACT), it appears that industry performance has been strong in spite of the downturn in the US economy. Output has increased by 5.6% and local sales by 12.5%, but exports by only 3.4%, compared with same period 2000 figures.

How has GMM fared during the first four months of the year?

Arturo Elias: We have done very well. Between January and April GMM has been the market leader in domestic sales (retail) with a 21.8% share including heavy trucks and buses, but 3 points higher if we exclude these heavy vehicles. We sold more than 74,000 vehicles, 15.9% more than during the same timeframe last year. In addition, GMM ranked second in output (domestic + export production) by manufacturing 132,000 units, or 6% more than in 2000. Finally, in terms of exports we placed third, based on shipments of 95,000 vehicles, an increase of 6.6% over January-April 2000 figures.

industry performance has been strong in spite of the downturn in the US economy

just-auto.com: Although these figures are generally bright industry exports fell sharply in April and probably will continue falling in May and June. Given the sensitivity of Mexican output to US demand and hence reliance on exports it appears that your 2001 production forecast is predicated on an imminent recovery in the US.

Arturo Elias: Yes, that is correct. Most economists believe that the US economy has bottomed out and that there will be stronger growth during the second half of the year. Assuming that there is such a rebound it also will propel Mexican production.

just-auto.com: How many vehicles did you export in 2000 and which were the

Arturo Elias: We shipped 325,000 units abroad. Our best-selling exports
were Suburban SUVs (205,000 units), Cavalier (44,000) and Sunfire passenger
cars (36,000) and Aztek cross-over vehicles (35,000). Among exports the Surburban
was the industry leader.

just-auto.com: How many units did GMM sell in Mexico in 2000 and what were the best-sellers?

Arturo Elias: In 2000 we sold almost 217,000 vehicles locally. The 3-door Chevy, an entry-level economy (54,000 units) and Monza, a small segment (26,000) passenger car, were our biggest hits. The Chevy was the second-best selling model in Mexico.

just-auto.com: Last year, Mexican domestic vehicle sales, including heavy trucks and buses, established a record of 904,000 units? How many do you believe will be sold this year?

Arturo Elias: Approximately the same number.

just-auto.com: When do you believe that Mexico will sell 1mn units in the domestic market?

Arturo Elias: 2003 would be a safe bet for 1mn sales, but it might occur sooner.

just-auto.com: Looking forward to 2005 how do you see the Mexican market?

Arturo Elias: Sales should be somewhere between 1.1mn and 1.2mn units by then.

just-auto.com: If today’s output is 1.92mn units and installed capacity in Mexico is 2.0-2.2mn vehicles, then how do you see industry output and installed capacity in 2005?

Arturo Elias: 2.2mn units is too high for Mexico’s installed capacity today; it’s closer to 2.0mn. Are you really asking if I believe there will be investments to build new automotive plants in Mexico?

just-auto.com: Certainly, new plants and investments are crucial and you have anticipated the direction of the questioning. First, however, it is important to learn your opinion of production trends through 2005.

from a global perspective we have significant excess capacity in the industry

Arturo Elias: Now, that is a very difficult question to answer because of the timeframe and the number of uncertain variables that are involved in making such calculations. For example, right now we do not have a good feel for how Mexico will perform in the new free trade environment that begins in 2004. Then there will be no duties (0%, compared with 2.2% today) on new vehicles imported from NAFTA and EU countries. It will take at least a year to learn how to manage this situation.

In addition, from a global perspective we have significant excess capacity in the industry. What we must decide as individual companies is how this situation will impact Mexican production. In other words, how will the currently existing NAFTA players realign their operations versus new entrants that have yet to compete in Mexico?

I am certain that Mexico will continue to be an important production site. What I am not certain about is whether we will see the growth rates that we have seen up to now. Obviously, the companies that are not currently here will be eager to enter this attractive market. However, the already established Mexican players will have to realign their global manufacturing strategies in light of existing and future trade agreements between Mexico and other trade blocs such as MERCOSUR, the G 3 (Colombia and Venezuela and Mexico), and the European Union (EU). Today, we do not know the form of this realignment although it will vary by company. We also will have to watch very closely developments that could lead to a Free trade Agreement of the Americas (FTAA). You definitely are asking the right question, but I am not confident that we have a good answer at this moment.

just-auto.com: How will all of these trade pacts affect how the individual companies realign themselves?

Arturo Elias: The trade agreements like the one with MERCOSUR are going to change the dynamics of the Mexican market. Not only in terms of the types of vehicles that are sold here, but also the source of vehicles, i.e. in what countries will they be produced. As a result, the strategies that we have used in the past, particularly in terms of the cars and trucks that we have sold domestically, are not going to be as effective in the future because the trade agreements will enable all manufacturers to have much greater access to foreign-built vehicles.

just-auto.com: Fair enough. Vehicle sourcing is bound to be a crucial issue. If we look at the impact of NAFTA on domestic vehicle sales, then it is clear that this trade pact has resulted in a surge of imports. Currently, approximately 50% of domestic sales are imports.

Arturo Elias: When I talk about the dynamics and configuration of the market being different what I have in mind is that NAFTA has produced precisely what we expected. Import duties on vehicles within the region are at 2.2% and will be phased out completely in the next two years. However, when we signed the NAFTA agreement in 1994 we had no idea that there subsequently would be a free trade agreement between Mexico and the EU and that by 2001 the duties on vehicles would be identical with those imported from NAFTA countries. It has taken us a few years to learn a little about the impact of the EU agreement on competition, but the long-term market dynamics have yet to unfold. The same is even truer of Mexico’s pacts with MERCOSUR. We have a two-year agreement with Brazil and a one-year accord with Argentina, but these are very short-term and have been crafted to enable the negotiators to reach a long-term agreement. So, we do not know much about Mexico’s future relationship with MERCOSUR.

just-auto.com: How then would you summarise your uncertainties about the impact of trade agreements on the dynamics of the Mexican market?

Arturo Elias: Two issues stand out. First, 53% of the passenger cars that we sell in Mexico are in the mini/economy segment, i.e. entry-level vehicles like our Chevy and Monza (Corsa platform), Ford’s Fiesta and Fiesta Ikon, Nissan’s Tsuru (old Sentra), Volkswagen‘s Pointer and Seat’s Ibiza and Cordoba. All of these have major production centers in MERCOSUR (Brazil) and Europe. As a result, the outcome of future negotiations with these trade blocs will affect Mexican market dynamics in 2005 and beyond, the focus of your original question.

Second, the real impact of NAFTA will be felt between 2004 and 2009, once free trade in both new and used vehicles is implemented; 2009 is an especially crucial date because that is when used vehicles can be imported without restrictions. And, it is likely that many of these passenger cars will compete directly with the new entry-level vehicles that are sold in Mexico.

the real impact of NAFTA will be felt between 2004 and 2009

just-auto.com: Most of GM de Mexico’s trade is with the USA. What are the most important vehicles involved?

Arturo Elias: We export primarily Suburban and SILVERADO light commercial vehicles and Cavalier and Sunfire passenger cars. On the import side we bring in compact S-10 pickups and Blazer SUVs, Impala and Malibu family sedans, Camaro, Firebird and Corvette sports cars and Cadillac luxury sedans.

We actually have a very good trade balance with the USA, although on the surface it appears that we export much more than we import. However, you must take into account the relative sizes of the markets. After all, the USA is 17 or 18 times the size of Mexico; so, it’s only natural that exports exceed imports.

just-auto.com: Recently, you have begun to manufacture the Rendezvous in Mexico. Where do you produce it? Where do you market it, and how many do you plan to sell annually?

Arturo Elias: We manufacture these new cross-over vehicles in Ramos Arizpe, in the state of Coahuila and intend to sell about 70,000 annually. These units are badged as Buicks and made exclusively for export to the USA where they have been received enthusiastically by the market.

just-auto.com: The Rendezvous is built on the same platform as the Pontiac Aztek. How many of these do you expect to sell?

Arturo Elias: Last year we exported about 35,000 and hoped to reach 70,000 by this year, but this will be difficult.

just-auto.com: What vehicles do you trade with MERCOSUR?

Arturo Elias: We import Chevy (Corsa) stationwagons from Argentina and Chevy pickups and some 3 and 5-door passenger car variants from Brazil. In addition, we import Luv pickups from Chile.

just-auto.com: What about exports?

Arturo Elias: Very little to Brazil and Argentina, but much more to Central America.

just-auto.com: What are you importing from Europe?

Arturo Elias: We have just begun importing Astras from Europe and this will be a growing vehicle source for us as a result of the trade agreement with the EU that will eliminate all tariffs on imported vehicles in 2004, just as in the NAFTA region.

just-auto.com: If you had the power to design a long-term trade agreement between Mexico and MERCOSUR what would it look like?

Arturo Elias: That is a powerful question. In fact, it’s the same one that I just asked my management team to investigate. Therefore, I don’t have an answer yet.

To view related research reports, please follow the links below:-

The automotive industry in Latin America: Mexico, Brazil and Argentina Forecasts to 2005

General Motors Strategic Review (download)