The successful US government ‘cash for clunkers’ programme, which has poured US$3bn into an economic incentive-come-green stimulus, is likely to offer only temporary relief to Mexico’s ailing vehicle factories, a report said on Thursday.
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“This will be a one-time boost to output,” Alonso Cervera, economist for Latin America at Credit Suisse, told Reuters.
As a considerable proportion of US car manufacturing production happens in Mexico, the programme is likely to have a direct impact on activity south of the border, the report said.
US auto sales jumped in July to their highest levels this year but Mexican vehicle production during that same month fell 25% year on year, better than June’s 48.1% plunge.
Reuters said there was anecdotal evidence the slide might be slowing. At the General Motors plant in the central Mexican city of Silao, for example, work stoppages are no longer a regular occurrence.
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By GlobalData“They have not happened since the beginning of July,” said GM spokesman Mauricio Kuri. “Things have stabilised.”
Analysts told the news agency the American initiative could make it difficult to discern a “genuine turbo-charged recovery from borrowed horsepower” over the next two months.
“This looks like good news, though it isn’t a trend yet and we have to be cautious about it,” said Mexican Automotive Industry Association head Eduardo Solis said.
Mexico, heavily dependent on exports to the US, is on track for its worst recession since the 1930s, with its economy set to shrink at least 7% this year, Reuters noted.
“One could argue that the programme boosted production and employment, but these impacts are temporary,” TJ Marta, strategist and founder of adviser Marta on the Markets, said.
“By year’s end, the boost to employment and production will be over and both will fall back to even lower levels, as the programme probably stole from future sales.”
“These [clunker] programmes are only effective when there is already an underlying recovery,” Armando Soto, head of the Mexico City-based auto consultancy Kaso y Asociados, told the news agency. “Otherwise the money is spent and you only get a temporary effect.”
Reuters noted the US economy appeared to be on the mend when the CARS programme was introduced, with both housing and industry showing signs of stabilisation while, in Mexico, activity also appeared to be shrinking less rapidly.
But it cautioned that some prominent economists believe the US is headed for a ‘double-dip’ recession where growth rises temporarily only to hit another wall.
If that turns out to be the case, the government’s clunkers programme will have achieved more than helping those with old cars get new ones, without a lasting economic impact.
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