Decline in Mexico’s Automotive Production Biggest Since 1988
Mon, April 19, 2021

Decline in Mexico’s Automotive Production Biggest Since 1988

The statistics showed that there were only 311,150 vehicles made in Mexico in October this year. / Photo by: Mikbiz via Shutterstock

 

The automotive sector of Mexico has recorded its biggest yearly production decline in October since 1988, reported the Mexico News Daily, a digital publication in English that offers clear and concise coverage of news and current affairs in Mexico, based on the data provided by statistics autonomous agency Inegi.

The statistics showed that there were only 311,150 vehicles made in the country in October this year, representing a 16.3% decline in contrast to the total vehicles produced in October 2018. One factor that contributed to the decline was the zero output of automaker company Ford.

Factors That Contributed to the Production Decline

The daily shared that Ford’s monthly output is usually between 20,000 to 30,000 vehicles, but the company did not make any vehicle in Mexico in October because it was undergoing plant innovations such as changing their equipment. However, the blame for the production decline does not fall solely on the American multinational automaker. 

The production of General Motors in Mexico was also 30% lower compared to its October 2018 output because its plants in Ramos Arizpe and Silao cities experienced work stoppages due to a shortage of automotive parts caused by a strike in the United States. Production at Mazda, Nissan, Kia, and Volkswagen also declined by 11.8%, 13.1%, 13.2%, and 22.3% respectively.

On the contrary, Audi, Toyota, and Honda increased the production in their Mexico plants in October compared to the same month in 2017, with the production of Honda alone increasing by 330%.

During the first 10 months of 2019, there were already more than 3.24 million cars manufactured in the country but the figure is still 2.6% less than the same period last year.

Japanese multinational automaker Mazda’s exports declined by 52.3% and Ford by 94% compared to its export record in October 2018. Between January and October this year, there were 2.83 million vehicles delivered abroad from Mexico, representing a 17% export decline compared to October 2018.

 

Honda increased the production in their Mexico plants in October compared to the same month in 2017. / Photo by: Hafiz Johari via Shutterstock

 

The Economic Impact of the Automotive Industry

In a 2018 study published in the International Robotics and Automation Journal, Peoples' Friendship University of Russia’s chair of national economy Behzad Saberi wrote that the automobile industry plays an important role in the socio-economic development of the country.

The automotive industry consumes rubber, computer chips, textiles, carpeting, glass, plastic, aluminum, steel, iron, and a lot more. About half of the world's consumption of rubber and oil, one-sixth of the steel output, and one-fourth of the glass output is accounted for by the automotive industry. Growth in the automotive industry by 1% alone already causes 1.5% GDP growth in the economy of developed countries. The industry likewise contributes to the expansion of the taxable base and state budget revenues. “The effective functioning and development of the automotive industry are important not only economic but also socially significant for any country,” Saberi concluded.

There are some reasons why the car industry is struggling, according to the car industry platform just-auto editor Dave Legget. One of the reasons is the falling demand for cars. In 2018, global car sales were flat caused by low demand in China. It affected carmakers that had been doing business with the world’s biggest market. Although the economy is already slowing down, it is further accentuated because of the trade tension between Beijing and Washington.

Britain’s biggest car exporter and manufacturer Jaguar Land Rover, for example, blamed its “brutal loss” to the weak Chinese demand, reported the Business Insider, an American financial and business news. Its overall retail sales declined by about 6% comprising 579,000 vehicles. The British automotive company’s wholesale volume also fell by 11%, which means around 565,000 vehicle units. JRL planned to revitalize its business by cutting costs, betting on new technologies, and boosting its efficiency.

Financial institution Evercore ISI’s automotive industry analyst Arndt Ellinghorst likewise said via BBC that consumers are now less inclined to purchase cars because of the new rules relating to CO2 emissions or air quality concerns. In the hope to address global warming, carmakers are forced to build more expensive cars, he added. This also means the need to change operations and gears, like for the use of electric cars, but doing so also requires investment.

Mexico Car Production

International Organization of Motor Vehicle Manufacturers (OICA) shared that there were a total of 4,100,525 vehicles produced in Mexico in 2018. This includes 2,524,717 commercial vehicles. Among the countries with the highest number of vehicles made last year were China (27,809,196), USA (11,314,705), Japan (9,728,528), India (517,4645), and Germany (5,120,409).

On the other hand, countries with the lowest number of vehicles produced include Ukraine (6,623), Serbia (56,449), Egypt (71,600), Colombia (72,800), Finland (112,104), and Austria (164,900). Among the biggest car manufacturers according to the magazine Manufacturing Global are VW Group with 2,532,744 units produced in the first quarter of 2017, Toyota with 2,338,146 units produced within the same period, Renault-Nissan with 2,336,692 units, General Motors 2,252,956 units, and Hyundai-Kia 1,553,732 units.

The automotive industry is a key source of revenue in Mexico. Even the American auto factory is also depending on the Mexican automotive parts to build its trucks and cars. If the industry is struggling, it could also spell trouble for the country’s economy.