Picking up steam in Mexico
When Luz Diaz went shopping for a new set of wheels, the 42-year-old single mom broke with family tradition. Many of her relatives own American cars. Diaz bought Japanese.
“It has a lot of safety features and it’s fuel-efficient,” said Diaz, who recently purchased a subcompact Honda Fit for about $13,000. “The Japanese companies are more environmentally conscious than the American companies. That’s important to me.”
Buyers like Diaz are fueling record sales of Japanese vehicles in Mexico, long a stronghold of the Big Three automakers. In 2006, Japanese companies, including Honda Motor Co., Toyota Motor Corp. and Nissan Motor Co., together grabbed a record 32% of the Mexican market. That’s up 9 percentage points since 2000, according to the Mexican Automotive Industry Assn.
General Motors Corp., Ford Motor Co. and DaimlerChrysler saw their combined market share fall 7 percentage points to 48% over the same period. Volkswagen is also sputtering. The German carmaker ended 2006 with just under 12% of the Mexican market, a loss of nearly 8 percentage points since 2000.
Japanese manufacturers have been helped by a trade agreement with Mexico implemented in 2005 that allows more of their cars to enter the country duty-free. But price isn’t the only factor driving sales. Quality and service are winning customers in Mexico, just as they have in the United States.
Honda and Toyota dominated the most recent J.D. Power & Associates satisfaction survey in Mexico. The only U.S. nameplate to claim a top spot was the subcompact Dodge Atos, which is actually manufactured by South Korean automaker Hyundai Motor Co.
The Big Three’s slippage south of the border comes after they lost nearly 40% of the U.S. market to Japanese competitors. They’re loath to lose ground in Mexico, the region’s most promising vehicle market.
Just over 1.1 million new cars and trucks were sold in Mexico last year, making it the 14th-largest market in the world. That’s well behind the 16.7 million purchased in the U.S., but some analysts calculate that Mexico is on track to surpass Canada, the No. 11 vehicle market, by the end of the decade.
Thanks to a stable economy and more abundant consumer credit, Mexico’s annual new-car sales have surged 35% since 2000 while growth in the rest of North America has stalled.
There’s plenty of pent-up demand. Only two in 10 Mexicans own a car. Millions more will be looking for wheels if the economy keeps growing. Carmakers looking to gain share in North America will need to get Mexicans into their vehicles.
U.S. automakers “definitely have reason for concern,” said Kimberly Kennedy, director of Latin American operations at Westlake Village-based J.D. Power. “They are continuing to lose share ... in a significant growth market.”
Some erosion was inevitable as Mexico opened itself to more competition. Last year, DaimlerChrysler sold more than 128,000 vehicles in Mexico, its best year since 2001. However, General Motors’ unit sales slipped 1.9% while Ford’s volume was off 6.9%.
Ford spokeswoman Sara Tatchio said the decline was because of reshuffling that resulted in fewer vehicles produced at the automaker’s Brazilian facilities being shipped to Mexico. She said Ford was bullish on its sales prospects in Mexico, where it introduced 11 new models late last year.
“We have a long history with Mexico. We are committed to our business there,” Tatchio said. “We are going to continue to offer a variety of products that, hopefully, get better and better and attract more and more customers.”
Veteran Nissan is likewise battling to maintain its Mexican market share. The Japanese automaker has been selling vehicles here since the 1960s and operates two assembly plants in Mexico. Its no-frills Tsuru is the nation’s bestselling car.
Still, the company’s unit sales slipped 2.8% last year as a flood of used vehicles from the U.S. cut into subcompact sales.
The growth is coming from newer Japanese players offering fancier rides. Toyota entered the market in 2003 and has seen its sales explode more than 500% to just over 60,000 vehicles last year. Its most popular model is the RAV4 crossover SUV.
Sport utility vehicles are likewise driving the sales of Mitsubishi Motors Corp., Suzuki Motor Corp. and Honda, whose CR-V crossover is the company’s No. 1 seller in Mexico despite a price tag that can reach $30,000. Honda’s hybrid Civic is the first gasoline-electric vehicle to be sold in Mexico.
“Our customers tend to have a little more education and more resources,” said Eduardo Talavera Garcia, sales manager of a Honda dealership in the capital’s middle-class Popotla neighborhood.
Mexicans tend to keep their cars longer than Americans do, so projected expenses such as maintenance become a big part of the buying decision. Many new-car warranties in Mexico require owners to get regular service at their dealerships, many of which charge inflated prices for the work. Analysts said Honda and other Japanese companies are winning customers with transparent, low-cost maintenance fees that can save thousands of dollars over the life of the vehicle.
For example, a Volkswagen dealership in the capital quoted a price of $327 to perform a 10,000-kilometer service on a Jetta compact. A Chevy dealer wanted $282 for an Astra sedan. Honda charges $80 for a 10,000-kilometer service on all models it sells in Mexico. The prices are posted at each dealership’s garage and are the same throughout the country.
The company also pioneered no-haggle pricing in Mexico. The practice was a shock to customers who were used to wrangling with salespeople, but the concept has caught on. Honda sold nearly 47,500 vehicles last year, a 94% increase over 2000.
“They have given peace of mind to their customers, and it has proven very successful for them,” said Gabriel Renero, head of automotive consulting for advisory firm Deloitte in Mexico.
Indeed, although overall car sales in Mexico fell 0.7% in the first three months of 2007 compared with the same period in 2006 on worries of a slowing economy, Honda’s sales are up 4%, Toyota’s have climbed 20.5% and Mazda’s are up 172.5%.
Talavera said his dealership had waiting lists as long as two months for Honda’s CR-V, Fit and Civic models, largely because of limits on the number of these vehicles that can be imported into Mexico duty-free.
Those ceilings are gradually rising, and all trade barriers on Japanese automobiles will be lifted by 2011.
Talavera can hardly wait. “If I had more cars, I could sell more cars,” he said.
