Enjoy a 15% discount on all purchases until the 31st of March 2023 using the promo code EOFWEB22 at check out!

Services Our expert insights reveal the key consumer and industry trends shaping global services, including best-in-class innovations in technology, customer experience and sustainability to thrive in dynamic times.

To Gain in the USA, Premium Carmakers Invest in Mexico

Neil King Profile Picture
Neil King Bio

According to a Reuters news report on June 27, “Daimler AG and Nissan Motor Co are jointly investing $1.36 billion to develop premium small cars and build a factory in Mexico, the companies said on Friday, in a step that deepens cooperation between the Mercedes-Benz and Infiniti brands.” This was swiftly followed by a report on July 1, which stated that “Munich-based BMW said on Monday it would make an announcement in Mexico on July 3, all but confirming a widely expected decision to build a new factory to meet growing demand for premium cars, shortly after its rival Daimler announced similar plans.” Back in early 2012, before talk of the MINT economies, I identified Mexico as one of the MITE hotspots of future autos demand - along with Indonesia, Turkey and Egypt - and so these investment decisions hardly come as a surprise.

Light vehicle sales in Mexico already recovered to exceed the 2008 level in 2013 but growth has ground to a halt in 2014. Nevertheless, the sentiment remains positive, with it being widely reported that stronger sales are expected in second half of the year on the back of healthy economic results announced for Q1. Although demand may struggle to climb back to the 2007 level of just under 1.1 million units in 2014, I still stand by the projection I made in early 2012 that the market will be 1.5 million strong by 2020. Moreover, premium demand has outperformed the total market, with sales already back to 2008 levels in 2011 and new records set in 2012 and again in 2013. Furthermore, with growth in wealthier households forecast to outpace the development of lower and middle-income households, the premiumisation trend in Mexico is not expected to relent.

With just 4% market share, premium brands capture significantly less of the Mexican market than they do in the US, which naturally constitutes the greater prize at stake. Moreover, the implications for premium demand of the income distribution outlook in the US mean the premium potential cannot be ignored. Exchange rate costs and a 2.5% import tariff for importing passenger cars to the US from Europe means carmakers are understandably seeking to produce locally. Under the NAFTA free trade agreement, vehicles produced in Mexico are exempt from US import duties and with smaller margins on compact cars and significantly lower labour rates, it thus makes sense for premium brands such as Infiniti, Mercedes, BMW and Audi to produce their US-bound compact cars in Mexico rather than investing in additional capacity in existing facilities in the US such as Spartanburg (BMW) and Tuscaloosa (Daimler). Mexico’s place as the fourth largest exporter of road vehicles therefore seems assured.

Interested in more insights? Subscribe to our content

Latest Insights

Loyalty and the New Normal

Nadejda Popova 16 March 2023

Shop Our Reports

Car Rental: Top Six Industry Trends

This report examines the global car rental industry, providing analysis on market sizes, brand and company shares, growth trends over the review period and…

View Report

Financial Cards and Payments in Western Europe

Electronic direct/ACH and card payments continue to take share from paper transactions in Western Europe, while mobile m-commerce continues to be the most…

View Report

Financial Cards and Payments in Latin America

Although it is not the case in Brazil, the region’s biggest market, cash is still the leading payment method in many Latin American countries. However,…

View Report
Passport Our premier global market research database with detailed data and analysis on industries, companies, economies and consumers. Track existing and future opportunities to support critical decision-making across all functions within your organisation Learn More