MEXICO CITY — Mexico is poised to overtake Brazil as the top Latin American automobile producer for the first time in more than a decade as surging exports to the U.S. spur factory openings and record output.
After nosing ahead of Brazil in the first five months of the year, Mexico is projected to hold its advantage through 2014, for the first full-year lead since 2002, according to consultant IHS Automotive.
Mexico's ascent is being fueled in part by auto sales running at the fastest pace in almost eight years in the United States, the country's largest market.
The boom coincides with a slump in Brazilian production through May as domestic demand cools, setting up a shift in leadership of the Latin American industry faster than analysts predicted.
“The wind is in our sails” in Mexico, said Luis Lozano, lead automotive partner at PricewaterhouseCoopers L.L.P. in Mexico City. “People talk about the energy and telecom industries in Mexico, but the auto industry is going to continue as the icon of this country.”
Eclipsing Brazil, where output has fallen 14 percent this year, would vault Mexico to No. 7 among the world's largest auto producers. China and the United States lead the global pack.
This year's diverging fortunes of Mexican and Brazilian auto production reflect the state of their biggest markets. Brazil-made cars and trucks are too expensive, given high labor costs and taxes, to send abroad and go mostly to local buyers. Mexican factories export eight of every 10 cars they produce—with more than half going to the United States.
The auto industry epitomizes the underlying economic fundamentals in the two countries. Mexico is starting to see signs of rebounding after growth missed forecasts in seven of the past eight quarters, while Brazil cut gross domestic product estimates for this year and next and boosted inflation forecasts.
Economists project that the Mexican economy will grow 2.8 percent this year compared with 1.3 percent in Brazil. Auto output in Mexico rose 7.2 percent through May to 1.31 million vehicles, bolstered by new plants for Nissan Motor Corp., Honda Motor Co. and Mazda Motor Corp., according to the Mexican Automobile Industry Association, known as AMIA.
Brazil's total was 1.27 million, according to Anfavea, Brazil's auto maker association. Mexico's proximity to the United States also gives it an advantage, as do labor costs for auto makers that are about 20 percent of U.S. levels, according to PricewaterhouseCoopers.
“The broader significance is the appeal of Mexico as the production source for North America,” said Bill Rinna, senior manager of North American forecasts at LMC Automotive. The company forecasts Mexico to overtake Brazil in 2016.
While Mexico's exports to the United States rose 19 percent through May, Brazil's shipments to its top trading partner, Argentina, declined 28 percent, according to Anfavea. Within Brazil, consumers have slowed purchases because of tighter credit and a weakening economy. Mexico's surge caught some industry watchers by surprise.
“At the beginning of this year, we basically did not have Mexico overtaking Brazil at any point in time,” said Guido Vildozo, Latin America analyst at IHS Automotive.
Even as exports are buoying Mexico's auto industry, the low level of domestic sales is a weak spot, according to AMIA President Eduardo Solis.
New car sales in Mexico totaled 1.06 million last year. Mexico should restrict used-car imports from the United States more stringently, he said.
“We have record production and exports and a domestic market that just isn't turning the corner,” Mr. Solis told reporters recently in Mexico City.