By Nacha Cattan, Bloomberg News Service
MEXICO CITY — In Mexico's red-hot domestic auto market, even embattled Volkswagen A.G. is doing well.
While the German car maker's annual sales were set to decline worldwide for the first time in 11 years after it admitted to cheating on emissions tests, they gained more than 10 percent in Mexico through November. It would be difficult for the brand to do poorly, said Mexico's auto dealers association, when the local auto sector expanded almost 20 percent in 2015, beating estimates and records.
Customers are flooding Mexican showrooms so quickly that they've helped auto makers take up slack from a recent lull in exports. Mexico's maturation from being a mere producer into a country with robust internal demand also suggests that the economy is gaining strength after a third straight year in which gross domestic product growth is forecast to expand by no more than 2.5 percent.
“When you buy a new car, you do so on the grounds of a more certain economic and labor outlook,” said Gabriel Lozano, JPMorgan Chase & Co.'s chief Mexico economist. “It reflects a growing local market and in the end, an improvement in purchasing power.”
Demand for cars in Mexico is getting a boost from record-low inflation, cheaper credit and the government's crackdown on illegal used-car imports, according to industry reports.
Car makers are adjusting to the brighter outlook. Mazda Motor Corp., for instance, is boosting production for Mexico to meet the rising demand in Latin America's second-biggest economy, Keishi Egawa, CEO of the Japanese producer's local unit, said in a telephone interview.
“We definitely want to produce more than in 2015,” Mr. Egawa said. The company's plant in Salamanca built more than 200,000 vehicles last year, he said.
In addition, when companies such as Honda Motor Co. couldn't export some Made-in-Mexico cars to struggling economies in 2015 due to low demand, they chose to sell them to flush Mexicans, Guillermo Rosales, executive director of the dealers association, known as AMDA, said in an interview. Several factories have modified production plans for this year to account for more sales in Mexico, he said.
VW declined to comment on Mexico's sales figures and triggers for lower sales worldwide. Honda didn't return voice and email messages requesting comment.
In the latest monthly auto report, Mexican production climbed 4 percent while exports fell 5.9 percent after shipments to Brazil and China floundered.