Mexican auto industry closely watching U.S. elections

DALLAS (Nov. 1, 2016) — The Mexican peso, which serves as a proxy for the nation's economic future, has jumped up and down for weeks as shifting polls show Hillary Clinton winning the race for the presidency or, conversely, Donald Trump closing the gap.

Mexican auto industry officials look on the situation more calmly, said Guillermo Rosales, co-director of the Mexican Automobile Distributors Association. Still, they are aware of the stakes in the election given Trump's sharp opposition to the trade ties that have been instrumental in forging an industry boom in recent years.

“It's not like our mood is changing every day,” said Mr. Rosales. “We have a risk map that indicates first and foremost that nothing has been decided yet, even though Clinton has recovered in the polls in the last weeks. You still can't rule out a Trump win.”

Rosales: 'Can't rule out' Trump

In fact, Mr. Rosales said, the Mexican industry is looking at what the presidential race will mean for the overall economy no matter who wins, since the campaign has pushed both candidates away from talk of more free trade and toward protectionism. That is the opposite of what's healthy for Mexico, the U.S. and the world, he said.

If Mr. Trump were to force a renegotiation of the North American Free Trade Agreement (NAFTA), or cancel it entirely, “it would have a big impact not only on the auto industry, which it absolutely would, but on Mexico's economy in general,” Mr. Rosales said.

He pointed out that lower consumption in Mexico would reduce imports from the U.S., stressing the benefits of the trade agreement for all sides. Indeed, many Mexican industry groups would like to see NAFTA expanded, not reduced, to include mobility of workers within the region and inclusion of more goods and services.

Mr. Trump maintains that Mexico has benefited from NAFTA at the expense of U.S. workers and that the playing field needs to be tilted back by negotiating the treaty or canceling it.

The benefits of the 1994 trade agreement to the automobile sector are relatively recent, although Mexican manufacturing in general has been making gains for decades.

Kia's plant in Mexico is one of many auto manufacturing sites that have newly opened or are planned. They are expected to push the country's production to 5 million vehicles by the end of 2020.

Mexico's export-oriented auto industry produced a record 3.4 million units last year compared with 1.6 million a decade earlier. New and planned plants by Ford, Audi, Kia, Toyota, BMW and others are expected to push that to 5 million by the end of 2020, according to the Mexican Automotive Industry Association.

More recently, domestic sales of new cars in Mexico have surged, hitting a record 1.35 million last year compared with 755,000 in 2009. Sales are expected to rise to as high as 1.6 million this year. That has broad benefits for the North American industry, officials say, since it creates a local market for Mexican production and for imports, which make up more than half of local sales.

Economic analysts say implementation of Mr. Trump's trade and immigration policies would hurt exports and local consumption.

“Declining trade volumes could send shock waves across the country's manufacturing sector, leading to a sharp drop in business investment, potential job losses, and a decline in overall economic output,” BMI Research said in a recent analysis, noting 81 percent of Mexico's exports go to the U.S.

Tougher immigration policies, including deportations, “would — if implemented — deprive the region of a vital source of funding for household spending,” the report said.

That would include durable goods such as new cars.

Mr. Trump's candidacy has already upended Mexican politics. President Enrique Pena Nieto recently apologized for inviting the Republican candidate to Mexico for a hastily planned trip in August, saying he should have handled the invitation differently.

Mexico's ruling party is now in third place in early polls for the nation's own presidential contest in 2018.

This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.