Analysis
10 Jul 16

Fleet share of Mexico car sales to remain around 20%

In 2015, fleet sales accounted for around 20% of automotive sales in Mexico. The country's car industry will remain robust, despite some macro-economic setbacks – but the fleet share of overall sales will not increase. At least not this year, the local leasing experts say. 
 
Assuming economic conditions in Mexico (pictured: Mexico City traffic) stay broadly the same, the average fleet share of overall automotive sales should remain 20% or thereabouts, says LeasePlan Mexico. The same percentage doesn't mean that the market is standing still: “There certainly are opportunities in the market, with a significant number of companies expanding their operations”.
 
Accelerated growth
Mexico's automotive industry is one of the more dynamic elements of the nation's overall economy, GM Mexico points out: “Automotive is currently growing at double digits in Mexico. We expect the fleet market to do the same this year; however, most growth potential is in the retail side of the market”.
 
Government intervention could help fleet sales, but isn't in the cards, suggests Element Mexico: “While new car sales have increased in double digits over the past two years, we expect the fleet share of sales to remain the same throughout this year and the next; there are no government incentives for companies to renew or increase their fleets at above market rate”.
 
“Automotive has exhibited accelerated growth, in spite of external factors. In 2015, vehicle sales increased despite the relatively smaller growth in GDP. Credit is the main reason for these higher domestic vehicle sales”, explains ARI Mexico.
 
Strong performance
For 2016, the company also predicts fleet sales to be in line with last year's – between 15 and 20%. Which in itself would be a strong performance. For even though the Mexican economy has been quite strong over the past two to three years, supporting tremendous growth in a variety of business sectors, it is not immune from the problems and uncertainties facing the global economy right now. 
 
The challenges are well known: political instability in various parts of the world, heightened security concerns, volatility in global markets due to the chronic effects of the Brexit vote, and continued pressure from historically low oil prices (Mexico is a major exporter). 
 
Manufacturing drop
And Mexico's economy does face some genuine problems. Due to tension on the commodity markets – i.e. cheap oil – and a 1.7% drop in manufacturing in Q2, the Mexican economy recently reported its first quarterly decline in three years, prompting the government to slash its growth forecast for 2016 from 2.6-3.6% to 2.2-3.2%. The prospect of spending cuts and higher interest rates is not far off – and even if these don't happen, they cast a shadow on Mexico's economic confidence.
 
But there is also good news. Capital continues to flow into the Mexican economy, albeit at a slower rate. The country's flexible exchange rate, large foreign reserves (around $177 billion) and a recently renewed credit line with the IMF also help to brighten the picture. So, even in spite of some volatility, Mexico's economy will continue to grow, but at a slower rate. This in turn means that the fleet market should do the same, ARI concludes.
 
Tourism growth
ALD Automotive Mexico is less optimistic. A stable fleet share is a 'best case scenario': 
“with Mexico's current account deficit pushing the Federal Government to reduce spending, many public sector projects concerning Automotive have been postponed or cancelled. This is of course affecting the sectors directly involved, such as construction, IT, consultancy, etc.”
 
VWFS Mexico has an even starker warning: “Our figures show a decrease in the proportion of the fleet segment. In the first semester of 2015 there was a ratio around 17% and in the same period of 2016 is 16%. Despite the fact that the total automotive market is growing with an excellent pace of 18.4% in the first semester, the fleet segment is growing at a pace of only 8.7%”.
 
Macro-economically, there is no evidence for an increase of the fleet share. One sector slated for growth in Mexico this year is tourism. The country's Minister of Tourism Enrique de la Madrid expects a growth for this sector of 8% to 10%, totalling revenue of around of $18.2 billion. This will doubtlessly lead to an increase in volume of vehicles destined for the rental car segment.

Image: Ralf Roletschek / fahrradmonteur.de
Authored by: Frank Jacobs