LatAm light vehicle market: the only way is up

After three years of decline, Latin America posted an overall light vehicle sales increase of 7 percent in 2017, indicative of the economic recovery. Only Mexico’s engine is sputtering, but that does not withhold OEMs from investing.

Between January and December 2017, some 5.9 million light vehicles were sold from Baja California to Tierra del Fuego, which is 7 percent more than during the year before, but still a million units below the 2013 record (source: Focus2move). Especially Argentina contributed to the region’s automotive market recovery, posting a 28.1 percent growth. The largest market, Brazil, is recovering nicely, too, with a year-on-year improvement of 9.2 percent. Another top student in the class of 2017 is Chile, boasting an 18.1 percent rise.

The only top-5 country to post a negative evolution is Mexico, which contracted by 4.6 percent in terms of units sold. And things aren’t necessarily looking up in the northern-most country of Latin America, owing to uncertainties arising from this year’s presidential elections, increasing inflation, and the North American Free Trade (NAFTA) agreement being under pressure. Still, OEMs like BMW, Toyota and Mercedes-Infiniti confidently continue to invest in new factories.

Asian, European or American  

Looking at the total Latin American market, Renault-Nissan clearly take the biggest slice of the pie, but on a brand level, Chevrolet still wears the crown. According to Focus2move, the Chevrolet Onix (pictured below) remains the most popular car (230,000 units, up 31.7 percent). The runner-up is the Volkswagen Gol, which has been Brazil’s best-selling car for 27 consecutive years (from 1987 to 2014) and the sales of which jumped 30 percent to 157,000 units last year thanks to the model’s second facelift.

One of the rising stars is the Ford Ka, which climbed three spots to third position (150,000 units, 32.5 percent more than in 2016). The fourth place is occupied by the Renault Sandero, which found 126,500 customers last year, an increase of 18.8 percent. In fifth place, at 124,842 units, the Toyota Hilux remains the best-selling pick-up truck.

Affordable petrol-powered hatchbacks

Indeed, the Latin American market is mostly made up of compact, uncomplicated hatchbacks which are assembled locally. The segment that holds the biggest potential, however, is the one of small and compact SUVs – just like anywhere else in the world. The top 3 economies – Brazil, Mexico and Argentina – have a heavily developed car industry. Interestingly, Mexico has become prime assembly territory for Asian brands, whereas Brazil and Argentina are dominated by Western OEMs.

In terms of fuel: petrol is king, but Brazil remains focussed on sugar-cane based and therefore sustainable ethanol. The latter is either used as a fuel on itself (E100), or blended with petrol (up to 25 percent, i.e. E25). Most vehicles in Brazil are flexi-fuel, meaning they can run on any proportion of petrol and ethanol. In recent years, the country has ramped up its biodiesel production, all of which is used on the domestic market. Hybrid and EV sales remain marginal in the region. Only Mexico City is making an effort to promote them to combat air pollution.       

Production: Mexico versus Brazil

The crisis that hit Brazil in 2014 meant it lost its position of leading car manufacturing country to Mexico in 2016. The situation of the automotive sector is a result of the diverse strategies adopted by the two Latin American giants. Brazil has historically focused on its domestic market, protecting its sector with tariffs and forcing automakers to invest in factories if they wanted to access a market of 207 million people. Now that its own market is recovering (to nearly 2.2 million units in 2017), Brazil is catching up again with its northern competitor.

In Mexico, exports to the United States and Canada - the destination of more than 75 percent of cars sold abroad - continues to remain the great engine of the national automotive industry, which records historical figures. With NAFTA under pressure, the country is looking at other countries to close free trade agreements. Between Brazil, Argentina and Mexico there already exist so-called economic complementation agreements (ACE). Market protectionism is at play nonetheless.

China is coming

As incomes have been growing for years in the region, millions of people are entering the new car market, but with a limited budget. Chinese cars are a perfect match for this kind of costumer, who is less interested in safety and technical sophistication than in sturdiness and practicality. China-built cars have been penetrating the Latin American market for twenty years, especially in Chile, Colombia and Peru, with market shares varying between 5 and 14 percent.

Since 2007, Chinese OEMs have also been investing billions of dollars in local production based on knock-down kits. Great Wall started assembly in Ecuador in 2014. Unimpressed by the American NAFTA threats, JAC Motor created a joint-venture with Mexican company Giant Motors in 2017 to build a compact hatchback and cross-over. Last February, BAIC (Beijing Automotive Industry Corporation) announced it would also build a factory in Mexico. Indeed, Chinese giants, too, are seeing Mexico as the promised land.

Picture copyright: Ford, 2018; GM, 2018; JAC, 2018