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Battered Economy Sends Mexico’s Auto Industry Into Doldrums

November 22, 1986

MEXICO CITY (AP) _ Mexico’s economic slump is making it harder than ever for consumers to come up with the $5,500 needed to buy a Volkswagen Beetle, the nation’s cheapest and, maybe, most popular car.

As a result, sales of new Beetles were off about 30 percent in the first eight months of the year as were purchases of Chrysler New Yorkers, one of the most expensive cars on the market.

The domestic auto industry has been hit hard by the economic crisis and the high inflation rate that has slashed consumers’ purchasing power.

″The inflation we’re looking at has removed the few people that could afford automobiles down here in the first place,″ said John E. Gilchrist, executive financial officer of Chrysler of Mexico.

The car makers in Mexico are all foreign - Chrysler, Ford, General Motors, Nissan, Volkswagen and Renault. Mexican companies make trucks and buses.

Although Mexico has about 80 million people, its car market is small. Only about 8 million vehicles are in use in the country.

Many of Mexico’s people are impoverished and owning a car is out of reach for most of them.

In the past, only about 2 percent of those holding jobs have been able to afford a car, industry officials say. Unskilled workers in Mexico City, for example, earn only about $3 a day.

At the Central Volkswagen dealership in Mexico City, salesman Egren Beas said, ″The customers have gone down (in number).″

He attributed the decline to higher prices and the scarcity of credit available for loans. Workers’ salaries, he said, have not kept pace with rising prices.

A recent visit to the showroom found a handful of cars on display but no customers.

In the first eight months of the year, automakers sold 179,260 new vehicles, a drop of 32.3 percent from the same period last year, according to the Mexican Automotive Industry Association.

Cesar Flores Esquivel, the association’s president, said total sales of cars and trucks this year may be the lowest since 1973, when the industry sold 262,045 vehicles. Sales totaled 391,649 in 1985.

In comparison, nearly 10 million U.S. and foreign-made cars were sold in the United States in the 1986 model year that ended Sept. 30.

The economic crunch has resulted in layoffs for 5,000 to 5,500 auto workers, Flores Esquivel estimated.

The French automaker Renault shut down its main car assembly plant in August after being plagued by declining sales, although it continues operating plants making Jeeps and motors for export.

Mexican automakers have been scrambling to boost sales by offering a wide range of incentives - free insurance, gasoline and maintenance - that industry officials say have helped some.

But they and the government also are looking outside the country, bolstering export operations to take advantage of Mexico’s low wages and skilled workforce - and the stronger demand for cars in the United States and other countries.

″Only the foreign market will save them from a difficult position,″ said Ignacio Trigueros, director of economic research at the Mexican Autonomous Institute of Technology.

″I don’t see a boom in the auto industry in Mexico in the next two or three years,″ he said.

The industry asociation said Mexico exported 42,566 vehicles in the first eight months of 1986, an increase of 15.4 percent over the same period a year ago.

Domestically, Volkswagen sold 36,420 new cars in the January-August period, followed by Nissan with 29,237 and Chrysler with 20,126, according to the industry association. Ford sold 14,094 cars and GM sold 8,208.

Gilchrist said Chrysler expects to export more vehicles this year than it sells domestically.

″Basically, we don’t manufacture anything in any of our plants that’s not exported,″ Gilchrist said. ″So even though we are looking at a ery depressed local industry, our plants are operating at higher volume levels than we’ve ever operated in our history, and we have more people working today than we’ve every had in our history.″

In 1981, Chrysler’s best year in Mexico with sales of 120,000, the company employed 9,900 people, Gilchrist said. This year, the work force is around 13,000.

Figures supplied by the company show that for the 12 months ending Oct. 31, the Mexican automakers exported nearly $1 billion worth of vehicles, engines, air conditioner condensors and auto frames.

The government, which maintains tight controls over the auto industry, forced the companies’ expansion into exports in a September 1983 decree.

The decree required the automakers to bring their imports and exports into balance. The practical effect was to force them to export to get more foreign currency and offset the cost of imported parts and supplies.

The statement also required the companies to use a certain amount of locally made products in their vehicles - 55 percent for cars sold in Mexico this year - and limited the number of lines and models produced in a given year.

End Adv Weekend Editions Nov. 22-23

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