Vendor Newsmaker Q&A: Lee Kadrich

The Big 3's combined truck and car output in Mexico rose from 1.05 million units in 2007, or 50 percent of the 2.1 million total units produced, to 1.15 million units in 2008, to account for 56 percent of total car and truck output.

Nissan, Toyota and Honda assembled about 550,000 vehicles in Mexico in 2007, dominated by Nissan's 487,000 units. In 2008, Nissan's output plunged by 90,000 vehicles. The other major producer, Volkswagen (VW), also saw its 2007 output of 411,000 vehicles shed almost 15 percent, or 63,000 vehicles, in 2008.

When it comes to vehicle sales leaders in Mexico, Big 3 nameplates represent 561,000 units, or about 50 percent of total 2008 vehicle sales, while the Nissan, Toyota and Honda combined sales of 337,0000 cars and trucks take 30 percent of market share, and VW holds a 14 percent market share with sales of 159,000 vehicles.

The global auto downturn has major consequences for Mexican parts exports to the U.S. and other markets. After Mexico's auto parts exports expanded by some $5 billion, from $23 billion in 2004 to $28 billion in 2007, in the first three quarters of 2008, their parts exports had declined 8.2 percent over 2007, and that decline should be steeper when the fourth quarter numbers are available.

Adding to the stress on Mexican consumers is the steep 40 percent drop in the value of the new peso dollar against the U.S. dollar over the past eight months.

Even under NAFTA, Mexican vehicle registrations have dramatically lagged population growth. With more than three times Canada's population, there are 25 percent fewer registered vehicles in Mexico (21 million) than Canada's 28 million unit carparc. That amounts to 5.3 people per car in Mexico, compared with the 1.2 people per car found in Canada and the U.S. Under the terms of the NAFTA agreement, the introduction of used cars into Mexico, imported from the U.S. and Canada, certainly would offer more consumers a chance at affordable mobility and would help drive aftermarket growth.

How attractive is the Mexican market for U.S. OEMs and suppliers?

Just as the Big 3 have long held major operations in Mexico, many U.S. suppliers also have long histories there. Those supplier operations began as joint ventures, which with limited exceptions were required to be Mexican-controlled. Prior to 1994, OEMs in Mexico were constrained by trade-distorting domestic content rules and complex trade balancing requirements. The market was walled off by high vehicle and parts tariffs and there were limits on new U.S. supplier investment. Now, after 15 years of NAFTA, it is hard to imagine vehicle and automotive product exports not flowing freely across North America, and we have successfully integrated what I like to call the "NAFTER market." As AAIA vice president for government affairs and trade, I was involved with supporting the U.S. NAFTA negotiators. I was fortunate to have the chance to help create in the NAFTA agreement some unprecedented opportunities, such as for U.S. aftermarket suppliers to build and own green field facilities and for U.S. aftermarket retailers and distributors to expand their businesses to serve the Mexican aftermarket.

Media accounts say that Mexico is positioning itself to become a larger player in the global/regional auto marketplace once the economy picks up. Do you agree with this assessment?

In past economic crises, Mexico could raise the tariff walls and slam the door on foreign direct investment. All that ended when NAFTA began in 1994, with its trade and investment liberalizations, and its guarantee of national treatment, that is, to treat foreign firms and Mexican firms alike. NAFTA helped introduce Mexico's producers and consumers to the world economy and the best of global companies to Mexico.

NAFTA has spurred economic Mexican development and jobs, driving more vehicle sales and other consumer purchases. With its workforce, resources, location, large population and $12,000 per capita gross domestic product, it was not long before the European Union (EU) also wanted a free trade agreement with Mexico. Our NAFTA served as the template, and in the automotive area, the EU-Mexico deal essentially accelerated the benefits for EU OEMs and suppliers to be on par with U.S. and Canadian companies.

Mexico has aggressively pursued many other free trade accords. For a U.S. OEM or supplier, these agreements can open some interesting possibilities, to participate in North America as well as other markets from the Mexican production springboard. Mexico's trade-expanding policies also help position them to compete with Asian and other lower-cost producing nations for automotive investment.

More foreign OEM and supplier investments, producing more makes and models for Mexico and for export, plus a plethora of imported vehicles to choose from, better aftermarket products and services – all are great for Mexico's consumers and economy. I fully expect they will continue their global outreach.

What is the most important thing AAIA does to promote commercial opportunities between the two markets?

Hands down, it would have to be the trade promotion programs tied to AAPEX. For many years, AAIA and fellow Automotive Aftermarket Industry Week (AAIW) sponsors have partnered with the U.S. Department of Commerce (DOC) to promote the AAIW shows to aftermarket buyers in Mexico and worldwide, using America's network of embassies and consulates.

AAPEX, as part of AAIW, draws the world's best suppliers, retailers, distributors, car care professionals, service providers and business services. Each year the DOC's International Buyers Program (IBP) helps recruit new buyer attendees, and like a "farm club," once introduced, these buyers often become repeat attendees. Of course, they are attracted to the world's greatest trade-only market place for the products, technologies and ideas that help keep the world's motorists on the road. For AAPEX 2008 and AAIW, U.S. Commercial Service offices across Mexico helped recruit 255 buying executives, part of some 1,100 Mexican buyers. Together, with a number of prominent Mexican firms that exhibit, and others, there were 1,600 attendees from Mexico.

The IBP helps foster pre-show matchmaking and meeting arrangements, and DOC staff and commercial service officers are at the AAPEX International Commerce Center and throughout the show to help connect Mexican buyers with U.S. exporters and provide U.S. companies information on the Mexican aftermarket. I long have considered these DOC programs to be the "crown jewel" of all trade promotion efforts.

The quality of the Mexican buyers is quite impressive. Our demographics show that 70 percent are the buying decision makers, and another 25 percent are influential in that decision. The vast majority of them are principals and upper management, and 56 percent of their firms have been in business eleven or more years, with another 20 percent in business from six to ten years.

The Auto International Association (AIA) segment of AAIA, which represents members serving the import nameplate aftermarket, holds its "Fabulous Networking Reception" (FNR) at AAPEX. Sponsored by 31 global brand leaders, the FNR has become a big draw for Mexican aftermarket association leaders, key distributors and leading trade press interested in networking with the import aftermarket community. AIA's seminar, "Selling in the U.S. Aftermarket," also has drawn many Mexican attendees. And AAIA, together with AASA, SEMA and OAC, sponsor the annual OAC/AAIW International Reception, which helps connect Mexican buyers with U.S. exporters.

The Automotive Aftermarket Industry Association (AAIA) is a Bethesda, Md.-based association with more than 23,000 members and affiliates who manufacture, distribute and sell motor vehicle parts, accessories, service, tool, equipment, materials and supplies. Through its membership, AAIA represents more than 100,000 repair shops, parts stores and distribution outlets. AAIA was formed in 1999 from the consolidation between the Automotive Parts & Accessories Association (APAA) and the Automotive Service Industry Association (ASIA). Lee Kadrich is AAIA's vice president of government affairs and trade along with being executive director of the Auto International Association, an AAIA division.

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