Mexico's peso devaluation and economic crisis have created short-term havoc for automakers and suppliers. But almost everyone remains bullish on Mexico long-term.
BMW AG, for instance, recently announced that it still plans to sell and assemble cars in Mexico, despite the crisis. BMW de Mexico, however, did reduce its initial sales target, from 800 cars a year to an unspecified number.
Italy's Fiat Auto SpA and Mexican truck and bus maker Grupo G Consorcio Dina have scrapped plans to build 95,000 Fiat subcompacts annually in Ciudad Sahagun, near Mexico City. The peso's plunge effectively prices the Fiat vehicles out of the local market because of their high imported content. However, Dina said the firms are examining ways to revise the joint venture.
In many cases, it is too late to undo much of the two-way traffic in vehicles and auto parts, no matter what the peso is worth.
For example, Nissan Motor Co. will begin exporting U.S.-made Sentra parts from its plant in Smyrna, Tenn., to a Sentra plant in Aguascalientes, Mexico.
``It's too late to stop,'' said Jerry Benefield, president of Nissan's U.S. manufacturing unit. ``Mexico doesn't have any alternate sources for the parts.''
Where possible, expect to see auto companies scramble to export more from their Mexican operations now and to reduce U.S. exports to Mexico, said Doug Ransdale, senior vice president at Comerica Bank in Detroit. He assists suppliers doing business in Mexico.
``This has been extremely disruptive,'' said Al Chambers, director of corporate communications at Ford Motor Co.
When the crisis started in late December, the Mexican government put a price freeze on ``built-up product'' entering Mexico.
``Anything switching from dollars to pesos is greatly disadvan-taged,'' he said, because firms exporting to Mexico have not been allowed to raise their prices to compensate for the peso's fall.
Ford and other companies are asking for relief from the freeze, but that is unlikely until the peso stabilizes, he said.
Jim Hoy, chief financial officer for Douglas & Lomason of Farmington Hills, Mich., a seat maker, said some subsuppliers are warning Mexican customers that they could be forced to interrupt production unless contracts and purchase orders are adjusted to reflect the currency change.
``A lot of companies down there are asking right now, `How long can I continue to sell my product for less than it's costing me to make?' '' Hoy said.
Mexican supplier Condumex Automotive, which makes wire harnesses, cables, piston rings, shock absorbers and radiators, found a way to avert the impact of the weak peso-at least for now. The U.S. suppliers it buys from have allowed Condumex to defer payments until Feb. 15.
``It's impossible to know your cost on a day-to-day basis,'' said Pedro Ruiz, Condumex's executive vice president, who addressed the recent World Congress in Detroit sponsored by Automotive News, sister publication to Plastics News.
The firm, which has annual sales of about $250 million (at pre-devaluation exchange rates), gets most of its subcomponents from the United States. If Condumex had to pay now, its costs for U.S. parts would jump more than 35 percent overnight.
This year, Ruiz said, is going to be difficult. He projects a 25 percent drop in Mexican-built vehicles for the Mexican market. Mexico's vehicle imports, which increased tenfold last year, are likely to plunge 50 percent in 1995, he said. The industry then should improve in 1996.
All the Golfs and Jettas sold in the United States are built in Mexico, and those two lines accounted for nearly 80 percent of VW's U.S. sales in 1994.
But a sudden drop in demand forced Volkswagen de Mexico to idle its Mexican plant in Puebla, Jan. 23-27. A VW spokeswoman said that week's production was exclusively for the domestic Mexican market.
