How many OEMs do you need to amend the Auto Decree?

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Photo credit: Toyota’s new Prius V Hybrid car by Robert Scoble

Apparently, every one of them. All associations of OEMs, tiers and auto dealers have gathered to fight the proposal of amendment to the Auto Decree, protecting all flanks including Toyota. If you hurt one OEM, you hurt the whole industry.

Let me put this post in context. On December 31, 2003, former President Vicente Fox issued the Auto Decree, through which, eligible OEMs obtain a Government registration to apply tax and customs benefits at the time of importing, such as warehousing at customs area and obtain 0% import tax under certain circumstances.

Originally, the eligibility requirements were the following:

I. The benefits are only applicable for passenger or load carrying vehicles with weight less than 9.77 US Tons (8,864 kg.);

II. OEM has manufactured 50,000 units during the previous year to the one of applying for registration;

III. OEM has invested 100 Million USD in fixed assets for vehicle manufacturing;

IV. OEM has registered trademarks in Mexico;

V. OEM must secure contracts for auto-spares suppliers to comply with warranties before final consumer; and

VI. OEM must comply with Mexican Official Standards in relation to gas emissions and others.

On October 30, 2009, Administration of President Calderon added an exception to Requirement II, indicating that OEMs with a lower level of manufacturing than 50,000 units, may obtain the benefits as long as:

a) Has reached 50,000 units during last 3 years;

b) Has not suspended manufacturing activities in Mexico for more than 3 months, during year previous to the one applying for registration; and

c) Has manufactured at least 30,000 units during previous year to the one applying for registration.

On October 5, 2012, Ministry of Economy presented a proposal to amend Requirement II of the Auto Decree, raising the requirement from 50,000 to 100,000 units, and the exception from 30,000 to 60,000 units. The argument of the Government was that such increase is aimed to keep market share of Mexico in the global auto market, and promote more investments from OEMs.

OEMs have found fertile ground to grow in Mexico to grow in spite of the global economic crisis. Automotive has become the family jewel during Calderon administration, with announcement of new plants and many others to come. OEMs setting plants in Mexico are bringing micro-cities full of tiers and after-markets with other related services. On the other hand, car products are as fragile as other product in times of crisis, and always subject to customer demand, and of course, costumer demand is as fragile as their jobs. Toyota may be the first to become non eligible, so it already requested the appointment of an expert to determine the benefits or not of the amendment to the industry.

Government and the auto industry must stop this trick or treat. They need to make a wall of greatness with achievements of the industry in Mexico. I am sure they will be proud of the future to come: Mexico is now an auto nation and has a bright future in the airspace market.

Let´s leave this story as just another investment scary tale honoring the spirit of the season. Happy Halloween and Feliz Dia de los Muertos.

About the author

Alberto Esenaro

I am a Mexican lawyer with experience in technology, energy, automotive, infrastructure and business. Worked for law firms, international companies and Government bodies on business advice, regulatory compliance and litigation.

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By Alberto Esenaro

About Author

Alberto Esenaro

I am a Mexican lawyer with experience in technology, energy, automotive, infrastructure and business. Worked for law firms, international companies and Government bodies on business advice, regulatory compliance and litigation.

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