Why NASCAR wants into Champ Car’s gold mine

[Editor's Note: Champ Car had a strong position in Mexico, but why has Champ Car and the IRL teams lost sponsors from Mexico if according to this LA Times article, the Mexico economy is booming? The answer is NASCAR is coming to Mexico, and they will eventually suck the sponsorship well dry. Adrian Fernandez lost his sponsorship, Herdez has left Champ Car and Gigante is rumored to be in financial straits and possibly pulling out. On the plus side Pemex is rumored to be coming in. This article explains why Champ Car is in Mexico and why NASCAR is coming to Mexico while the IRL remains on the outside looking in.]

Key excerpts from article North America's hottest auto market is now south of the border, thanks to a stable peso, lots of young drivers and pent-up demand. Dressed in a blazing pink jacket with purse to match, car shopper Erika Amador Martinez is the embodiment of Mexico's auto market — sizzling. The lawyer from Puebla arrived at an auto show here this month to browse among dozens of models. Topping her list is a Ford EcoSport, a sport utility vehicle that she covets for its practicality, not to mention the kicky red paint job.

"I'll pay part in cash and finance the rest," said the 27-year-old, who is tired of cadging rides from her boyfriend. "It's a lot easier to buy a car than it was a few years ago."

Armed with credit and spoiled for choice, consumers like Amador have turned Mexico into North America's hottest auto market. Although sales in the United States and Canada have stalled, Mexico is experiencing double-digit percentage increases in 2004, with buyers projected to purchase a record 1.05 million new vehicles by year's end.

That's more cars and trucks than will have been sold in Australia by the end of this year and in all but a few European countries. Some expect Mexico to overtake Canada in annual vehicle sales by the end of the decade.

The auto boom is indicative of a rebounding economy, lots of young drivers and years of pent-up demand. Banks scorched by Mexico's mid-1990s peso crisis are back and lending billions of dollars to consumers, whose choices rival anything in U.S. showrooms. Lured by free trade agreements and Mexico's sales potential, nearly 40 car brands are fighting for a piece of the market. Already a major vehicle manufacturer and exporter, with companies such as Ford, General Motors, DaimlerChrysler, Volkswagen, Honda and Toyota operating plants here, Mexico's growing domestic market could provide an added incentive for automakers to expand production in the country.

"It's a market that has definitely arrived," said Gabriel Renero, head of automotive consulting for advisory firm Deloitte in Mexico.

But the last decade has seen a retooling of Mexico's economy. The 1994 North American Free Trade Agreement created hundreds of thousands of manufacturing jobs, attracted billions of dollars in foreign investment and turned Mexico into an exporting powerhouse.

Today the peso is sound. Inflation is relatively tame. The world's fifth-largest oil producer is reaping a windfall from elevated crude prices. Although still dogged by high unemployment and entrenched poverty, Mexico nevertheless is enjoying a measure of economic stability it hasn't seen in years.

That in turn has emboldened lenders who have jumped back into the market, providing much of the juice for Mexico's auto boom. Edwin Vega, director of retail lending for Scotiabank Inverlat in Mexico, estimates that banks, auto-finance companies and others will have lent $4.5 billion to Mexican car buyers by the end of this year. Aided by better underwriting and Mexico's stable economy, lenders are offering something every bit as revolutionary as Henry Ford's assembly line: fixed interest rates.

The vast majority of new cars purchased by Mexicans this year have been compacts and subcompacts that sell for as little as $7,000. Most Americans have never heard of the Nissan Tsuru, Ford Ka or Volkswagen Pointer, which are geared for developing markets and reflect the modest incomes in nations like Mexico, where many still earn less than $5 a day.

Still, luxury car maker Mercedes-Benz reports that its Mexican sales are surging 15% this year, with minivans and SUVs the fastest-growing segments in the market.

Ford dealer Tame said he had a waiting list 10 deep for the new $26,000 Mustang and could barely keep the $16,000 EcoSport SUV in stock. He said he would move 10% more cars off his lot this year than in 2003, but he had to work harder because of burgeoning competition.

Mexico has almost as many car brands and models fighting for a slice of its turf as does the United States, whose market is 16 times bigger. Thus car companies are offering everything from free auto insurance to home appliances to get Mexicans into a set of their wheels.

"In the old days, it used to be the Big Three, Nissan, Volkswagen and that's about it," Tame said. "Now the whole world is here."

And more are coming. Russian car maker Lada said it would begin exporting its Niva SUV to Mexico in the spring. Japan's Mazda Motor Corp. plans to open its first five Mexican dealerships in the third quarter of 2005.

Japan recently inked a free trade agreement with Mexico, joining more than 40 other nations with liberal access to its market. Experts say such deals are a sweetener in attracting car companies to Mexico. But none would bother if not for Mexico's enormous potential, said Carlos Gomes, a Scotiabank auto industry analyst based in Canada.

Although the U.S. remains the world's foremost car consumer, its drivers are aging and its market is saturated. By comparison, half of Mexico's population is younger than 25 and most of its 65 million driving-age citizens don't yet own a car.

Vehicles sales have nearly doubled here since 1990, but fewer than two of 10 Mexicans possess a vehicle today. That compares with nearly eight of 10 in the U.S.

"Mexico is and will be the star of North America," Gomes said. "That is really where the growth will be."

Toyota Motor Corp. opened a $140-million plant near Tijuana this year to make Tacoma pickups and truck beds. Although most of that production will end up in the United States, the growing Mexican market helped sway Toyota to locate there, plant operations chief Joe da Rosa said this year.

Global vehicle sales (in millions)
Country / Car sales
1. USA/ 16,738
2. Japan / 5,620
3. China / 4,671
4. Germany / 3,397
5. Britain / 2,906
6. Italy / 2,446
7. France / 2,394
8. Spain / 1,819
9. Canada / 1,546
10. Brazil / 1,477
11. Russia / 1,449
12. India / 1,120
13. S. Korea / 1,052
14. Mexico / 1,051*
Source: National Sources, J.D. Power-LMC, Mexican Automotive Industry Assn.

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