Every day, Mexico’s muscular automotive industry churns out thousands of shiny new vehicles and puts them on rail cars to cross the border bound for U.S. showrooms.
Every day, similar traffic rolls in the other direction: thousands of used cars.
Those two traffic flows have set off a battle in Mexico that has spiraled into a fight over patriotism and global warming, with arguments laden with phrases like “junkyard cars” and “garbage vehicles.”
At issue is that despite Mexico’s powerful and surging auto industry, the domestic market for new cars is surprisingly weak. What is robust in Mexico is the market for used cars. Auto brokers every day sweep up more than 1,000 discarded or partially wrecked vehicles at U.S. auctions and bring them back across the border to be sold at used car lots.
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The battle over the imports has escalated to extraordinary levels. Border crossings have been shut. Mexico’s Supreme Court has been dragged into the dispute, and at least two judges are under investigation for issuing rulings – perhaps lubed by payoffs – that favored used car dealers.
There are charges and countercharges. The new car industry claims the flood of used cars contributes to greenhouse gases, endangers drivers who aren’t notified of safety recalls and unfairly depresses the price of used cars in Mexico. The used car industry claims its popularity is because of tight credit rules and sky-high interest rates that put the purchase of new cars out of reach of the majority of Mexicans.
“The importation of used cars each year generates six times more greenhouse gases than all the new cars that come on the road,” said Eduardo Solís Sánchez, head of the Mexican Association for the Automotive Industry.
In the past decade, 7.5 million used vehicles have rolled across the border into Mexico, the auto industry says, adding that used cars arriving from the United States comprised about 40 percent of all vehicles sold in Mexico last year.
Nearly all the world’s major automakers have set up shop in Mexico, which has become the fourth largest global auto exporter after Germany, Japan and South Korea. Last year, Mexican plants produced 3.22 million vehicles, a record.
But domestic sales of new cars remain relatively stagnant. Last year’s sales of around 1.1 million units was lower than in 2006.
“When we talk about the ‘lost decade’ in the domestic auto market, this information bears it out,” said Guillermo Prieto Treviño, head of the Mexican Auto Dealers Association. “Studies tell us that Mexico should be selling 1.7 or 1.8 million units (domestically) a year.”
Prieto described the importation of used U.S. cars as a “cancer” wreaking havoc on the Mexican automotive industry and sending pollutants into the air.
“A lot of these (used) vehicles are six- or eight-cylinder, and when they come in poor condition, the contamination is enormous,” Prieto said.
But at the hundreds of used car lots that dot Mexicali on the border with California, one hears a different story.
“You can’t get a new car here unless you put down 30 percent up front,” said Aurelio Regla, owner of the Yeyos used car lot. “They don’t give credit easily.”
Another used auto dealer, Juan Manuel Valencia, said the demanding U.S. market means used cars obtained there have more safety features and better interiors, not just lower prices.
“I compared a Volkswagen Jetta from over there to one made here, and you could see the differences in the plastics and in the bodywork,” Valencia said.
The used car sector along the 1,954-mile border with the United States is so strong that the head of Mexicali’s Chamber of Commerce, José Manuel Hurtado, is himself a used car dealer.
“Much of the economy along the border is based on used car imports,” Hurtado said. That also benefits body and paint shops, junkyards selling spare parts and tire dealers.
Hurtado acknowledged that corruption had played a part in a surge of used car imports. A federal judicial body opened an investigation last November against a federal judge and a circuit court judge in Mexicali, and nine other court employees, over irregularities in the import of used cars.
In Mexicali and elsewhere, judges issued 51 injunctions in recent years that permitted dealers to bring in used cars without paying duties. Auto and customs brokers all along the border were soon operating protected by the court rulings.
“There were people who became millionaires from importing used cars between 2008 and 2014,” Hurtado said.
Pressed by auto manufacturers, and helped by a Supreme Court ruling, the federal government has slowly overturned all but one of those cases, Hurtado said, and the used auto boom is turning into a bust.
“We used to have 450 registered used car lots in Mexicali,” Hurtado said. “Now, there aren’t even 200.”
Whether a crackdown on used cars will inevitably lead to rising sales of new vehicles is open to debate. Executives from the auto sector suggest that it will – and say that in the process new jobs will be created.
“If we get rid of all the garbage on the road, we’d be selling 600,000 more units a year,” said Óscar Albín Santos, head of the Association of Autoparts Industries. “That amounts to four new manufacturing plants.”
Solís Sánchez of the Mexican Association for the Automotive Industry said a boost of that magnitude in domestic sales would generate 200,000 to 250,000 jobs in automotive plants.
Don’t count on those potential workers to buy new cars, though. Average autoworkers in Mexico earn between $2.50 and $5 an hour, or less than $20,000 a year.
Solís Sánchez acknowledged that credit woes hampered new car sales.
“We’re selling 60 percent of our vehicles on credit when we should be selling 70 or 75 percent on credit,” Solís Sánchez said.
Two out of every three vehicles sold on credit are done with financing provided by auto manufacturers, not by banks, thrifts or credit institutions, which don’t offer consumer loans as readily as their U.S. counterparts.
In some parts of Mexico, tighter environmental regulations favor new car manufacturers.
In sprawling Mexico City, which has more than 20 million inhabitants and monumental traffic congestion, a policy called “Don’t Drive Today” has gotten progressively stricter. The smog-fighting policy prohibits cars between 9 and 15 years old from being on the road one or two Saturdays each month and for up to one workday each week.