New Year’s Day usually means good things, like New Year’s resolutions, festivities, football, and a day off from work or school. But New Year’s was different for Mexican consumers this year.
With less than a week’s notice, Mexican consumers found themselves face-to-face with a gasolinazo, a hike in gasoline and diesel prices of up to 20%, effective New Year’s Day 2017. The price hikes were part of a longer-term labor market flexibility reform plan slated to culminate in 2018.
The Mexican government has historically subsidized the cost of gasoline, and gasolinazos are a regular feature of the country’s economic topography. And while the move to deregulate gas prices in Mexico makes good economic sense and Mexican president Enrique Peña Nieto’s 2017 price hikes are far from the most extreme since 1946, they are widely unpopular.
Gas prices impact driving habits
Data from the North American Transportation Statistics Database indicate strong increases in the number of miles travelled by light vehicles in Mexico annually over the past decade. These advances reflect an increase in motor vehicle ownership in the past 10 years, made possible due to gains in personal income levels and national GDP.
A strong inverse relationship exists between gas prices and the number of miles driven annually. As a result, price hikes in Mexico have the potential to significantly slow gains in the number of miles driven annually.
Driving habits and aftermarket automotive demand
Automotive components range from durable pieces that are intended to last the lifetime of the vehicle, such as many powertrain components, to smaller wear parts that must be replaced regularly, such as disc brake pads and rotors.
Growth in the number of miles driven per annum increases wear on vehicles, boosting replacement demand for wear parts such as brakes and filters. In addition, vehicles that clock extra miles on the road are more likely to encounter inclement weather, poor road conditions, or the risk of accidents, all of which can accelerate the rate at which parts, including non-wear parts, must be replaced.
Mexico’s gasolinazo threatens to slow advances in the number of miles driven in the country in 2017, potentially restraining automotive aftermarket demand in the country. Market gains in USD terms will also be restrained by strong declines in the value of the Mexican peso since Trump’s election, reflecting uncertainty about the future of Mexican exports.
To find out more
Need more information? For historical demand data and forecasts by product, performer, and country, see The Freedonia Group’s upcoming series of studies on the automotive aftermarket, including:
These studies also cover market environment factors, industry structure, company market share, and leading companies.
About the Author:
E. Reta Sober is an industry analyst at The Freedonia Group where she writes studies related to electrical equipment and machinery.