Mexico Autos Report Q1 2013

Over the first nine months of 2012, sales of passenger cars and light trucks in Mexico increased by 11.4%year-on-year ( y-o-y), to 703,659 units. BMI forecasts growth of 8.7% in 2012 in the passenger carsegment, and 9.4% in the light commercial vehicle (LCV) segment. We maintain these forecasts, as webelieve private consumption will moderate somewhat in the latter part of the year, with sales volumesdropping in line with our forecasts.

After strong growth in the beginning of 2012, we have long maintained that private consumption willmoderate somewhat in the second half of the year; this view is continuing to play out. Indeed, consumercredit growth has plateaued recently, and unemployment is increasing. Combined with elevated inflation,we believe these factors will weigh on consumers' purchasing power, suggesting slightly more moderateprivate consumption in H212. We believe that this slowdown in private consumption will moderategrowth in passenger car and LCV sales, and has informed our outlook. It should be noted that we believethis will have a relatively small impact, and we expect to see only a modest slowdown in sales in the finalmonths of 2012.

In the heavy truck segment, sales increased 11.8% y-o-y in the first nine months of 2012, driven by thestrength of the country’s manufacturing sector. BMI forecasts growth of 16% in the heavy truck segmentin 2012.

In the first nine months of 2012, vehicle production in Mexico increased 13.2% y-o-y, to 2,156,988 units.In this period, vehicle production for export, which constitutes some 84% of the total, increased 15.1% yo-y, to 1,819,401 units. BMI forecasts vehicle production to increase 12% in 2012, which we maintain.Indeed, we recently revised our 2012 real GDP growth estimate, from 3.8% to 4.0% to take into accountstronger than anticipated export growth in H112. As exports are the primary driver of autos production inMexico, our belief in a slight moderation in autos sales in the final months of 2012 and in to 2013, willnot greatly affect volumes.

Indeed, there are a number of factors that have informed our bullish outlook on the auto productionindustry in the country, including comparative weakness in the productive capacity of Mexico's regionalcompetitors, the continued recovery of the US vehicle market, strong domestic sales (as above), positivedevelopments in the domestic supply chain, and Mexico's wage competitiveness.We expect to see continued investment across the supply chain from international auto manufacturers onthe back of this strong outlook.