Chocolate cars will be regularized in Mexico: this is how the measure will impact the market

As car fans, we tend to focus on which is more powerful or better finished, and even take some pleasure in saying that Korean is better than that German, but at their most basic, cars are tools of mobility, and in certain contexts no matter its model or color. Such is the case of "chocolate cars", from which a whole conversation has recently been derived.

What's going on? The head of the Federal Executive Power announced a decree to regularize the chocolate cars that are already in the country. The measure contemplates vehicles that are in border states: Baja California, Sonora, Chihuahua, Coahuila, Nuevo León and Tamaulipas. The objective is to grant them a circulation permit to be able to keep track of these cars because many of them are currently used to commit illegal acts.

Since many of these cars enter the country illegally, it is difficult to know how many are circulating. It is estimated that there are currently around 3 million cars from the United States, most of them located in the aforementioned states, although they also abound in Guanajuato, Durango, Zacatecas, San Luis Potosí and Michoacán.

Questionable conditions and origin. The controversy that surrounds chocolate cars is that many of these units have an extremely low price due to their conditions. They could have had a major mechanical failure —with a provisional repair—, have been damaged or are simply very old models, which leads to a conversation about their high level of pollution and low passenger safety standards.

Regardless of the vehicle, its entry into the country is also questionable. They enter Mexico illegally through networks of corruption at customs crossings or border ports to evade tax collection. Added to this is that, since they are not registered in Mexico, it is difficult to trace the owner, which makes them ideal for committing crimes.

The impact on the Mexican automotive sector. Associations such as AMDA and AMIA did not take long to speak out and dismiss the president's new decree as negative. Although the new car sector is affected, the biggest hit is towards the used car market due to an aspect that is often ignored: many of the cars imported into Mexico are not too old or cheap. In many cases they are relatively recent models, with a national equivalent, but at half the price. Consumers prefer to pay, for example, 150,000 pesos for a mid-range SUV of American origin, than for a national basic compact.

The AMDA calculates that the presence of the same national models and those coming from the United States will generate a depreciation of up to 20% in the models acquired in Mexico. It is also estimated that car sales will fall by up to 39% in the national market, as happened in 2006 when chocolate cars were legalized and several businesses went bankrupt in the border area.

The ideal moment: there are no cars in the dealerships. The automotive sector is not having a good time globally. Between the shortage of semiconductors and the rising cost of steel, the price of cars is soaring while their availability is declining. Many users have turned to see the used car market, and that represents an opportunity for sellers of chocolate cars.

According to figures from El Financiero, from January to August of this year, more than 100,000 used cars were imported into Mexico, which represents an increase of 35.7% compared to the same period in 2020 —the largest increase in 8 years.

The other side of chocolate cars. Apart from everything that the AMIA and the AMDa point out, chocolate cars satisfy a need that is difficult to meet in Mexico: when the car becomes indispensable for a low-income sector that needs it as a work tool —like a pick-up —, but you cannot access the price of a national used vehicle or a credit to purchase one. Your only option is the chocolate car market.

Without public programs that meet the needs of this sector, chocolate cars become the only alternative for some workers to start generating the necessary income to survive. Added to this is a public transport network that cannot always satisfy all mobility needs, especially in the border area.

Regularize chocolate cars, at the expense of the local market. COPARMEX points out that between 1979 and 2011, 19 processes were carried out to regularize the entry of used cars into Mexico, and that the previous decree published in the Official Gazette of the Federation —announced on December 24, 2020— makes its operation feasible. With this new action in 2021, sales are expected to fall by 39% in the domestic market.