| | |  Business News | January 2009 
Mexico Peso Stuns UBS With Biggest Drop Since 1995
 Andres R. Martinez & Valerie Rota - Bloomberg
go to original
The steepest decline in Mexico’s peso in 13 years blindsided everyone from UBS AG economists to Gustavo Huitron, the local marketing manager for Mercedes-Benz.
After weakening 20 percent last year, the currency fell to a record closing low of 14.2431 per dollar this week. RBS Greenwich Capital Markets in Greenwich, Connecticut, now predicts another 4.3 percent drop by June 30. The peso’s worst performance since 1995’s so-called Tequila Crisis is being driven by the U.S. recession and falling oil prices, which are cutting Mexican exports and government revenues.
The peso’s slide put luxury automobile dealers in Mexico City on the wrong side of a discounting promotion that began in November. Imported luxury cars are typically sold in U.S. dollars, so Mercedes decided to entice buyers by offering an exchange rate of 9.99 pesos, a 22 percent discount on the currency’s trading price at the time. Huitron said he didn’t count on the peso’s continued decline. The discount widened to 30 percent today, as the peso traded at 14.2743 per dollar.
Initially, there was little interest in the offer, but “in December, customers responded,” chipping away at the dealership’s revenues, said Huitron. “We never anticipated this, nor did we desire this.”
The tumble also caught Zurich-based UBS, the world’s second- biggest foreign-exchange trader, by surprise. The bank forecast in November that the peso would strengthen to 12.5 by year-end. Now, UBS says the peso will fall as low as 15 by Dec. 31 as Latin America’s second-largest economy shrinks. RBS predicts a rate of 14.9 pesos by June 30.
‘Relative Weakness’
The U.S. recession “will hurt Mexico more than other countries, and we’ll see a relative weakness in the peso in 2009,” said Gabriel Casillas, a UBS economist in Mexico City.
Mexico’s central bank says the economy may contract as much as 1.8 percent this year. Gross domestic product expanded 1.5 percent last year, after 3.2 percent growth in 2007.
Sales to the U.S., which buys about 80 percent of Mexico’s exports, tumbled 21 percent in November, the biggest decline since at least 1993, the U.S. Department of Commerce’s most recent trade report shows.
Oil, which funds more than a third of the Mexican government’s budget, plunged 71 percent from a record $147.27 a barrel on July 11. Expatriate Mexicans sent home 3.6 percent fewer dollars last year, the first annual decline in remittances since at least 1995.
BMW, Honda
The peso’s decline is hurting car sales. Luxury auto purchases dropped 0.8 percent to 46,734 in 2008, said Armando Soto, president of consulting firm Kaso y Asociados in Mexico City. Sales of all automobiles may fall as much as 20 percent to 857,861 this year, said Soto, who has advised Bayerische Moteren Werke AG and Honda Motor Co.’s Acura dealers in Mexico.
The exchange-rate promotions offered by rival independent BMW and Mercedes dealers in the capital followed the peso’s 15 percent tumble in October. The drop was the steepest monthly decline since December 1994, when then-President Ernesto Zedillo abandoned a currency peg that had propped up the peso. The devaluation prompted investors to pull money from throughout Latin America in favor of safer assets, an episode that became known as the Tequila Crisis.
The BMW dealership started the currency discount programs, said Huitron of Mercedes. On Nov. 1, it offered a rate of 9.5- per-dollar, a level the currency last reached in May 2002, for certain models.
‘Respect the Offer’
The dealership for Daimler AG cars followed the same day, providing a 9.99 rate for $57,000 Mercedes E-class sedans. While Huitron planned to raise the rate if the peso weakened to 13 per dollar, he maintained it even after the currency hit its 2008 closing low of 13.9 on Nov. 20.
“We had to respect the offer we made to customers,” Huitron said.
Mercedes extended the offer to Feb. 28 instead of letting it expire Jan. 31, as demand slumps and inventories grow. The BMW dealer ended its offer on some models while continuing it on others, said Elizabeth Solis, a BMW marketing manager in Mexico City.
“The competition is fierce right now,” Huitron said. “The exchange rate that BMW is offering right now is hitting us hard.”
To contact the reporters on this story: Andres R. Martinez in Mexico City at amartinez28(at)bloomberg.net; Valerie Rota in Mexico City at vrota1(at)bloomberg.net. |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us