Corruption and Low Prices Allow Flood of Illegal Cars into Mexico

(Photo by David McNew/Getty Images) (2008 Getty Images)

Mexico may be the world’s fourth-largest auto exporter, but at home it has to deal with a flood of illegally imported cars on its roads.

On Monday a report released by USA Today showed that 6 million cars driven in Mexico entered the country illegally, typically used cars and trucks that are simply driven over the border from the United States and not registered legally.

The appeal of these non-registered cars is that they cost less than legalized cars, which go through a bureaucratic process in which the importer must pay a duty and a sales tax.

But Mexican auto dealers say the practice is ruining their used-car businesses. These “junkers,” as they call them, are mostly U.S. cars and are 15 years old on average.

According to Eduardo Solis, president of Mexico's Automotive Industry Association, illegal cars also have an impact on the new-car market. Quoted in the USA Today report, he said Mexico's auto dealers sold 10 new vehicles for every 1,000 people in 2002, a number that is now 8 new vehicles for every 1,000 people.

Federico Estevez, professor of political science at the Autonomous Technological Institute of Mexico, says the roots of the problem may be found a few decades back, when Mexico had a closed auto market and Mexicans could only buy cars made in the country.

This, he explains, made car prices artificially high and often prohibited the poor from owning one, which encouraged illegal importations.

Meanwhile, the country’s automobile manufacturing industry has been expanding. Carlos Guzman, president of the nation’s investment promotion agency ProMexico, said recently to Business Week that Mexico will boost annual auto output by 1 million vehicles within three years, a 38 percent jump from last year. He went on to say that investments already announced by carmakers will allow Mexico to increase annual production from last year’s 2.6 million units.

Manufacturers are opening new plants in Latin America’s second-largest economy as wages in China rise and higher oil prices increase costs for Asian companies looking to tap consumers in the U.S.

According to the Economy Ministry, car companies announced $5.3 billion in new investments from January through April, compared to $2.8 billion last year.

Many of the world's biggest car-makers have factories in Mexico, yet many of the country's vehicles continue to stream illegally in from the north. And as the quantities have grown, some political candidates have taken up the issue for votes.

Farmer and social activist Julian LeBaron told USA Today that some politicians promise the illegal importers that they will help them avoid paying import fee duties in exchange for political support.

LeBaron alleges that people there are forced to pay bribes to police and other authorities to keep driving unlicensed vehicles, which is made easier because Mexico does not require motorists to have car insurance. He estimates one-third of the vehicles in Chihuahua, where he lives, are illegal.

These drivers are "an open target for the police, who will throw them in jail for getting around in these cars," he said.

Based on reporting by USA Today and Business Week.