Plunging peso takes down Southland exports to Mexico.

But many importers are getting bargain deals

Exports to Mexico from some Southland companies have nearly dried up in the last four months as the value of the peso has fallen precipitously. And some firms that buy Mexican goods are getting bargains.

It's classic economics: As the peso goes down, exports to Mexico become more expensive and imports from it cheaper. So Mexicans buy fewer imported goods and foreigners buy more Mexican products.

The Southland export decline sparked by the peso's 50-percent drop against the dollar has been further exacerbated because many companies had boosted sales there last year following passage of the North American Free Trade Agreement, sources said.

"Exports (to Mexico) have gone down 80 to 90 percent" since the devaluation, said Ed Garber, president of Ed Garber Associates, a downtown L.A.-based export trading company, which is paid by exporters to facilitate their transactions.

Back in December 1994, $1 was worth about 3.2 Mexican pesos. But then Mexican President Ernesto Zedillo allowed the peso to float freely against the dollar, and it took a nosedive from which it hasn't yet recovered. By April 12, $1 was equal to 6.4 pesos.

As a result, exporters are losing sales and profits, while importers are expressing mixed sentiments.

"In the past two or three weeks, business has been practically zero," said Mario Vitale, marketing manager for international sales at Inter-Link Resources Inc., a Burbank-based export management company.

About 90 percent of Inter-Link's business is done with Mexico. Thus, its profits are half of what they were before the peso devaluation, Vitale said.

Likewise, Tavilla Sales Co., an L.A.-based company that both exports and imports fresh produce from Mexico, is shipping south only 10 to 20 percent of what it was before the devaluation, said company President William Vogel.

And both exports and profits at Arcadia-based Eslabon International Inc. have been cut in half for the year-to-date in comparison with the same 1994 period, said company President Eradio Jimenez. Eslabon is also an export management company.

Furthermore, exports to Mexico by Woodland Hills-based Applause Inc. during 1995 as a whole will probably drop by 25 percent in comparison with 1994, translating into hundreds of thousands of dollars of lost sales, said Barbara Willey, director of international trade for Applause. "A lot of customers froze their orders," she said.

Applause exports plush toys, magnets, key chains and other trinkets to Mexico.

Credit is squeezed

Exports to Mexico are drying up not only because the peso is down, but also because Mexican buyers can't get credit, sources say. Mexican banks have raised their loan interest rates to 90 or 100 percent, Garber explained.

In the wake of NAFTA, Eslabon linked up with nine new Mexican distributors during 1994. But buying activities of "all nine have come to a dead stop because they can't get credit," Jimenez said.

Furthermore, because of the crisis, Mexican companies are laying off people, so consumers there don't have money to buy American products, Garber said.

One exporter, however, did note that his business isn't suffering.

"People who buy our products have the money to buy them whether there is a financial crisis or not," said Charles Neville, president of Marina del Rey-based Meridian Group. The company exports swimming pool and lighting supplies targeted toward upscale consumers.

Importer reports mixed

Southland importers, meanwhile, are reporting a mixed bag.

Reynoso Bros., a City of Industry-based importer of Mexican food, is paying about 20 percent less for its products than before the devaluation, said company CEO Jose Reynoso.

But Reynoso Bros. faces so much competition that it has had to lower its prices to American retailers a comparable amount, he said.

Thus, its profits are lower - but retailers are reaping bigger profits by selling the products to consumers for the same price as before and pocketing the difference, Reynoso explained.

Some other Southland importers of Mexican food, however, are keeping their prices to retailers constant and thus garnering the higher profits themselves, said Catherine Weeks, import manager at San Diego-based Casas International Inc., a customs broker and freight forwarder with several L.A. County-based clients. Customs brokers help importers process goods through customs, while freight forwarders make sure they get shipped properly overseas.

In general, most Southland importers are either bringing the same amount of merchandise across the border or are actually boosting imports because of the lower costs resulting from devaluation, said Ross Porter, marketing manager with San Diego-based Porter International Inc., another customs broker and freight forwarder with L.A. County-based clients.

However, most companies in L.A. County that import from Mexico operate factories along the border, called maquiladoras, that produce their goods. Most transactions across the border with these factories are done in U.S. dollars and thus are affected little by the peso devaluation, said Susan Kohn Ross, an international trade attorney with L,A.-based Ross & Associates.