Auto production is skyrocketing in Mexico, and the Spanish-speaking country is poised to overtake Japan and Canada as the number one source for producing vehicles for the US by the end of 2015.
This prediction comes from the ProMexico Consulate in Detroit, Michigan. “The multi-billion-dollar wave of new investments in Mexico has turned a handful of central and northern Mexican cities into bright spots of productivity,” says Angel Ramirez, the consulate's deputy trade commissioner. “Automaker investment in Mexico totalled $18.8bn between 2007 and 2012. And Mexico’s total car export value surged from $40bn in 2007 to $70.6bn in that time.” By mid-2014, auto investments had risen to $24.3bn, according to ProMexico data.
Automakers have committed $13.3bn to Mexico since the start of 2011, according to trade officials. Investments by General Motors, Ford, Chrysler-Fiat, Volkswagen and Japanese automakers Nissan, Toyota, Mazda and Honda have paved the way, to be followed by Kia, BMW and Mercedes-Benz.
Nearly every major automaker now has production facilities in Mexico, moving it well ahead of Canada in second place when it comes to auto investments in North America. “Currently there’s a close race between GM, Nissan and Volkswagen in Mexico,” says Mr Ramirez. “Japan, Germany and South Korea are making the newest and bigger investments as their footprint in Mexico was not as big as the US one.” However, he adds that recent US expansion, adding to the country's already large footprint, “pretty much evens the equation”.
The bigger picture is that Mexico produces about 3 million vehicles a year, and is expecting to increase output by 38% by 2016, Mr Ramirez says. Nissan is becoming Mexico’s largest stakeholder in production and domestic sales.
“Nissan has been the biggest investor in Mexico this decade with a total figure of $3.4bn and more than 8700 direct jobs,” says Herman Morfin, communications director at Nissan Mexicana. “This includes a Nissan-Renault alliance with Germany’s Daimler and Nissan investing about $1.4bn to begin producing its luxury Infinitis model in Mexico by 2017.” In a new alliance, the plant also aims to build Mercedes-Benz C-Class vehicles in 2018, Mr Morfin adds.
Nissan, active in Mexico for 53 years, has two plants in the country and a third (for the Infinitis) on the way. Its $2bn second plant in Aguascalientes opened in 2013 and celebrated its first anniversary in November. The plant created about 3000 jobs and has a capacity of 175,000 units annually, says Mr Morfin.
Nissan leads in Mexico’s domestic market, with a total market share of 25.7%. “No other Nissan operation globally sustains this high market share,” says Mr Morfin. “Nissan will sell more than 280,000 vehicles in Mexico [in 2014], an industry all-time high,” he adds.
GM steps up
Automakers favour Mexico for cost savings and its proximity to US markets. They can take advantage of lower labour costs, export duty-free vehicles to the US due to the North American Free Trade Agreement, avoid unfavourable exchange rates with the yen and US dollar, and avoid high shipping rates on Japan exports.
Of those present in the country, GM is an old hand, celebrating 80 years of operations south of the border in 2015. Headquartered in Mexico City, GM has four manufacturing complexes comprising 14 plants, an after-sales warehouse and a regional engineering centre in Toluca.
In June 2013, GM announced plans to invest $691m in expanding operations in Silao, San Luis Potosi and Toluca. This was to build more fuel-efficient powertrains, largely to be used in GM’s small car portfolio, with $349m for Silao’s new transmission plant, $131m for San Luis Potosi for a transmission plant expansion and $211m for Toluca.
Ernesto M Hernandez, president and managing director of General Motors of Mexico, said at the time that GM’s investment “means more employment and development opportunities for the [three] regions and more advanced technology that will benefit our customers”. In August 2014, GM also said it planned to shift some production of its Chevrolet Equinox SUV to Ramos Arizpe, Mexico, from Tennessee in the US.
Volkswagen also is increasing its stake in Mexico, despite its recent decision to build its all-new midsize crossover in Chattanooga, Tennessee, rather than south of the border. Debate had raged for months after some union unrest at the Chattanooga plant. In November, VW forged a new labour agreement with the auto workers' union, considered historic in southern plants.
The Tennessee expansion creates an additional 2000 jobs, with the new SUV slated to go on sale in 2016, according to VW spokesman Carsten Krebs.
Volkswagen CEO and chairman Dr Martin Winterkorn told the 2014 North American International Auto Show in Detroit that the German automaker would be investing $7bn in North America over the following five years, aiming to sell about 1 million VW-Audi vehicles in the US by 2018. To meet those numbers, plant expansion is essential.
VW officials have declined to say exactly how the $7bn investment will be split in North America, though $900m will go on the yet unnamed crossover vehicle to be built in Chattanooga. That amount includes $600m on plant upgrades and an R&D centre on site. VW now has four plants in Mexico and the US: Chattanooga in the US and Puebla, Silao and Querétaro in Mexico.
In May, VW’s Audi luxury unit began building a $1.3bn factory near the hilly Mexican town of San Jose Chiapa. The 150,000-unit complex will be instrumental in Audi’s push to catch up with its German luxury rivals. Last year it sold about half as many US vehicles as BMW and Daimler’s Mercedes-Benz. The plant is scheduled to start producing the Audi Q5 in 2016, according to Mr Krebs.
Fit for work
This year, both Honda and Mazda opened plants in the Mexican state of Guanajuato. Honda’s new $800m plant in Celaya will build the 2015 Fit subcompact hatchback and crossover models. About 80% of the 200,000 Fit production will go to the US and Canada, with the remaining 20% going to Mexico.
Honda’s Fit plant will partner with a nearby $470m variable transmission plant to open in late 2015. The Celaya project means Honda has invested a total of $21bn in North American manufacturing facilities, including eight auto assembly plants. Celaya is Honda Mexico’s second plant; the first plant near Guadalajara opened in 1995.
In August 2014, South Korean Kia Motors announced that it will open a $1bn plant in Mexico, its first investment in the country. South Korean car manufacturer Hyundai, a leading US seller, is also eyeing the area.
Mazda Motors is boosting production capacity at its new plant in Guanajuato to 230,000 vehicles by 2016 from 140,000 vehicles. The company is investing $650m in the plant, which will also assemble about 50,000 future Toyotas.
Suppliers follow demand
In September, Toyota Motor Corporation began reconsidering opening a new plant in Mexico after company president Akio Toyoda asked developers to review their rationale. An expansion decision is unlikely before the start of 2015, Toyota said.
Toyota recently partnered with Mazda to produce Toyotas at Mazda's Salamanca complex in Guanajuato state. Investment is $100m, with production to begin in the second half of 2015.
Autoparts suppliers are also increasing their presence in Mexico: companies such as Hella, Bosch, Mahle and Freudenberg NOK are making inroads. Where automakers go, suppliers follow, and automakers are increasingly going to Mexico.