UPDATE 3-VW's Audi to build factory in Mexico

Wed Apr 18, 2012 4:51pm EDT

* Says to build SUVs in the country from 2016

* Exact location to be decided later this year

* Audi eyes output of 150,000 Q5 SUVs a year-sources

BERLIN, April 18 (Reuters) - Volkswagen's Audi premium-car unit said on Wednesday it plans to build a factory in Mexico, a step designed to help foster growth of the German automotive group in North America.

The company plans to build sport utility vehicles in the Latin American country from 2016 and will decide later this year where exactly it will erect the plant, it said in a statement.

"Good infrastructure, competitive cost structures and existing free trade agreements played a significant role in the choice of Mexico," Audi Chief Executive Rupert Stadler said in a statement, without disclosing how much would be invested.

Mexico's Economy Minister Bruno Ferrari said the investment would be worth some $2 billion, but added the timeframe for the sum and the number of jobs it would create were unclear.

"It also will depend on the place they are going to choose," Ferrari told reporters at the World Economic Forum in the Mexican Pacific coastal resort of Puerto Vallarta. "I know they have several places which they are considering."

A member of the North American Free Trade Agreement (NAFTA), Mexico has favourable wage costs and is exempt from import duties and it also has a free trade agreement with the European Union.

Sources familiar with the plans said the new factory would have an annual production capacity of about 150,000 vehicles and that the Q5 sport utility vehicles would be built there.

VW, which has pledged to become the world's biggest auto manufacturer no later than 2018, has a goal of boosting group vehicle sales in the United States, the world's second largest car market, to 1 million by 2018, with 200,000 units from Audi.

Ramping up regional production and purchasing may help VW to reduce its exposure to unfavourable currency fluctuations which have long weighed on the car maker's U.S. results. VW is aiming to return to profit in the United States next year.

VW, Europe's biggest car maker, already makes the Jetta compact sedan, its best-selling U.S. model, and the new Beetle at a plant in Puebla, Mexico.

In addition, Audi's parent started building a second Mexican factory in Silao in 2011 to produce 330,000 engines per year to furnish regional vehicle production. A VW factory in Chattanooga, Tennessee to make U.S.-style versions of the Passat mid-sized sedan was opened last May.

Volkswagen in March said it expects output at its Mexican plants to rise 20 percent in 2012 compared to 2011, helped by demand from the United States. It expects to produce 615,000 vehicles this year.

The company said separately on Wednesday that its supervisory board approved plans to build a new factory in western China.