* Foreign automakers doing most of the new spending
* Audi, BMW and Daimler among the newcomers
* Detroit 3 have no short-term plans to boost vehicle output
By Paul Lienert
DETROIT, Oct 20 The Mexican auto industry is
about to go on a $10 billion factory building spree,
illustrating the nation's rising economic challenge to rivals
from the United States to China.
Japanese and German auto manufacturers are spearheading the
drive, say parts suppliers and researchers who see more auto
factories built south of the border than in the United States
between now and the end of the decade.
The United States will consume the vast majority of the new
cars, but Mexico's domestic market has rebounded from a long
slump, and in a sign of Mexico's growing global role, auto
exports outside of North America will rise faster than those to
the United States.
BMW AG, Toyota Motor Corp and Daimler
AG's Mercedes-Benz are expected to announce at least
$2 billion of deals in the next year or two, according to
supplier and other industry sources. That's on top of nearly $6
billion in announced plants by Nissan Motor Co, Honda
Motor Co, Mazda Motor Corp and Volkswagen AG
U.S. automakers, all of whom have been building cars in
Mexico since before World War II, will spend another $1 billion
or more to upgrade Mexican plants. And Nissan and VW also are
considering expansions at existing factories that could total $1
billion or more, according to sources familiar with their plans.
Mexico "is quickly turning into the China of the West," said
Joseph Langley, a senior analyst at Michigan-based research firm
IHS Automotive, pointing to Mexico's low wages, a strong supply
base and a global web of free-trade agreements.
Mexican auto exports beyond North America are growing even
faster than those within, according to the Federal Reserve Bank
of Chicago. They accounted for nearly 30 percent of the 2.4
million exported last year. Altogether Mexico built 3.0 million
cars and trucks, according to Automotive News, compared with
10.4 million in the United States and 2.5 million in Canada.
By 2020, Mexico will have the capacity to build one in every
four vehicles in North America, up from one in six in 2012,
according to IHS.
The investment shift has implications for auto jobs and
labor unions north of the border, particularly in Canada, which
will see a 20 percent decline in production, IHS projects.
Output will soar 62 percent in Mexico.
U.S. auto production will rise 12 percent, and Detroit-based
automakers are expanding domestic production by ramping up the
pace at existing factories to as many as three shifts running
six days a week, said IHS. By those calculations, Mexico is
building more auto plants than in the United States or Canada
"It's all about lower production costs and lower export
costs," said Michael Tracy, principal at the Agile Group, a
Michigan-based auto consultancy. "That's what Canada used to be
- the place for low-cost manufacturing and shipping. Now,
everybody is targeting Mexico."
Mexico's economy is seen growing faster than Brazil's next
year, underscoring the success of Mexico's export-driven model
versus regional economic powerhouse Brazil's more protectionist
policies. The promised auto investment could help Mexico
challenge regional dominance by Brazil. Analysts are warning of
excess Brazilian auto production capacity within five years.
Suppliers say the Detroit auto makers, with more than half
the production capacity in Mexico, have not signaled any plans
to expand vehicle output there. But General Motors and
Chrysler this year have said they will install
additional engine and transmission production capacity in
In the competition for jobs with the United States and
Canada, "Mexico's momentum, combined with its increasingly dense
and capable supply chain, its persistent cost advantage and its
trading relationships may give it a leg up," said Brookings
Institution researchers in a report released last week.
Auto employment in the U.S. South, where Japanese, German
and Korean automakers all operate non-union plants, is holding
relatively steady at 18 percent of North American auto workers,
according to Brookings.
Pay ranges as low as $12 per hour for temporary workers at
plants in the U.S. Southeast, compared with about $35 an hour
for skilled union veterans at U.S.-owned plants. Union workers
in Canada on average are paid even more; a year ago, GM Chief
Executive Dan Akerson described Canada as "the most expensive
place to build a car in the world."
But at around $2.50 an hour, manufacturing wages in Mexico
are nearly 20 percent cheaper than in China, according to a
mid-year Bank of America study. That study put U.S.
manufacturing wages at just under $20 an hour, on average.
A shortage of trained engineers and concerns about crime and
security may hold back Mexico, according to research firm PwC
Energy costs also are considerably higher than in the United
States, but they are lower than in China, according to Boston
Consulting Group. And because of Mexico's proximity to the
United States and Canada, transportation and logistics costs are
lower than for parts coming from China.
The largest producer in Mexico, Nissan, opens its third
factory next month, the $2-billion Aguascalientes No.2. Nissan
built 683,520 cars in Mexico last year, and the new plant will
add capacity for 250,000 more, mostly compact models such as the
Nissan Sentra for North America and other markets, company
Moreover, an expansion of Aguascalientes No.2 is already in
planning, according to two sources familiar with Nissan's plans.
Slated to open in 2016, the sources said, it likely will be
dedicated to production of compact luxury vehicles for Infiniti
and Mercedes-Benz, which has a platform- and engine-sharing
agreement with Nissan.
Nissan said it had nothing to announce, while a Mercedes
spokeswoman said joint production of compact cars was an option,
but that no decision had been made.
Nissan also is expanding a complex in Cuernavaca, which will
take the automaker's total capacity in Mexico to 1.1 million
vehicles a year by 2020, two supplier sources said.
Nissan's closest rival south of the border is Volkswagen,
which opened a complex in Puebla in 1967. A new $550-million
engine plant in Silao, as well as a $1.3-billion assembly
complex in San Jose Chiapa that is slated to be opened in 2016
by VW's Audi subsidiary, will raise total VW group annual
capacity by 100,000 vehicles to 850,000 by 2020, according to
VW and Toyota are battling for global sales leadership, but
the Japanese automaker lags well behind its rivals in Mexico,
where it has only a small truck assembly facility in Tijuana.
Now, the automaker is scrambling to catch up with its
competitors, according to two supplier sources who say Toyota is
actively shopping for a site. Toyota executives in recent months
have said the company needs additional production capacity in
Mexico, without providing specifics. A Toyota spokeswoman said
the company "would not comment on any potential plant
announcement" in Mexico.
BMW, which operates a U.S. assembly plant in South Carolina,
also is shopping prospective plant sites south of the border,
according to Mexican government officials.
Supplier sources said BMW already has mapped out a
production timetable for Mexico, with a tentative plan to begin
assembly operations in late 2017, ramping up annual capacity to
200,000 by 2020.
A BMW spokesman said he had nothing to confirm.
Other vehicle and parts manufacturers are expected to set up
shop or expand existing facilities in Mexico by 2020, said
Tracy, of the Michigan-based auto consultancy.
IHS's Langley summed it up: "The level of activity in Mexico