July 3, 2014 / 5:31 PM / 4 years ago

BMW's $1 billion plant surfs Mexican investment wave

MEXICO CITY, July 3 (Reuters) - Luxury car maker BMW revealed a $1 billion Mexican plant investment on Thursday, becoming the latest in a line of major automakers to take advantage of the country’s growing industrial base and tariff-free access to the U.S. market.

BMW outlined plans to build a factory near San Luis Potosi, central Mexico, in a move that will reduce the German company’s dependence on higher-cost plants at home.

The plant will begin assembling unspecified models in 2019 with an initial workforce of 1,500 and annual production capacity of 150,000 vehicles, the company said.

“Mexico is an ideal location for the BMW Group,” production chief Harald Krueger said in a statement. “We are continuing our strategy of ‘production follows the market.'”

Germany’s luxury car makers - BMW, Audi and Mercedes-Benz - are expanding overseas as their domestic plants struggle to meet strong demand for off-roaders and limousines in the United States and Asia.

The Mexican auto sector is gaining critical mass as more global brands open production lines, strengthening the local supplier network.

BMW’s move comes days after Daimler announced new Mercedes production in Mexico with partner Nissan Motor Co Ltd, which already operates two plants in the country and had recently increased capacity there.

“The premium brands are finally realizing that Mexico has the capacity to build signature vehicles,” IHS Automotive analyst Guido Vildozo said.

“We are going to see all these plants starting with one or two products at the very beginning, but they will gradually become critical pillars of profitability for the premium manufacturers,” he added.

Mexico benefits from tariff-free exports to the United States as well as Europe, while its factories are beyond the reach of the United Auto Workers union, which has been struggling to boost its influence in the Southern United States.

BMW’s investment comes amid a domestic industrial cost review that has some German unions worried about their longer-term outlook, as the company reduces reliance on sluggish European markets that still account for 44 percent of sales.

It also increases BMW’s bet on the United States, where demand is finally recovering to levels last seen before the 2007 recession. The United States is BMW’s second-largest market after China.

The world’s biggest luxury carmaker in March announced a $1 billion investment to expand capacity by 50 percent at its plant in Spartanburg, South Carolina, where it builds a range of sport utility vehicles. (Additional reporting by Gabriel Stargardter in Mexico City, Edward Taylor in Frankfurt and Laurence Frost in Paris; editing by Matthew Lewis)

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