January 20, 2011 / 5:26 PM / 8 years ago

UPDATE 2-GM to invest $540 mln in Mexican engine plant

* U.S. automaker to build fuel-efficient engines

* Mexican president sees vote of confidence in country (Adds background, details on investment and drug violence, byline)

By Michael O’Boyle and Luis Rojas Mena

MEXICO CITY, Jan 20 (Reuters) - General Motors Co (GM.N) said it is investing $540 million in its motor plant in central Mexico to build more fuel-efficient engines for the recovering North American automobile market.

The move by GM, flush with cash after its 2009 restructuring in bankruptcy, follows other investments in recent years by American, European and Asian automakers seeking to produce more fuel-efficient models in Mexico.

Mexican President Felipe Calderon welcomed the GM news, announced on Thursday, as a vote of confidence in Mexico, where rising drug violence has worried some foreign companies.

“This action shows confidence in Mexico and the conviction of one of the most important companies in the world that Mexico is a safe and productive place to invest,” Calderon said at an event in the central industrial hub of Toluca, where GM operates one of its five facilities in the country.

The U.S. automobile market bounced back in 2010 from a four-year slump, and a 50 percent surge in Mexican vehicle production last year helped speed the recovery of Latin America’s second-biggest economy out of a deep recession.

GM and other U.S. automakers are readying a new generation of small cars to address a weakness in their product line-up that cost them sales when gas prices spiked in 2008.

The new engine production line is being built at a plant where GM shuttered production of gas-guzzling trucks during the recession, Calderon noted.

Automobiles and auto parts account for around one-fifth of Mexico’s total manufactured exports. The country’s recovery depends on solid demand from the United States, which buys around 80 percent of Mexico’s exports.

GM Chief Executive Dan Akerson, who took over at the top U.S. automaker in September, has been pushing for more aggressive investment in new technology after cutbacks before the bankruptcy slowed GM’s projected roll-out of cars for 2011 and 2012.

GM will build 1.6-liter and 1.8-liter 4-cylinder engines at the Toluca plant.

Central Mexico has continued to draw big investments from major global companies even as some manufacturers are leery of expanding in violence-wracked cities near the U.S. border, where hundreds of plants churn out products for export.

Toluca has seen only 29 drug-related murders since late 2006, compared to more than 6,400 in the similarly sized border city of Ciudad Juarez, according to a federal government database. (Additional reporting by Kevin Krolicki in Detroit; editing by John Wallace)

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