REPOST: Mexico Auto Industry: Why Are Kia Motors, BMW, Nissan, And Mercedes Headed South of the Border?

In a vote toward the nation’s skilled workforce, Korean automobile company Kia is setting up shop in Mexico. This article examines why more and more carmakers are looking to manufacture their products in the developing country.

The development was so important to Mexico's economy that the president made the announcement himself. On the same day that General Motors Co. (NYSE:GM) said it would be calling home Cadillac SRX crossover production from Mexico in a deal worked out with the United Auto Workers union, South Korean automaker Kia Motors Corp. (KRX:000270) said it will spend more than $1 billion to construct its first auto manufacturing plant in Mexico, according to the Spanish-language El Financiero news agency.

President Enrique Peña Nieto delivered the news Wednesday in Mexico City, highlighting the country's determination to attract automotive investment.

“The Kia plant in LaGrange, Georgia, is working at capacity, and they had a choice to expand capacity there or follow what the industry has been doing in recent years,” Dean Barber, founder of Barber Business Advisors, a corporate site-selection adviser, told International Business Times by phone after the announcement was made. “Kia is building at the doorstep of the United States. Another good thing about that is Mexico has more free trade agreements than the United States, about 40.”

Image Source: ibtimes.com

Employees work at a production line after the opening of Honda's new automobile plant in a suburb of Celaya, Guanajuato state, February 21, 2014. Reuters/Henry Romero

Bordering the world’s second-largest auto market to its north, Mexico has long been an ideal location for car manufacturing, especially after Canada, the U.S. and Mexico began dismantling protective trade barriers starting in 1994 with the North American Free Trade Agreement. At the time, Mexico produced a little more than one in 20 cars in North America; the most recent figures from the INEGI, the country’s statistics and census bureau, puts that figure at closer to one in five.

“Having a Korean company enter Mexico will mean that practically all global automakers will be represented in the country,” Armando Soto, president of Kaso y Asociados, a Mexico City auto industry consultant, told Bloomberg Businessweek.

Automakers have been attracted to Mexico’s low labor costs to produce small sedans, which offer slim profit margins compared to trucks, SUVs and luxury cars. In February, Honda Motor Co. Ltd. (TYO:7267) began making its Fit at a new $800 million plant in Celaya, Guanajuato state, marking the first time the five-door subcompact – popular among price-conscious empty nesters and first-time new-car buyers – is being built in North America. In February, Mazda Motor Corp. (TYO:7261) opened its first wholly owned plant in North America, a $770 million facility in Salamanca, Guanajuato state, that can make as many as 175,000 Mazda2 supermini cars and Mazda3 compacts.

“The Forte compact, Soul subcompact or Rio subcompact could be among the possibilities to be built [at the Kia plant],” reported Automotive News. Reuters confirmed Wednesday afternoon the Kia Forte would be the first car made at the plant.

In recent years Mexico has begun attracting the attention of companies seeking to build more high-end vehicles, a nod to the country’s improving workforce, which 20 years ago might not have been considered reliable or experienced enough to put together a BMW X5 or an Infiniti Q.

In June, Daimler AG (FRA:DAI), the maker of Mercedes-Benz, and Nissan Motor Co. (TYO:7201) announced plans to spend about $1.36 billion building a plant near Nissan’s existing one in the Mexican state of Aguascalientes. The project would see production of the Nissan’s Infiniti luxury cars by 2017 and future Mercedes models as part of an expanding alliance between the German luxury carmaker and Japan’s third-largest car company.

A week after that announcement Daimer rival Bayerische Motoren Werke AG (ETR:BMW) said it was spending $1 billion to build another plant in Mexico, one that will produce about 150,000 vehicles a year beginning in 2019. The German carmaker will make four of its popular models for the North American market in the central industrial city of Toluca.

“BMW and Mercedes are going to be building cars down there. They traditionally might have focused on lower end cars, but BMW, Mercedes, Infiniti – these aren’t low-end cars,” said Barber.

Mexican automotive workers make in a day roughly what U.S. car factory worker make in an hour, and there are more than a half-million of those Mexican automotive workers. Since 2011 Mexico has attracted nearly $10 billion in foreign direct investment (including commitments that have not yet been fulfilled) from the automotive sector, according to the Center for Automotive Research in Ann Arbor, Michigan.

Here’s a list of automotive assembly facilities in Mexico, including ones that have already broken ground but aren’t ready yet for production.

BMW AG
Bayerische Motoren Werke de México S.A. de C.V.
Toluca, State of Mexico
BMW 3 Series compact sedan
BMW 5 Series mid-sized sedan
BMW 7 Series full-sized sedan
BMW X5 mid-sized luxury SUV

DAIMLER AG
Mercedes-Benz México S. de R.L. de C.V.
Santiago Tianguistenco, State of Mexico
Freightliner trucks

Monterrey, Nuevo León state
Urban and touring buses

Saltillo, Coahuila state
Freightliner trucks

FIAT CHRYSLER AUTOMOBILES
Saltillo Truck Assembly
Saltillo, Coahuila state
Ram pickup truck

Toluca Car Assembly
Dodge Journey mid-sized crossover
Fiat 500 city car

FORD MOTOR COMPANY
Cuautitlán Stamping and Assembly Plant
Cuautitlán Izcalli, state of Mexico
Ford Fiesta supermini

Hermosillo Stamping and Assembly
Hermosillo, Sonora state
Ford Fusion mid-sized sedan
Lincoln MKZ mid-sized luxury car

GENERAL MOTORS COMPANY
San Luis Potosí Assembly
San Luis Potosí, San Luis Potosí state
Chevrolet Aveo subcompact cars

Silao Assembly
Silao, Guanajuato state
Chevrolet Silverado
GMC Sierra

Ramos Arizpe, Coahuila state
Opel Corsa
Chevrolet HHR station wagon
Cadillac SRX crossover (production will move to Tennessee)

HONDA MOTOR COMPANY
Honda De México S.A. de C.V.
El Salto, Jalisco state
Honda CR-V compact crossover

Celaya, Guanajuato state
Honda Fit five-door subcompact
Honda HR-V subcompact crossover

NISSAN MOTOR COMPANY
Nissan Mexicana, S.A. de C.V. Aguascalientes
Aguascalientes, Agusacalientes state
Nissan March supermini
Nissan Versa subcompact sedan
Nissan Sentra compact car
Nissan Frontier pickup truck

Nissan Mexicana, S.A. de C.V. Cuernavaca
Cuernavaca, Morelos state
Nissan Sentra
Nissan Versa
Nissan Frontier pickup truck
Nissan NV1200 light commercial vehicle
Nissan NV200 taxi for New York City

TOYOTA MOTOR CORPORATION
Toyota Motor Manufacturing de Baja California S. de RL de C.V
Tijuana, Baja California Norte state
Tacoma pickup truck

VOLKSWAGEN AG
Volkswagen de México, S.A. de C.V.
Puebla, Puebla state
Jetta sedan
Golf compact five door

Grooming a strong, world-class automotive industry is one of President Enrique Peña Nieto’s aspirations for Mexico. To read about the president’s government plans and programs, visit his administration’s official website.