Mexico stages comeback as hub for light vehicle output
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MEXICO CITY (Reuters) -- Mexico is making a comeback as a hub of automobile manufacturing after years of losing production to Asia, as European and Japanese carmakers take on U.S. rivals and move output closer to North America.
At the same time, rising labor costs make manufacturing in China less attractive.
The Mexican auto industry got a boost on Friday when Honda Motor Co. said it will spend about $800 million on a new plant to make subcompact cars for the North American market.
Honda follows Mazda Motor Corp., which in June announced it will build a $500 million factory. Other companies, including General Motors , Audi and Nissan, also have an eye on Mexico for new investments.
Vehicle production in Mexico increased to a record 2.3 million units in 2010, making it the world's ninth-biggest source of vehicle output, after production dipped in the first half of the last decade, according to data from international trade group OICA.
After a period when car companies were moving production to China, some are now coming back, said Vivian Olmos, vice president of business development at North American Production Sharing (NAPS), a company that supports manufacturers in Mexico.
Uncertainty over production costs in China, logistical problems and questions over intellectual property protection are prompting car companies to reconsider manufacturing locations.
"For a variety of reasons there are companies that are now seeing that Mexico makes a lot of sense," said Olmos, noting that labor and other costs in Mexico are more stable.
A 2009 AlixPartners report showed that by 2008, Mexico was more desirable than countries such as China and India as an ideal location for manufacturing when compared with the United States.
The advisory firm's analysis showed that Mexico had become more attractive than India, China and Brazil, because of its favorable exchange rate, relatively low transportation costs and free-trade status.
Beyond cost advantages, proximity to the U.S. market is another factor also luring major auto companies to Mexico, said Douglas Donahue, a principal at Entrada Group, which assists companies establishing manufacturing in Mexico.
Entrada Group is working with suppliers moving to Mexico because the European or Japanese companies they make parts for automakers have set up shop south of the U.S.-Mexico border in an effort to increase sales in North America.
"They believe there's a real opportunity to take market share from the Detroit three," he said, referring to U.S. car giants Ford, GM and Chrysler.
Honda's new plant will increase its annual production capacity in North America by 12 percent between now and 2014, the company said.
Mexican auto production and exports rose by double-digit percentage rates in July, industry trade group AMIA said earlier this week.
Mexico's auto output increased by 16.4 percent to 209,534 vehicles in July, while exports climbed 23.9 percent to 177,843 in the month, AMIA said.
The recovery in Mexico's auto sector has helped lift the overall economy, but demand from the United States -- where Mexico sends most of its exports -- could wane in coming months if consumers cut back their spending in the face of economic uncertainty.Contact Automotive News