Japanese automakers march into Mexico, set up export base

Mazda's new Mexico plant will be able to churn out about 230,000 vehicles a year when it reaches full capacity in the fiscal year ending March 31, 2016.

SALAMANCA, Mexico -- When three-tiered car haulers packed with Mazda3s pulled out of the dusty rail yard here last month, they did more than mark Mazda Motor Corp.'s return to North American manufacturing after pulling the plug on Michigan production in 2012.

They represented the latest volley in a south-of-the-border blitz by Japanese automakers. Within four months, Nissan, Honda and Mazda have opened assembly plants in what is becoming one of the world's hottest auto hubs.

Mexico is on pace to become the world's No. 1 auto exporting country to the United States as early as next year, thanks largely to the addition of 605,000 units of capacity by those three Japanese automakers.

The explosive Japanese buildup poses a triple threat to the Detroit 3 by:

1. Making Japan's manufacturers all the more potent in challenging American and other brands in the United States.

2. Helping the Japanese carve out a larger share of the fast-growing Mexican market, traditionally a preserve of Detroit.

3. Giving the Japanese a launchpad for exports to Latin America and Europe, where Japanese brands are small but growing.

"Anything that makes Mazda more profitable will help us," said dealer Tom Carey of Ramsey Mazda in Urbandale, Iowa, who attended the Feb. 27 opening ceremony of the Salamanca plant. He is chairman of Mazda's national dealer council.

Higher margins from Mexico mean Mazda will have more money to spend on marketing or improving content, Carey said. That holds true for other Japanese automakers, too.

It's also a power play in the small-car segment, which many forecast to increase.

"They can greatly improve the profitability of small cars," said Masatoshi Nishimoto, an analyst at IHS Automotive. "They can reduce incentives and get more flexibility on pricing."

Japanese brands are poised for a new assault from south of the border.

"We have a new profit center," Mazda Chairman Takashi Yamanouchi said of his plant.

The upsides are many. Japanese manufacturers can:

  • Reap fatter margins from lower cost manufacturing, largely a function of cheaper labor.
  • Avoid tariffs on car and truck imports into the United States.
  • Mitigate exchange rate losses from yen-based Japanese exports.
  • Improve product availability with a shorter pipeline to dealers.

Yet in many ways, the Japanese are playing catch-up. Ford, Chrysler and General Motors long ago discovered the pluses of Mexico and have manufactured there since the 1960s.

Nissan Motor Co. was a fast follower, opening its first plant in 1966. It now has three factories, including a new one in Aguascalientes. That plant, its second in that city, opened in November with capacity for 175,000 Sentras. Today, Nissan is Mexico's top-selling brand.

Honda Motor Co. arrived in 1995 with relatively small capacity of 63,000 units at its first plant. In 2004, Toyota Motor Corp. set up a factory in the Mexican state of Baja California, assembling as many as 57,000 Tacoma compact pickups a year from kits imported from Japan.

Ramping up

Now the other Japanese are getting serious. Honda's second plant, in Celaya, adds 200,000 units of capacity for the Fit subcompact hatchback and a crossover variant.

Mazda's plant, just 30 minutes down the highway, will churn out 230,000 units when it reaches full capacity in the fiscal year ending March 31, 2016. It will make the Mazda3, the Mazda2 subcompact and a Mazda2-based variant for Toyota.

More Japanese may follow. Toyota will source 50,000 small cars from Mazda's new plant in 2015, a move some see as testing the waters for its own future plant. Infiniti may build cars in Mexico, too.

With all this new Japanese capacity, Mexico will eclipse Canada and Japan as the No. 1 exporter to the United States next year, IHS Automotive forecasts.

Mazda3s are loaded into three-tiered car haulers outside the factory.

Since 2002, the flood of Japan-brand exports from Mexico has more than tripled, hitting 551,092 units in 2013. A decade ago, they accounted for 12 percent of shipments out of Mexico. By last year, their share had surged to 23 percent.

Labor and logistics savings are expected to be substantial compared with building cars in Japan and shipping them across the Pacific Ocean. Mexican labor costs are one-ninth those in the United States, said Keishi Egawa, CEO of Mazda's Mexico operations.

Savings aren't guaranteed. Mazda estimates that at the current exchange rate of ¥100 to a dollar, it costs as much to make a Mazda3 in Mexico as in Japan. But if the rate reverts to the ¥90 range or below, where it has been much of the past four years, Mexico will have the cost advantage.

But any savings are initially offset by the upfront costs of the new factories. Honda, for example, sank $1.2 billion into its assembly plant and a new transmission line.

Mexico: Movin' on up
Mexico is expected to pass Japan this year and Canada in 2015 to become the top source of imported vehicles sold in the United States. Here, in million units, are the expected sources of vehicles sold in the United States.
Built in201320142015
Source: IHS Automotive

Mazda's new plant in Salamanca, Mexico, will build the Mazda3, Mazda2 and a Mazda2 variant for Toyota.

Future conquests

The Japanese are not targeting just the United States. Mexico is also a staging point to grab sales from rivals in Mexico, Latin America and even Europe.

Japan's automakers aim to take advantage of Mexico's numerous free-trade agreements, which cover 44 countries that collectively account for 35 million to 40 million vehicle sales annually. Those pacts have turned Mexico into a global export hub. Japanese makers have congregated in the middle of the country for easy access to ports on the Atlantic and Pacific seaboards, from which they can ship vehicles globally.

Meanwhile, Mexico's domestic market is growing quickly.

Vehicle sales have risen more than 7 percent annually since 2010. Mazda forecasts the market will grow 5 percent to 1.11 million units this year and expand 5 percent next year.

Japanese brands have gobbled market share, largely at the expense of the Detroit 3. In 2009, they had only 23 percent of the Mexico market, compared with the Detroit 3's 57 percent. By 2013, the Japanese brands had turned the tables. Their collective share shot up to 42 percent, while the Detroit 3's shrank to 35 percent.

Honda has high hopes for small cars in the United States, Canada -- and Mexico. It expects its new factory to send 160,000 units to the United States and Canada. It projects incremental gains over the 53,513 Fits sold in the United States last year, while the crossover sales will be all new.

"There's a lot of growth potential in the Mexico market and for small-vehicle demand. We want to build large vehicles in the U.S., and small vehicles here, for optimized production," Honda CEO Takanobu Ito said at his plant's opening. "The growth and success of this factory represents growth and success in North America." a

Ryan Beene, Lindsay Chappell and Mark Rechtin contributed to this report.

You can reach Hans Greimel at hgreimel@crain.com -- Follow Hans on Twitter: @hansgreimel

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