TOKYO -- When Mazda Motor Corp. announced last summer that it would build an assembly plant in Mexico, CEO Takashi Yamanouchi ballyhooed the move as opening the door to Brazil.
Mexico has free-trade agreements with Brazil and the United States -- giving automakers there prime access to two of the world's biggest markets, Yamanouchi correctly reasoned.
But now Mazda seems poised to dump the idea of shipping to Brazil and is scrambling for ways to flesh out capacity at a plant in Mexico scheduled to go online in early 2014.
What happened? Brazil got fed up with automakers doing an end-run around local production and building factories in Mexico instead. Early this year, it said it would quit the free-trade agreement.
Diplomatic wrangling ensued. The result: The free-trade agreement remains intact. But Mexico and Brazil agreed to temporary quotas on the value of vehicles exported to each other through 2015.
Free trade is supposed to resume after that -- unless Brazil has another change of heart.
Brazil's free-trade phobia has big implications for many automakers besides Mazda. It also threatens to derail one of the biggest manufacturing trends these days: the deluge of automakers setting up in Mexico to build cars not only for the United States but also for booming Latin America.
Nissan, Volkswagen, General Motors, Ford and Honda already export from Mexico to Brazil. Nissan is the biggest, sending almost 100,000 units a year. And more are on the way.
Mazda, Honda, Nissan and Audi have all announced plans in the past year to build factories in Mexico. Toyota is rumored to be sniffing sites there for its next factory, and BMW is, too.
But for Mazda, the implications are most severe because it doesn't have the deep pockets of its bigger global rivals. As Japan's only money-losing automaker and a company that exports nearly 80 percent of its Japan-made product, it needs to get bang for its buck from its overseas plants.
And, in this instance, it seems Brazil's maneuvering paid off -- for Brazil.
Japan's Nikkei business daily newspaper reported that Mazda has abandoned plans to export to Brazil from Mexico and is looking at building cars outside Sao Paulo instead.
Mazda is in talks to outsource production of 70,000 vehicles to a local partner.
And, the Nikkei added, Mazda now eyes exporting to Europe from Mexico, to soak up Mexican capacity that initially was earmarked for Brazil. Could it also mean more capacity for the U.S. market?
Mazda says it is considering all options in dealing with the Brazil broadside; nothing has been decided. "We can't say that it won't have any impact," CFO Kiyoshi Ozaki said last week.
Still, its headache points to a problem that likely confronts all automakers.
Brazil is a key emerging market that every automaker wants to crack. And until now, Mexico offered a way to kill two birds with one stone: Brazil and the United States. If Brazilian trade politics crashes the Mexican fiesta, it spells hangover time for a lot of corporate planners.