Kia’s announcement about the plant followed an official signing ceremony held in Mexico City earlier on Wednesday for Kia’s $1 billion investment featuring Enrique Peña Nieto, president of Mexico, and Hyoung-Keun Lee, vice chairman of Kia, and other company executives and officials from Mexican government.
Automakers are increasingly using Mexico as a hub for small-car output. The country’s lower labor rates help pad the typically thin profit margins of small cars sold in the U.S. Mazda Motor Corp., Nissan Motor Corp. and Honda Motor Co., for example, have either begun production or announced plans to build small cars in the country.
In addition to lower labor costs, Mexico’s free-trade agreements with more than 40 countries make it a potent base for exports.
Kia also hinted it may open a sales channel in Mexico, saying it has been looking to enter new markets to bolster its growth prospects. A local manufacturing plant is key to doing so, as current trade laws in Mexico impose high tariffs on imported cars from South Korea, Kia said.
“With its strong growth forecasts for new vehicle demand, Mexico was chosen as the site for Kia’s next overseas plant given that it is one of the few remaining major markets in the world in which Kia does not have a sales presence,” Kia said in its statement.
Vehicles built in South Korea accounted for 57 percent of Kia's global sales last year, compared with 38 percent for Hyundai.
U.S. sales of the Kia Forte rose 5 percent through July to 43,517 vehicles -- on par with the overall U.S. market increasing 5 percent so far this year.
Kia's U.S. assembly plant in Georgia, which produces the Optima sedan and Sorento SUV as well as Hyundai's Santa Fe SUV, is currently running at full capacity.
Reuters contributed to this report