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Mexico Auto Sector Investment Reaches $2.4 Billion In 2015

03 May, 2015

Throughout the rest of 2015,investments in Mexico’s booming automotive sector will reach at least $2.4 billion,thanks in large part to the opening of new European and Asian plants that specialize in both the automotive parts and auto assembly fields.

“According to Mexico’s Minister of the Economy,Ildefonso Guajardo Villarreal,automotive investments have already attracted more than $25 billion during the first three years under the current administration,” stated Richard Houghton of Investment Properties Mexico. “In a recent press conference he also revealed that he expects Mexico’s automotive sector to attract even more investment in the near future,especially in the parts and components industry.”

But in fact,this is only the tip of the proverbial iceberg when it comes to the recent onslaught of positive headlines associated with Mexico’s booming automotive industry. For example,The Globe and Mail reported in February that Mexico auto investment soared to $7 billion in 2014 and light vehicle production topped three million for the first time. Over the last decade,auto production in Mexico has more than doubled,and consulting firm IHS Automotive expects it to rise an additional 50 percent to five million cars and light trucks annually by 2022.

“Mexico benefits from its location next to the U.S. market and close proximity to emerging markets in South America,as well as ports that are open all year,permitting finished vehicles to be shipped around the world,” writes The Globe and Mail. 

The general consensus seems to be that Mexico has become the place to build automotive factories,with more than a dozen automakers announcing plans to either open or expand plants in Mexico over the last two years alone. Most recently,in mid-April,Toyota Motor Corp. announced it would invest $1 billion in a plant in the Mexican state of Guanajuato to make the Corolla compact vehicle,adding 2,000 jobs by 2019 with a production output of 200,000 vehicles annually.

“Low labor costs and fewer tariffs are the swing factors,” writes the Associated Press. “Mexico trumps the United States on free trade. It has agreements with 45 countries,meaning low tariffs for exporting globally.”

The impact of Mexico’s free trade agreements can’t be underscored. The pacts give companies exporting from Mexico virtually duty-free access to the world’s markets… At least,they give access to the markets that currently offer more than 60 percent of the world’s output. In addition,the rise in new investment money has boosted Mexico to the world’s seventh-largest automobile manufacturer and fourth largest exporter. Mexico also passed Japan last year to become the number two supplier of vehicles to the U.S. market,second only to Canada. 

“Seven Asian and European auto makers have opened new Mexican assembly plants,or disclosed plans for one,in little more than a year,” writes the Wall Street Journal. “Other car companies have financed significant expansions in Mexico,among them Nissan Motor Co.,General Motors Co.,Ford Motor Co and Fiat Chrysler Automobiles.”

Specifically,Nissan announced it will begin manufacturing more than one million cars each year in Mexico once Infinity production begins in 2017,and Daimler plans to begin manufacturing Mercedes-Benz vehicles at a new plant in Aguascalientes state by 2018. In addition,Kia Motor’s plans to begin selling cars in Mexico this July,while the South Korean car giant’s Mexico plant will begin production by early 2016.

Also of note,German carmaker Volkswagen will invest at least $1 billion to expand its existing vehicle assembly plant in Mexico,according to a press release in early March,while General Motors announced a new $350 million investment to begin making the Chevy Cruze in its existing San Luis Potosi manufacturing facility,and Ford unveiled plans for a new $2.5 billion investment in two Mexico plants. Finally,this week Bloomberg reported that Jaguar Land Rover is considering building a new plant in Mexico,with executives calling it a “very strong option” for the auto maker to invest more than $500 million. 

Of course,auto manufacturers are not the only ones being attracted to Mexico as a result of the industry’s booming investment climate. As with any lucrative business,there are countless support industries that come with the major players,companies that basically provide everything that can’t be manufactured by the auto makers “in house” and allow them to still turn a profit. For example,Magna International announced this March that it will invest at least $135 million to open a new exterior parts plant in Mexico,while multinational manufacturing ThyssenKrupp has opened a new $97 million automotive steering systems and components plant in Mexico and the Goodyear Tire and Rubber Company has plans to invest $550 million a new plant in Central Mexico. According to the Economic Times,the new Goodyear factory will be a zero-waste-to-landfill and zero-solvent facility that will use natural gas and energy efficient LED lighting and will employ more than 1,000 people. 

“Mexico as a whole has climbed its way up the manufacturing ladder,” states Tom Fullerton,economics professor at the University of Texas at El Paso,in an interview earlier this month with Investors Business Daily. “Just about any second-generation product can be successfully made in Mexico today.”

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