Saturday 5 July 2014

Mexico: here we come, say BMW, Kia

BMW is to build a new 150,000-a-year vehicle assembly plant in San Luis Potosí, Mexico. The new plant comes online in 2019 and will employ 1,500.

BMW AG board member responsible for production, Harald Kruger, said: "Mexico is an ideal location for the BMW Group and will be another important plant within our production network. This decision underscores our commitment to the NAFTA region”.

Kruger added that BMW will be even better positioned to take advantage of the growth potential in the entire region.

Among factors that tipped BMW’s balance in favour of Mexico included a highly-qualified local workforce, a network of established suppliers and a well-developed infrastructure.

BMW has enjoyed good relations with Mexican suppliers for many years and last year purchased products worth US$1.6 billion locally.

And you can bet that wherever BMW goes, Bosch will not be far behind. So it is not surprising automotive component major Bosch has also announced plans for a €400 million (US$540 million) investment in Mexico between now and 2017. That investment will create another 3,000 jobs and will be used to increase Bosch’s production capacity as well as establish a new R&D centre in Mexico. Bosch has eight plants in Mexico making a range of automotive components 

Likewise, already mentioned here before, KUKA of Augsburg, Germany (below) is not far away with KUKA Systems de Mexico ready with resources to supply the new body-in-white shop and other equipment. A host of other German equipment vendors are ready to supply too.

The country's position as a member of the NAFTA trading group was fundamental to BMW's decision to make the investment in the new plant, as was the country's membership of other free trade agreements (FTAs) including the country's relationship with the European Union and the MERCOSUR member states, which include Argentina, Brazil, Paraguay, Uruguay, and Venezuela, and Bolivia. BMW has so far declined to reveal which products will be built in Mexico.

BMW’s investment in Mexico follows US$1 billion vested in the company's Spartanburg, South Carolina, plant to expand production to 450,000 units a year. Investment in Mexico’s production base will boost NAFTA capacity to 600,000 by 2020.

Investing production in Mexico allows a lower-cost production base that benefits from free trade agreements.

BMW's announcement comes hard on the heels of a major announcement by Daimler AG of Germany and Nissan in Japan that they will invest in a new joint venture manufacturing site at Nissan's existing Mexican operation in Aguascalientes. This plant will make compact premium vehicles for Mercedes-Benz and Infiniti brands based on Daimler's MFA architecture.

The two deals confirm Mexico's blossoming status as an automotive hub for the NAFTA region and wider global market.

Regarding BMW's investment decision, Mexico's other FTAs will provide BMW with flexibility to export out of NAFTA or keep vehicles in the region, depending demand.

The majority of the plant's output will be exported to North America, especially the US. However, BMW is developing its sales network in Mexico and there is no doubt the market represents an opportunity, although outright volumes are a fraction of the sales volume that BMW generates in the US.

In 2013 BMW sold 13,992 units in Mexico, an 18.3 per cent year-on-year rise on the previous year. This compares with the 375,000 units the BMW Group sold in the US in 2013, a rise of 8.1 per cent.

BMW's annual global production is forecast to rise to 2.59 million units by 2019, up from 1.84 million in 2013. If this happens, NAFTA will account for 23 per cent of BMW's global vehicle supply.

Of BMW’s global production, 86.4 per cent is forecast to be BMW-branded vehicles and 13.4 per cent Mini products.

Although BMW has yet to make public the product range the new Mexican facility will build, rumours persist the new plant will produce variants of BMW and Mini product – vehicles that could be built on the company's new LU front-drive platform.

Meanwhile, Kia is expecting to sign a memorandum of understanding with Mexico’s state of Neuvo Leon for a plant to be built in Monterrey. Reports suggest Kia could build the Forte, Soul, Rio and Picanto minicar products at the new plant. Kia will focus its Mexican production directly towards the US, Canada, Mexico, and Latin America.

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