Typically the home of mid-market compact cars like the Ford Fiesta or Nissan Sentra, Mexico is evolving into a viable manufacturing venue for premium luxury cars.
Amid recent announcements from several automotive makers that they would open plants in Mexico to roll out luxury automobiles, company executies joined Mexico’s President Enrique Pena Nieto recently in announcing that a new, $1 billion Mexican BMW factory will be built in San Luis Potosi. The production plant is scheduled to begin operations in 2019, assembling luxury vehicles for North and South American markets, and will constitute about one-tenth of BMW’s global production across its 28 facilities in 13 countries.
In addition to the Mexican BMW factory that the company will construct, Audi, and Mercedes are both expanding in the country, as well. Each of the three European passenger vehicle manufacturers are competing with one another for the top position in this competitive industry segment. In the first half of 2014, BMW has sold 12% more vehicles into North America than during a comparative timeframe during the last calendar year. Automotive indudusry analysts project that demand is expected to continue to rise. However, in order to stay competitive and meet the new accommodate new market conditions, BMW has looked for ways to reduce costs, and manufacturing in Mexico – where labor costs are approximately 20% of US labor – made perfect sense. The new plant in Mexico will operate at a capacity of 150,000 new units annually.
The San Luis Potosi Mexican BMW factory – which will employ at about 1,500 workers – underscores the shifting focus within the automotive sector towards utilizing Mexico as a nearshore option to optimize labor budgets. It is estimated that one out of every four autos sold in North America will be built in Mexico by 2020. The country has already moved up to become the world’s 4th largest exporter of passenger vehicles worldwide, behind only Germany, Japan, and South Korea . Additionally, the move will aid BMW in averting currency fluctuation costs, as well as position a large portion of inventory right across the border from the intended consumer market without the concern of tariffs, thanks to the NAFTA agreement.
The bulk of this increase in luxury-vehicle production is of course aimed at the US and Canadian consumer markets, as Mexico’s domestic demand remains rather muted. Automakers around the world are confident that Mexico’s improvements in quality standards will meet the expectations of US and Canadian buyers, and, if the trend continues, it may become commonplace to buy Mexican-made luxury vehicles throughout North and the rest of the Americas.