German automaker is the latest in a string of firms announcing plans for Mexican factories.
MEXICO CITY – Most Mexican-built autos that U.S. consumers see in showrooms are compact cars like the Ford Fiesta, Nissan Sentra and Honda Fit.
But soon premium automakers like BMW, Audi and Mercedes-Benz plan on rolling luxury vehicles off assembly lines in Mexico.
President Enrique Peña Nieto presided Thursday over an announcement by BMW that it will build a $1 billion plant in San Luis Potosi. It will begin production in 2019 and ship luxury vehicles to North and South America.
It was the latest in a quick succession of announcements by German and Japanese automakers of plans to build premium vehicles in the world’s 14th-largest economy.
“The manufacture of autos in this segment that demands the highest quality standards and state-of-the-art technology shows that the production profile of Mexico is evolving,” Peña Nieto said.
The BMW plant in San Luis Potosi, in north-central Mexico, has rail connections to U.S. markets. It will employ 1,500 people and produce 150,000 units a year, said Harald Krueger, a member of BMW’s board of management in charge of global production.
“The decision to build a plant here in Mexico was quite easy,” Krueger said, noting a strong industrial base, an established supplier and a skilled workforce.
The BMW announcement was a further sign of a realignment of the global auto industry, one in which Mexico has become a winner because of its geographic position, low wages and free-trade agreements with 45 nations around the globe.
With the 1994 North American Free Trade Agreement binding Canada, Mexico and the United States into one of the world’s largest trading blocs, the auto industry in Mexico has grown at three times the pace of other manufacturing sectors.
Initially, auto parts manufacturers were the beneficiary as Mexico was pulled into the supply chain of the U.S. and Canadian auto industries.
That means that today, every vehicle built in the United States contains more than $4,000 of Mexican-made parts, four times the level of two decades ago, according to a March report by Toronto-based Scotiabank.
But in the past decade, Detroit’s Big Three and automakers in Japan and Germany have rushed to build vehicle assembly plants in Mexico, where labor costs are a fifth of what they are in Canada and the United States. Mexico will eclipse Japan this year as the No. 1 source of auto imports into the United States.
By the end of the decade, 1 of every 4 autos sold in North America will be built in Mexico.
In 2006, Mexico was the world’s ninth-largest exporter of cars. Today, the country is the fourth-largest exporter — behind Germany, Japan and South Korea — and Mexico’s economy secretary expects it will become No. 2 in a few years.