Mexico to Become Key Player in Luxury Car Making by 2020

BMW spartanburg plant 1 photo
Photo: autoviva
According to a recent study performed by IHS Automotive for Bloomberg, by 2020 Mexico will become the fourth largest producer of German luxury cars in the world, after Germany, the USA and China. The recent investments made here by BMW, Mercedes-Benz and Audi will pay off soon enough.
Mexico’s history of car making has been predominantly in the low-cost segment, with cars such as the Volkswagen Beetle even becoming emblematic for the country. After all, the people’s car was built over there until 2003, over a span of 58 years if we’re to include the early days when they were just assembled there via Completely Knock Down kits.

Today, more premium brands are making a move in the North American country, including BMW, Mercedes-Benz and Audi. While the Munich-based company will begin making cars here starting with 2019, the other two are one step further.

Audi claims that its plant in Mexico will be rolling out cars starting with 2016, while Mercedes-Benz and its partner, Nissan, are going to be manufacturing vehicles over there starting with 2017, further emphasizing the ever increasing importance of the country in the premium segment.

What led to this sudden attention to Mexico?

The most important factor that led to the sudden conglomerate of premium manufacturers looking to invest in Mexico is the country’s location. Just under the US which is the second largest luxury market in the world and near emerging markets such as Brazil, it’s hard not to make a case for building a plant there.

Furthermore, the tax cuts and incentives the government offers to all manufacturers are not to be ignored, as are the ever increasing standards of Mexican plants.

The quality of the products made here has been on the rise lately and it would seem like the locals are gathering an impressive pool of engineers and various part makers to make sure the potential car manufacturers have everything they need at hand.

In this regard, an earlier report said that eternal rivals Daimler and BMW will be working together in the future to create a joint supplier network for their plants. That’s something that never happened in the past and that it took many people by surprise. It also goes to show just how important the country is becoming in their future plans.

Other manufacturers are also investing in the Puebla state

It’s not just the traditional German trio that invested in the Puebla state. Other countries are also interested in building cars in the region, amongst them being South Korean giant Kia that announced an investment of over $1 billion this August.

On the other hand, Toyota, the largest automaker in the world, is also interested in Mexico, confirming that it’s studying the impact a local assembly line would have on its business.

Costs are also important

Regardless of the incentives the state is offering and the geographical position, there’s one factor that car makers can’t ignore, especially in today’s economic climate: pricing.

According to a study done by Soto of Kaso & Asociados, parts made in Mexico are, on average, 10 percent cheaper than their equivalents in the US. That’s a big number for any company and just too much to ignore. Should we also mention the cheaper work force?

The only problem is that US plants are threatened at this point. Even US-based manufacturers are looking at their neighboring country and some have actually started making cars below the border.

We’re referring to Ford, for example, which makes its Lincoln MKZ in Hermosillo, while General Motors builds the Cadillac SRX in Ramos Arizpe at the moment.
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