The Mexican car industry, where sales and production have been hit hard by the economic downturn, received a small boost in the past week: Nissan announced it would be shifting some of its small-car production from Japan to its plants in Mexico.
Meanwhile, Changan Auto has said it will build vehicles in the country, becoming the third Chinese carmaker to plan a factory there. Both carmakers will have a focus on exporting finished vehicles from Mexico.
Nissan has struggled not only with the sales slump, but also from the surge in the Yen. Chief Financial Officer Alain Dassas told Bloomberg that an exchange rate between 100 and 110 yen to the dollar would allow Nissan to keep more production in Japan. But at its current 96 yen to the dollar, he said that Nissan would immediately begin shipping some compact cars to the Middle East from Mexico.
The likely candidate would be the Versa (known as the Tiida outside the US) which is built along with the compact Sentra at Nissan’s plant in Aguascalientes, and exported by rail to the US, as well as by sea to the US, Europe and Latin America, mainly through the port of Veracruz. The Versa is also built about 80km south of Mexico City in Cuernavaca.
Mexico’s car industry has been in crisis mode. Production is weighted towards US exports, where the sale of Mexican cars dropped 58% to 36,000 units in January this year compared to last year, according to Mexico’s automotive industry association, AMIA. To compensate, factories have gone idle for extended breaks. January production across the country dropped more than 50% to 81,500 units compared to last year, with exports down 57% to 51,000. Domestic sales were off 28%. Nissan’s production in Mexico for 2008 dropped 10%, and the company has said it would shut the lines at Aguascalientes for 26 days during the first quarter of 2009.
The extent that Mexico stands to gain or lose as an automotive hub in the long run is murky, particularly depending on the fate of the Detroit three, which have a large presence there. On the one hand, the low labour costs and close proximity to the US and South America have made it an attractive place to outsource production. Lower logistics costs to the US have made it a competitor for car and parts production with East Asia. But those advantages would mean little should trade protectionism rise, particularly in the US following government bailouts for Detroit.
Changan’s agreement to build and market cars in Mexico, however, suggests its potential importance in the industry’s future landscape. The Chinese carmaker will form a joint venture with Autopark Mexico, a subsidiary of the Spanish Import Autopark, to build up to 50,000 cars per year. Vehicles will be imported to Mexico for sale by the end of this year. This follows Geely and the China FAW Group, both of whom are developing factories in Mexico.
According to a report in Empresa Exterior, the joint venture will also target exports to the US and Latin America from Mexico.