Photo credit: Toyota by Daniel

Japanese car-makers, squeezed by the strength of the yen and the high cost of vehicle production in Japan, are increasingly turning to Mexico to manufacture their automobiles.  Mexico’s car export industry therefore, has boomed.

One of Nissan’s busiest factories worldwide is located in Aguascalientes in central Mexico.  Nissan Mexicana vice president Armando Avila Moreno said: “We make a vehicle every 55 seconds. Our speed is the fastest in the world.”

The Aguascalientes plant produces 380,000 automobiles per year; mostly compact cars like the Sentra.  80 percent of the cars are exported to 100 different countries.  A two-shift system in place to maximize efficiency, and the factory runs 24 hours a day for six days a week.   Nissan is hoping to have their third Mexican factory up and running by the end of 2013.

According to IHS Automotive, a research firm, Mexico’s vehicle production will reach 4 million units per year by 2018.  In 2012, 2.8 million cars were manufactured, which was a full 12.8 percent more than the number of vehicles produced in 2011.  Mexico will be the third largest vehicle export base in the world.

This increase in car production is mainly due to Japanese automotive companies growing their presence in the country.   While Nissan has been in Mexico for decades, Honda is also becoming a big player.  A second Honda plant is in the works and plans are for it to be operational by the spring of next year.  Mazda is also hoping to build a new factory in Mexico in 2014.  According to Honda president Takanobu Ito, “Mexico is becoming the ‘Ginza‘ (Japan’s hottest shopping area) of car production.”

The fact that Japanese automakers are moving to Mexico to take advantage of Mexico’s ideal exporting location, multiple free-trade agreements and highly-skilled workforce, is also influencing Japanese car parts makers to move manufacturing to Mexico.   Parts manufacturers are incredibly eager for the opportunity to expand their business, with many companies wanting to make the move as soon as possible in order to get a head start on any competition.

In Tokyo, Mexico’s Secretary of Economy in Japan’s representative office spoke of how many Japanese parts makers have been calling the office with urgent inquiries.  Companies usually say “We want to expand into Mexico as soon as possible.  Are there any vacancies in industrial complexes?”

While there are 50 Japanese parts manufacturing companies currently in Mexico, officials from the Tokyo representative office claimed that the number would most likely rise to around 100 in the coming years.

Experts in the field of economics say that one of the driving factors behind many automakers’ decision to manufacture in Mexico, along with lower wages, is the amount of free trade agreements that Mexico has.  The country actively promotes free trade and has agreements in place with 44 countries.  This means that automakers and parts makers who manufacture in Mexico can export their cars and products to 44 nations at low tariffs or even duty-free in some cases.   For most companies that are concerned with their bottom line, this is a huge reason why Mexico simply makes sense.

Finally, Japanese automakers like Mexico because it’s close to their largest markets:  The United States and Brazil.  Cars manufactured in Mexico cost much less to transport than cars produced in Japan, which also contributes to a healthier bottom line

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