China Building Cars in Mexico

One of China's top automakers expects to open an assembly plant in Mexico in the next three years.

Officials from Grupo Elektra S.A. de C.V., a leading specialty retailer, consumer finance, and banking company in Latin America, said they plan to introduce FAW automobiles designed in China into the Mexican market in the first quarter of 2008.

The FAW vehicles will come to Mexico with "state-of-the-art technology, and top safety and emission control standards and oriented to new customers in the marketplace," Grupo Elektra officials said in their official announcement. If FAW delivers on the contract, the cars will be the first sold in North America by a Chinese auto maker.

Michael Dunne of J.D. Power and Associates and an analyst with extensive experience in China, said First Auto Works has been heavily supported by the Chinese government over the years and is widely considered one of the nation's favored automakers.

The FAW Group is the already the largest automobile group in China and its international partners include Volkswagen/Audi, Toyota, and Mazda. The People’s Republic of China requires foreign automakers operating in China to establish partnerships with local companies such as FAW.

As part of the new alliance, Grupo Elektra and FAW plan to build an assembly plant in Mexico to produce cars in Mexico in 2010 for sales both in Mexico and Central America, FAW and Grupo Elektra said.

The overall investment to build the plant and purchase equipment will be approximately $150 million over the next three years and the plant will have the capacity to assemble 100,000 vehicles annually in Mexico, though it could expand quickly, Grupo Elektra officials said.

The vehicles' prices will be five to ten percent lower than the current average in Mexico, allowing large segments of the population that currently cannot afford to be customers of this industry to participate in that market.

Prices for the new vehicles will start at around $7000, placing them below the prices of new vehicles sold in the Mexican market by Japanese, South Korean, European, or American automakers, according to the joint announcement.

The demand for the new cars will be substantial, Grupo Elektra officials said.

Other transportation products of Grupo Elektra — like motorcycles — have sold more than 400,000 units in less than three years. Just as with the motorcycles, the company will develop an infrastructure of after-sales service for cars.

Carols Ghosn, chairman of the Renault/Nissan alliance, said in Tokyo recently that small, well-equipped and modestly-priced vehicles are the next big frontier for global automakers. Tata, the Indian carmaker, has said it plans to build a small vehicle for $2500. Ghosn said rivals and their suppliers have to figure out how to do the same thing.

The emerging markets in countries such as Mexico are very likely to be one of the next major battlegrounds for global automakers, Ghosn suggested.

Meanwhile, Chinese carmakers also have been moving into emerging markets even though they are not yet quite ready to compete for sales in large and sophisticated markets in Western Europe and the United States.

Dunne, however, noted China's top automakers are very aggressive and have every intention of developing into major global companies. They are also quickly developing sales networks in developing countries outside China.

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