Japan's automakers shift plants to Mexico to export vehicles worldwide

February 26, 2013

By SATOSHI KUBO/ Staff Writer

AGUASCALIENTES, Mexico--Mexico's vehicle exports have surged as Japan's automakers, squeezed by a strong yen and high production costs, transfer more of their manufacturing there.

In Aguascalientes, central Mexico, the boom of press machines can be heard early in the morning. It comes from an auto factory of Nissan Motor Co., one of the busiest factories among all its plants worldwide.

"We make a vehicle every 55 seconds," said Armando Avila Moreno, vice president for Nissan Mexicana. "Our speed is the fastest in the world."

The plant produces more than 380,000 vehicles a year, mainly Sentra and other compact cars. About 80 percent of all the products are exported to 100 foreign countries, including the United States.

Employees work on a two-shift system, and the plant operates almost 24 hours a day, six days a week.

Nissan also plans to start up a new factory nearby--the automaker's third in Mexico--at the end of this year.

Mexico's vehicle production in 2012 was 2.88 million units, up 12.8 percent from that of the previous year. According to IHS Automotive, a research firm, the figure will continue to grow, reaching 4 million units in 2018.

According to its estimate, 80 percent of cars to be made in Mexico will be for export, making the country the third largest vehicle export base in the world in 2018, just behind Japan and Germany, which each export more than 4 million units a year.

The rapid growth of Mexico's car exports is due largely to Japanese automakers' successive forays into the country.

In addition to Nissan, Honda Motor Co. is also expanding its activities there. In spring 2014, the company will start up a second factory in Guanajuato, central Mexico, which will be able to produce 200,000 cars a year.

Honda now produces its Fit compact model at a plant in Sayama, Saitama Prefecture, for export to the United States. But the company plans to shift production of 50,000 Fit vehicles to the new factory in Mexico.

Mazda Motor Corp. will also build a new plant in Mexico in 2014, with a production capacity of 230,000 vehicles per year. It intends to transfer the production of its Axela model and compact vehicle Demio--which is made mainly for export to North America--from Japan to Mexico.

"Mexico is becoming the 'Ginza' (Japan's hottest shopping area) of car production," said Honda President Takanobu Ito.

With automakers making successive advances into Mexico, parts manufacturers, too, are eagerly seeking opportunities to expand their businesses there.

The representative office of Mexico's Secretary of Economy in Japan, located in Tokyo, has been receiving urgent inquiries from Japanese parts makers.

"We want to expand into Mexico as soon as possible," a typical request goes. "Are there any vacancies in industrial complexes?"

About 50 Japanese parts manufacturers have plants in Mexico, and "the number will rise to almost 100 in several years," an official of the representative office said.

This trend grew out of the prolonged appreciation of the yen.

To reduce production and other costs, Japan's automakers have cut back exports from Japan and shifted their manufacturing bases to overseas locations, including to Mexico.

In 2011, when Honda and Mazda decided to build new plants in Mexico, the average exchange rate was around 80 yen to the dollar.

Automakers are relatively insulated from the influence of the exchange rate in Mexico compared with in Japan.

Prime Minister Shinzo Abe's repeated calls for monetary easing and aggressive moves against deflation have hammered down the yen's value to 94 yen to the dollar, boosting Japan's export profitability, but the shift toward overseas production is not likely to be easily reversed.

"Even if the yen keeps weakening further, we will not change our production strategy," said Tetsuo Iwamura, Honda's executive vice president. "We will continue to produce vehicles where there is demand."

There is another reason Mexico is attracting a number of automakers: they can enjoy the benefits of the nation's policy of promoting free trade.

After it concluded the North American Free Trade Agreement with the United States and Canada in 1994, the Mexican government has aggressively signed a succession of free trade agreements with the European Union and countries in South America.

Thanks to these agreements, automakers in Mexico can export their products to 44 countries at low tariffs or even duty-free.

The fact that Mexico is located near some of the world's largest markets--Brazil and the United States--is another of its strengths, as auto manufacturers can reduce their shipping costs by exporting their products from there rather than from Japan.

The fourth advantage is that automakers can employ workers at lower costs.

The average wage of laborers in the manufacturing industry in Mexico City is only $305 (28,000 yen) per month, according to a survey conducted by the Japan External Trade Organization.

That figure is a tenth of the wage in Japan and the United States, and two-fifths of the average pay in Brazil.

However, there are some problems.

The Brazilian government, concerned that expanded exports will deal a heavy blow to its domestic industries, imposed temporary restrictions on vehicle exports from Mexico until 2015.

A growth in wages will also be inevitable and headhunting for capable workers is believed to have already started.

According to Nissan Mexicana President Jose Luis Valls, it could become difficult to keep his company's best workers.

By SATOSHI KUBO/ Staff Writer
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Workers assemble a vehicle at a Nissan Motor Co.'s plant in Aguascalientes, central Mexico, on Jan. 19. The plant produces a car every 55 seconds. (Satoshi Kubo)

Workers assemble a vehicle at a Nissan Motor Co.'s plant in Aguascalientes, central Mexico, on Jan. 19. The plant produces a car every 55 seconds. (Satoshi Kubo)

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  • Workers assemble a vehicle at a Nissan Motor Co.'s plant in Aguascalientes, central Mexico, on Jan. 19. The plant produces a car every 55 seconds. (Satoshi Kubo)

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