Toyota Motor Corp. plans to spend $1 billion to construct a new auto factory in central Mexico where it will build the Corolla sedan.
Toyota is joining other automakers rushing to build cars in Mexico, where low labor costs and extensive free trade agreements have turned the nation into a manufacturing powerhouse.
The move is part of a realignment of the Japanese company’s North American manufacturing that will also include additional investment in Toyota’s Cambridge, Canada, factory to switch from producing Corollas to mid-sized, higher-value vehicles.
The new Mexican plant will be built in the state of Guanajuato in Central Mexico. It will employ 2,000 workers and have the capacity to produce 200,000 vehicles annually. Corolla production will begin there in 2019 starting with the 2020 model.
“Our next-generation production facility in Mexico will be a model for the future of global manufacturing and set a new standard for innovation and excellence,” said Jim Lentz, chief executive of Toyota North America. “Transforming our Canadian vehicle assembly plants is an equally important part of our strategic plan to position the North America region for sustainable long-term growth.”
The shift is part of the automaker’s strategy to organize factories by car platform. The new Mexican factory and existing Corolla plant in Blue Springs, Miss., will have the flexibility to produce a variety of compact cars. After the realignment, Toyota’s factories in Canada will produce a variety of mid-sized models based on a larger platform.
Toyota already has a plant in Baja California, Mexico, where it makes the Tacoma pickup truck.
“Having produced vehicles in this country for more than 13 years, we know that the strength of the workforce and manufacturing capabilities in advanced technology make Central Mexico the right place for our newest facility,” said Mike Bafan, president of Toyota Motor Manufacturing de Baja California and project leader for the new plant.
Toyota also said it would spend about $400 million to expand a factory operated by its Chinese joint venture Guangzhou Toyota Motor Co. to build a new model in 2017.
Toyota had previously suspended construction of new plants in order to soak up excess assembly capacity at its existing factories. But now, with auto sales on a steady increase in both North America and China, the world’s two biggest car markets, it needs to be able to churn out new vehicles.
The pause also has given the automaker time to rethink how it will construct new plants. Toyota said the cost of manufacturing a vehicle at the new factories will be approximately 40% less than what it spent to produce a car in 2008.
Other automakers are also eying Mexico.
Later this week, Ford Motor Co. is expected to announce a $2.5-billion plan to expand existing engine and transmission plants in Mexico, according to Reuters.
“We have seen and will continue to see a rush to build assembly and components plants in Mexico because it is cost efficient, helped by NAFTA, and infrastructure exists for not only exporting to the U.S. and Canada but also other parts of the world,” said Michelle Krebs, an analyst with AutoTrader.com.
Earlier this year, a company affiliated with South Korean automakers Hyundai and Kia said it would spend more than $400 million to build an auto parts factory near Monterrey.
Hyundai is also reportedly scouting sites for an auto assembly factory in the country.
Last year, Kia said it would open a $1-billion auto plant in northern Mexico.
BMW also revealed plans for a $1-billion plant in San Luis Potosi last July, a month after Mercedes-Benz and Nissan announced plans for a joint, $1.4-billion plant in Aguascalientes. Audi is building a $1.3-billion factory near Puebla.
Honda, Mazda, Volkswagen, General Motors and Ford already assemble vehicles in Mexico.