Mexican retailer, partner to build cars
Mexico’s largest specialty retailer said Thursday that it was partnering with one of China’s Big Three automakers to build a plant in central Mexico that would have the capacity to produce 100,000 vehicles a year.
Appliance and electronics giant Grupo Elektra and Beijing-based First Automobile Works Group are scheduled to hold a groundbreaking in the state of Michoacan today, when the companies will detail their plans to build and finance low-cost cars aimed at Mexico’s emerging middle class.
Although the $150-million plant isn’t slated to open until 2010, First Automobile Works will begin exporting cars to Mexico immediately, said Daniel McCosh, a spokesman for Grupo Salinas, Elektra’s parent. He said subcompact vehicles retailing for as little as $6,000 should be available by year’s end through some of Elektra’s 823 retail outlets in Mexico.
Plans call for 20 new, stand-alone dealerships in the first quarter of 2008 and a nationwide dealer network within five years, most likely under the well-known Elektra banner.
The deal gives First Automobile Works instant distribution and a strong financing arm in Mexico -- as well as a North American platform to enter the U.S. market. Elektra, a pioneer in granting credit to working-class consumers, sees a major opportunity to put its customers in a set of wheels.
“People have traditionally looked to Elektra for big-ticket items that they couldn’t otherwise afford,” McCosh said. “We’re basically attending to clients’ demands.”
Founded in 1956, First Automobile Works is one of China’s largest automakers, with sales of more than 1 million vehicles last year. The company has teamed with Volkswagen, Toyota and Mazda to build and sell those companies’ models in the fast-growing China market.
Mexico has one of the most vibrant and wide-open vehicle markets in Latin America. More than 1.1 million new cars and trucks were sold here last year, putting the country on pace to surpass Canada by the end of the decade. Fewer than 2 in 10 Mexicans currently own a car. The population is young and eager to hit the road. A stable economy and an explosion of consumer credit mean many of them are looking for a first car.
McCosh couldn’t specify which First Automobile Works models would be produced in Mexico. But he said the venture initially would focus on manufacturing entry-level vehicles, with the aim of offering consumers cars with more extra features than they’d find in comparable subcompacts at prices 5% to 10% below the competition.
The partners have their work cut out for them. Mexico’s market is competitive, with more than 50 brands and 300 models fighting for consumers’ attention. And although most new cars sold here are small, a flood of larger, low-cost used vehicles from the United States has cut into subcompact sales in recent years. It’s a trend that some analysts say will accelerate when all North American Free Trade Agreement limits on used vehicles are lifted in 2009.
The plant will employ about 2,000 workers when it opens in 2010, McCosh said, and plans call for doubling both the workforce and production if the vehicles prove a hit. The venture will be looking to export vehicles to other markets in Latin America and perhaps eventually to the United States.
First Automobile Works would be the first Chinese automaker to set up shop in Mexico, which has become a key manufacturing platform for North America. The U.S. Big Three automakers all have facilities here as do Toyota, Nissan, Honda and Volkswagen. Those companies produced nearly 2 million cars and trucks in Mexico last year, most of them for export to the United States.
The manufacturing plant is a huge win for the agricultural state of Michoacan, one of the biggest exporters of migrant labor to the United States. The plant will be located in the municipality of Zinapecuaro, northeast of the capital of Morelia.
Grupo Salinas and First Automobile Works chose Michoacan because of its central location, Pacific port and low costs, said Jesus Melgoza, secretary of economic development for the state.
“This is a great opportunity,” he said. Automaking “is a very dynamic sector that’s very important in terms of economic, intellectual and technological development.”
First Automobile Works isn’t the only Chinese car company looking for a foothold in Mexico. In June, New Jersey-based Chamco Auto said it had teamed with a small Chinese automaker called Hebei Zhongxing Automobile Manufacturing Co. to use Mexico as a springboard into the U.S. market.
The venture said it would build an assembly plant in Tijuana to export low-cost sport utility vehicles and pickups to the United States. But nothing has come of those plans to date.
“The project is on hold,” said Oscar Marin, Chamco’s senior vice president of Mexican operations. He said only officials in New Jersey could elaborate. They could not be reached for comment.
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Times staff writer Maria Antonieta Uribe contributed to this report.
