German luxury carmakers cast off “Made in Germany” with Mexico output

Article by Christian Andrei, on July 7, 2014

As BMW decides to build cars in Mexico, joining rivals Audi and Mercedes-Benz in the process, there is one thing that is becoming more apparent – the “Made in Germany” seal of exclusivity is now broken. With the crown as the largest luxury carmaker in the world, the German three are making “Made in Germany" as a less road taken, favoring Mexico’s less costly labor force, proximity to the United States and a number of free trade agreements.

BMW’s $1-billion plant in San Luis Potosi will be its second in North America by 2019, providing it the capacity to build more 150,000 vehicles annually. That will allow BMW to produce up to 600,000 cars in North America. Harald Krueger, BMW production chief, remarked that the new site will make the group better positioned to take advantage of the growth potential in North and South America.

He remarked that the decision was in line with BMW’s strategy of “production follows the market.” BMW will be the last among the German big three luxury carmakers setting foot in Mexico, which offers labor costs just 20 percent of the rate in the US.

Audi will commence production in San Jose Chiapa in 2016 while Mercedes will begin joint output with Infiniti in 2017 in Aguascalientes. Mexico boasts of free-trade agreements with the US, South America and Europe – making it an ideal export base.

Frank Biller, an analyst at LBBW, quipped that Mexico’s location facilitates exports to North America and South America, adding that if a cluster of carmakers commences production in Mexico, a local industry will be created.

Vehicle production in Mexico jumped 7.2 percent to 1.31 million vehicles in the first five months of 2014 after building a record 2.93 million vehicles in 2013, according to the Mexican Automobile Industry Association.

AMIA President Eduardo Solis remarked in June that manufacturing sites in Mexico are expected to churn out around 3.1 million vehicles this year after carmakers like Nissan, Honda Motor Co. and Mazda Motor Corp. opened plants in the country in the last eight months. [source: automotive news - sub. required]

Topics: mexico

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