BMW breaks ground in the newest auto-industry powerhouse: Mexico

The German automaker broke ground on its new Mexican plant on Thursday, pledging to invest a total of $2.2 billion in the country through 2019.

First Look

BMW broke ground Thursday on a $1 billion plant in the state of San Luis Potosî in central Mexico, near the heart of the country's industrial activity and the US border.

BMW spokeswoman Elizabeth Solis told Reuters that the plant will produce cars in the automaker’s popular 3 Series, which is also being produced in Spartanburg, S.C. BMW reports that it has invested more than $7 billion in its South Carolina operations. For Mexico, it is planning a total of $2.2 billion of investment through 2019, according to Reuters.

Because of lower labor costs and Mexico's extensive trade relationships that make exporting from there cheaper than from other parts of the world, the Latin American country has become a hub of global manufacturing. Over the next decade, almost every major automaker will be producing some cars in Mexico, including General Motors, Ford, Toyota, Honda, Volkswagen, Audi, BMW, Hyundai and Mazda, according to an analysis by the Detroit Free Press.

The wave of investment by 2015 had turned Mexico into the seventh-largest producer of cars in the world and the fourth-largest auto exporter after Germany, Japan, and South Korea, as The Wall Street Journal reported. Mexico last year surpassed Japan to become the second largest supplier of cars to the US market after Canada. (Canada has also seen an auto industry exodus for Mexico.) 

Employment in Mexico’s auto sector has shot up 40 percent over the past decade, as international companies have poured $7 billion into the country, according to the Free Press. The United States saw a 15 percent increase in the same period.

In the decade leading up to 2014, car production in Mexico had more than doubled to 3.2 million units, or 19 percent of the 16.9 million cars produced globally that year. In 2004, Mexico’s car production was at 9 percent.

Over the same period, car manufacturing in the US dropped to 11.4 million units, or 67 percent from 74 percent of the global total in 2004. In Canada, auto manufacturing was down to 2.4 million, or 14 percent in 2014, from 17 percent of global production in 2004.

"Mexico bested us on trade agreements," Sandra Pupatello, a former Canadian politician who now oversees business development for PwC Canada in Toronto as well as the Windsor-Essex Economic Development Corp., told the Free Press. "They quietly have been negotiating trade agreements with the world," she said.

Yet despite the flurry of investment in Mexico, the US South – which began attracting the auto industry in the 1980s with nonunion labor and a strong energy and transportation infrastructure – remains a vibrant region for car manufacturing. Daimler, BMW and other automakers are expanding existing assembly plants in Alabama and South Carolina, as the Journal has reported.

"The U.S. will be fine, at least over the next five years," said Haig Stoddard, an analyst for WardsAuto, an auto industry research firm. "Production will stay here, especially of larger vehicles. There will be a lot of new capacity in the South, and it is needed. The North will hum along at current levels for the next five years," he told the Free Press.

However, as The Wall Street Journal points out, it has been more than six years since an auto maker picked the US South for a brand new plant. Those projects have all gone to Mexico.