China FAW Group Corp will become the country's first automaker to operate a plant in Mexico, as increasing domestic competition causes Chinese carmakers to seek sales in Latin America, Eastern Europe and Asia.
The automaker and Grupo Elektra SAB, Mexico's largest electronic-goods retailer, will build a $150 million factory in Michoacan state, the Mexican company said. Tianjin FAW Xiali Automobile Co, a unit of FAW Group, halted its shares in Shenzhen on Friday, pending a statement on Saturday. Meng Junkui, the unit's board secretary, was unavailable for comment.
FAW Group, China's second-largest automaker, follows Chery Automobile Co and Great Wall Motor Co in expanding overseas as a surge in the number of models available in China squeezes domestic profit margins. FAW Xiali's earnings have also slumped this year as rising wages and stock market gains cause drivers to shun its $4,000 compacts in favor of more expensive models.
"They're shifting their production capacity to other markets, because demand for some of their models has declined at home," said Zhang Xin, an automobile analyst at Guotai Junan Securities Co in Beijing. In China, "people prefer larger and more comfortable cars".
FAW's Mexican plant is set to open in 2010 with a capacity of 100,000 cars a year, according to the statement. Sales of imported cars will begin next year.
Other overseas automakers including Nissan Motor Co, General Motors Corp and Volkswagen AG operate plants in Mexico, as wages are lower than in the United States. Mexican vehicle exports rose 5.6 percent to 1.34 million in the first 10 months of the year, according to the country's Automotive Industry Association.
FAW's cars will cost as much as 10 percent less than the current average in Mexico, making them affordable to working-class Mexicans, Elektra said, without giving specific prices.
Elektra will control the partnership with FAW, Dinorah Macias, an investor relations executive with Elektra, said. She declined to provide the percentage of ownership.
Chery, China's largest independent carmaker, expects to export 110,000 vehicles this year, predominately to the Middle East and Russia, Zhang Lin, general manager of Chery International, a division of the Wuhu-based automaker, said on November 15. The company will also build cars for Chrysler LLC.
Great Wall, China's largest maker of sport-utility vehicles, plans to double overseas sales to at least 80,000 Hover SUVs and other vehicles next year, it said in September. The company sells vehicles in more than 120 countries and has plants in countries including Vietnam, Iran and Indonesia.