Nov 30th - Mazda and Sumitomo to spend 30-40 billion yen to build a Mexican plant

Mazda To Make Cars In Mexico With Sumitomo

-Mazda Motor Corp. and trading house Sumitomo Corp. will spend 30-40 billion yen to build a Mexican plant that will start rolling out passenger cars as early as 2013.

With an initial output of 100,000 cars a year, this plant will serve as the automaker's production base for Central and South America.

For Mazda, which has just seen longtime top shareholder Ford Motor Co. slash its investment, the move marks a new departure in overseas production and sales -- two areas where it had relied on its American partner.

The Mexican plant will be Mazda's fourth factory outside Japan. The others, in the U.S., China and Thailand, have all been run in cooperation with Ford. Although Sumitomo will join in managing the new factory, Mazda will hold a majority stake in the operating company -- something it has never done before.

Mazda and Sumitomo are considering several sites for the factory. They are expected to decide on a location in early 2011, with construction to begin later that year.

The automaker plans to build its mainstay Mazda2 and Mazda3 models, sold as the Demio and the Axela in Japan, at the Mexican factory, which will be its first new overseas production base since the Thai plant opened in 1998. These vehicles will be sold in Mexico and exported to Brazil as well as other Central and South American markets. Mazda will also consider making engines at the plant.

Mazda sold a little over 50,000 cars in the region last year, just 4.5% of its global total. It aims to sell 1.7 million worldwide in fiscal 2015, up 30% from its target for this fiscal year, and eventually around 2 million through expanded sales in South America.

Mexico has an economic partnership with Mercosur, a common market including Brazil and Argentina. Locating the new plant in Mexico will lower customs barriers to these countries, giving Mazda an edge in price competition.

Tariffs on exports of autoparts from Japan to Mexico are scheduled to disappear in 2014 under a bilateral economic partnership agreement. This will make it easier for Mazda to procure supplies from affiliated manufacturers in Japan. Toyota Motor Corp, Nissan Motor Co. and Honda Motor Co. all have factories in Mexico.

Ford lowered its stake in Mazda from 11% to 3.5% on Thursday, ending its 31-year run as top shareholder. One of the existing shareholders agreeing to buy up a portion of Ford's stake was Sumitomo, which has a track record in autoparts manufacturing in Mexico and is looking to expand its auto businesses. It will help Mazda find new sales channels, as will Itochu Corp, another Mazda shareholder that increased its stake with shares from Ford.

Mazda's move into Mexico provides the latest indication of Japanese automakers' shift in production to emerging markets. The industry has held off on major investments in Japan since the 2008 financial crisis. A number of companies are planning to raise output in China. Suzuki Motor Corp. is building a factory in India, while Nissan will invest in AvtoVaz, Russia's biggest automaker.