Oct 21, 2013 12:49 PM EDT
Mexican Auto Industry To Receive $10 Billion Boost; Becoming Major Exporter Will Rival U.S.

The Mexican auto industry plans to spend around $10 billion soon in factory building as the country becomes a top contender in car manufacturing, Reuters reported.

Japanese and German automakers who are spearheading the drive said more auto factories will be built in Mexico than in the U.S. within the decade.

The south of the border market has recovered from a long slump, and Mexico's global role has grown, according to Reuters. The majority of cars manufactured in Mexico will be consumed by the U.S.

BMW AG, Toyota Motor Corp and Daimler AG's Mercedes-Benz are expected to announce at least $2 billion of deals in the next year or two, according to supplier and other industry sources. The figure is on top of nearly $6 billion in announced plants by Nissan Motor Co, Honda Motor Co, Mazda Motor Corp and Volkswagen AG, according to Reuters.

U.S. automakers have been building cars in Mexico since before World War II and are expected to spend at least another $1 billion to upgrade Mexican plants.

Mexico is rapidly becoming "the China of the West," said Joseph Langley, a senior analyst at Michigan-based research firm IHS Automotive, noting Mexico's low wages, a strong supply base and a global web of free-trade agreements.

By 2020, Mexico will have the capacity to build one in every four vehicles in North America, up from one in six in 2012, according to IHS.

The country is quickly developing as an exporter with auto exports beyond North America growing even faster than those within, according to the Federal Reserve Bank of Chicago.

Mexican auto exports accounted for nearly 30 percent of the 2.4 million exported last year. Altogether Mexico built 3.0 million cars and trucks, according to Automotive News, compared with 10.4 million in the United States and 2.5 million in Canada.

"It's all about lower production costs and lower export costs," said Michael Tracy, principal at the Agile Group, a Michigan-based auto consultancy. "That's what Canada used to be--the place for low-cost manufacturing and shipping. Now, everybody is targeting Mexico."

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