One of the top notch honchos in the auto sector, General Motors (GM, Financial), has just released its plans for expansion in Mexico which is a growing auto hub as on date with several auto makers wanting to set their shop in the destination as labour wages are pretty low in Mexico and it offers other advantages as well for auto makers. Dan Amman, president at GM, acknowledged recently that GM leaders need to instill a culture of “accountability” among its workers. He believes that such accountability could aid in aversion of future debacles like the design and managerial slip-ups over the past decade which have eventually increased the number of recalls for the auto maker. Also, he extended his interest in improving the production capacity for the auto maker and last Thursday, GM announced its plans to double its production capacity in Mexico through 2018. Let’s dig down further to understand what GM plans to do going forward in Mexico.
The expansion plans
The U.S. auto giant is looking ahead to invest around $3.6 billion in Mexico over the span of four years and through this venture GM intends to expand and modernise four of its plants in Mexico located in the states of Mexico, San Luis Potosi, Coahuila and Guanajuato. In fact, if this investment is done, GM would have totally invested around $5 billion in Mexico between 2013 and 2018, thereby, having generated 5,600 direct jobs.
The company’s chief in Mexico, Ernesto Mariano, stated during the announcement that this step signifies the ratification of the commitment of General Motors in Mexico. GM, which manufactures about 650,000 vehicles and nearly 900,000 engines annually in Mexico, is one of the many global auto makers to expand production here. Notably, the country ranks seventh among automobile producing nations.
The honcho’s expansion plans in Mexico will surely catch the attention of the United Auto Workers union, which will begin negotiations with GM, Ford Motors (F, Financial) and Fiat Chrysler Automobiles (FCAU, Financial) towards a new labour contract.
In fact this expansion in Mexico marks a clear recognition that the goal of the company is to have a successful and growing business that could result in more sales and jobs and production. Significantly, the GM top leaders are championing the push towards a manufacturing philosophy driven by stronger consumer demand, as opposed to pushing production and stimulating sales through discounts.
An answer to growing competition
This investment earmarks the second large multiyear investment the U.S. auto maker has made in the region. GM spent $4.4 billion between 2006 and 2012 to start the production of the Chevrolet Trax and add a transmission plant, among other investments. This marks a great time ahead for the auto giant that has been operating in the country for the past 80 years.
This move also certifies the opinion cast by private analysts who are now expecting Mexico’s economy to expand by just 2.2% this year, nearly doubling 2013’s performance. From GM’s overall production in Mexico, four-fifths of the cars and trucks assembled at the plants are exported to the U.S.
To cope up with growing competition in Mexico, GM has said that it plans to move production of the Cadillac SRX from the northern Mexican city of Ramos Arizpe to Tennessee by late next year.
Mexico is growing to become the destination of premium auto makers such as Honda Motors (HMC, Financial), Kia Motors Corp. (KIMTF, Financial) and Toyota Motors (TM, Financial). News sources have confirmed that Audi AGĂ‚ (NSU, Financial) is also planning to begin production of luxury vehicles in 2016 in Mexico. Hence, GM knows well that it needs to expand in Mexico to keep itself far ahead of the immediate rivals in the sector.
Final word
As Mexico continues to attract the global auto makers, General Motors is all set to maintain its supremacy in the country when it comes to car production. Thus, the management have set a clear strategy for improving the Mexican auto production in the days ahead. The plan of action also sent the stock on an upsurge soon after the announcement was made from the company headquarters. Let’s stay tuned and keep watching how GM thrives to build a firmer base in Mexico in the near future.
