MEXICO CITY - South Korean automaker Kia Motors Corp. has decided to join a bevy of automakers to set up an assembly plant in the northern Mexican state of Nuevo Leon with an investment of $1 billion.
The project will likely generate further $1.5 billion in investments by ancillary firms hoping to supply the Pesqueria plant, Mexican President Enrique Pena Nieto said during a joint appearance with Kia Motors CEO Hyoung-Keun Lee on Thursday.
"We celebrate that Kia Motors has decided to join in the success story that we Mexicans are writing," Nieto said pointing out that Mexico is already the manufacturing hub of several automakers.
"This investment (by Kia) will trigger others, those of their suppliers. We estimate that suppliers will invest another $1.5 billion."
Mexico led Latin America in vehicle production during the first six months of 2014 with auto exports rising 11.2 percent over the same period last year, the Mexican president pointed out.
Recent months have seen companies committing to $10 billion in new investment in Mexico's auto sector, the president said
The Kia factory will be built in the city of Pesqueria, in the border state of Nuevo Leon, and completed in the first half of 2016, said Hyung-Keun Lee, vice chairman of Kia Motors Corp.
The Kia plant will have the capacity to build 300,000 vehicles annually and will alleviate a shortage of cars for the U.S. market that has hampered the growth of Kia and its sister brand Hyundai, which owns 34 percent of Kia. The companies share the development of engines, transmissions, car platforms and automotive technology.
Kia has grown rapidly in the U.S. in recent years. Its sales this year are on track to reach about 600,000 vehicles, double the volume it sold in 2009, said Lee.
First among South Korean automakers to plan a base in Mexico, Kia is eyeing the neighbouring markets where it has grown rapidly. in recent years. Its sales in the US this year are on track to reach about 600,000 vehicles, double the volume it sold in 2009.
Kia's sole North American factory is in West Point, Ga., where it builds the Sorrento crossover and Optima sedan, as well as Hyundai's Santa Fe sport utility vehicle. The plant, which also makes parts for Kia and Hyundai vehicles, employs about 3,000 workers.
Low labor costs and extensive free trade agreements have turned Mexico into a manufacturing powerhouse.
In the span of just a few months, Mexico has seen Mercedes-Benz and Nissan announce plans for a $1.4-billion joint plant in Aguascalientes while BMW is planning a $1-billion assembly plant in San Luis Potosi. Last year, Audi commenced construction of a $1.3-billion factory near Puebla.
So far this year, Mexico has attracted around $10 billion in auto sector investments.
Honda, Mazda, Volkswagen, General Motors and Ford are among automakers that are already assembling vehicles in Mexico, which has emerged as the world's eighth-largest producer of automobiles.
"The carmakers are using Mexico to hedge their bets on global sourcing," said James Rubenstein, an auto industry analyst and geography professor at Miami University in Oxford, Ohio. "Mexico has gone from being a closed, high-tariff country to the top of the league for trade. You can ship your products in any direction."
Mexico now accounts for more than 18 percent of North American auto production.