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Nissan Plans $2 Billion Mexican Plant to Avoid Yen Losses

Nissan Plans $2 Billion Mexican Plant to Avoid Yen Losses

Nissan Motor Co., the Asian carmaker with the biggest production capacity in Mexico, will spend as much as $2 billion on a third factory in the country as the yen's strength drives the company out of Japan.
The plant will open late next year in Aguascalientes, near one of Nissan's two current Mexico factories, the Yokohama, Japan-based company said today. The plant, intended to produce vehicles for the Americas, initially will make 175,000 small cars a year before capacity gradually expands, the company said.

Nissan's current Mexican plants, able to build more than 700,000 vehicles a year, are at their operating limit, Bill Krueger, vice chairman of the company's operations in the Americas, said in a conference call. "We've got more capacity and growth to be developed across the Americas."
Japan's second-largest automaker shifted production of low-cost cars to Thailand and Mexico in recent years to counter losses from making vehicles in its home market as the yen appreciated more than any major currency since 2010. The shift resulted in the company becoming the second-biggest importer of autos into Japan last year.

Nissan's American depositary receipts rose 1.6 percent to $18.90 at 12:35 p.m. New York time. The company's shares in Tokyo climbed 2.5 percent to 739 yen, extending this year's gain to 6.8 percent.

"More Attractive"

"Relative to what have been low-cost Asian production sources, Mexico is looking more attractive," said Alan Baum, principal of Baum & Associates, a provider of automobile- industry analysis in West Bloomfield, Michigan.

"Nissan's Versa that's built in Mexico is a major vehicle there, the U.S. and South America, and this is going to give more capacity to build that," Baum said. Nissan will also have more capacity to build the March small car and models based on it, he said.

The yen rose 5.5 percent against the U.S. dollar during 2011, the second straight year it appreciated the most among 16 currencies tracked by Bloomberg. While the yen was the only one of the 16 to strengthen against the dollar, the peso depreciated by 11 percent, the second most.

Honda Motor Co. and Mazda Motor Corp. last year announced plans for new auto plants in Mexico, and Toyota Motor Corp.'s North American chief, Yoshimi Inaba, has said the company may also boost parts purchases and production in the country, which has a network of free-trade agreements beyond Nafta, including with Japan, the European Union and Colombia.

"Key Engine"

"Mexico is a key engine for Nissan's growth in the Americas," Chairman and Chief Executive Officer Carlos Ghosn said in a statement. Along with Nissan's plant under construction in Brazil, the Mexico factory ensures "Nissan has the capacity it needs to increase sales volume and market share across the Americas," he said.

When Nissan's plant opens next year, the company estimates it will be able to produce as many as 1 million vehicles in Mexico, the most capacity of any carmaker there. The expansion follows about $1.2 billion of upgrades to its auto-assembly factories in Aguascalientes and Cuernavaca in the past two years, according to David Reuter, a Nissan spokesman.

Nissan will be able to make 2 million cars and trucks annually in the Americas, including factories in Tennessee, Mississippi and Brazil, Reuter said.

The company has a goal of getting 85 percent of autos sold in the Americas from plants in the region, up from about 70 percent currently, Krueger said in Detroit this month.

"Supplier Park"

The $2 billion investment includes the initial 175,000-unit assembly line and future planned expansion of the factory, and an industrial park for parts suppliers next to it, Krueger said today on the call.

The new Aguascalientes plant will create 3,000 direct jobs, and boost Nissan's employment in Mexico to 13,500.

Nissan this month said it would supply U.S.-built engines to Daimler AG as part of expanding cooperation between Nissan, its alliance partner Renault SA and Daimler.

Nissan's Reuter declined to say whether Daimler would be involved in the new Mexican plant, and didn't provide details on the models it will produce.

By Alan Ohnsman

Mexico Manufacturing Industry News

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