Honda Invests Across The Supply Chain

Japanese autos manufacturer Honda Motor is to invest US$470mn to build a transmission plant in the central Mexican state of Guanajuato. We believe that ongoing investments in the region suggest that it is fast becoming a production hub, and we expect to see continued investment in area in the future. Furthermore, BMI maintains a bullish outlook for vehicle production in the country, which should continue to drive growth across the supply chain.

The plant is set to open in the second half of 2015, with an annual production capacity of 350,000 transmission units, and will employ 1,500 workers. Honda expects that the site will eventually make 700,000 transmissions per year, raising the company's capacity in North America (that is, US, Canada, and Mexico) to over two million units per year.

Honda currently has one vehicle manufacturing site in Mexico, which produces around 63,000 units annually. Further, the company is building another site, in the state of Guanajuato, which will have an annual capacity of 200,000 units from February 2014.

BMI maintains a bullish outlook on the auto production industry in the country, predicated on low labour costs, relative weakness in the peso, and comparative weakness in the productive capacity of Mexico's regional competitors. Further, many automakers in the country increasingly use domestically produced parts to fulfil local content requirements for tax breaks ( see our online service, February 8, 'Suppliers Continue To Invest As Production Soars' ).

As manufacturers continue to invest in the country, they will increasingly invest across the supply chain, allowing the sector to mature and also facilitating greater investment in the industry. We expect this to continue.

Production Cluster

A number of auto companies have invested in the central Mexican states, and the area is fast becoming a key site for industrial productivity ( see 'Central Mexican States Set For An Economic Boom', April 3 ). BMI believes that as the area develops , companies will be increasingly keen to invest, as a consolidated manufacturing base would offer a number of cost-reducing opportunities, such as economies of scale, availability of skilled labour, and good infrastructure and transport links. This is in line with Honda's latest investment.

This article is tagged to:
Sector: Autos
Geography: Mexico, Mexico

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