Superior Industries International Inc. (NYSE:SUP) has become the latest company to announce plans to build a factory in Mexico, the second strongest economy in the Western hemisphere and an increasingly attractive destination for manufacturers looking to expand capacity.
The Van Nuys, Calif.-based maker of aluminum road wheels said Monday it chose Mexico for its $135 million plant, expected to be operational by 2015, both for the country’s relatively inexpensive labor and its proximity to automakers’ factories, which require the kinds of products Superior makes.
“While our operations in Mexico consistently have performed at class-leading levels, it has been evident we are not currently positioned to participate fully in North American market growth," Steven J. Borick, Superior’s CEO, said.
As wages increase in China and transport costs rise, as well as a recent manufacturing slowdown in Brazil, Mexico is well-positioned to receive major Latin American investment opportunities, especially considering its close relationships with the U.S.
Superior mostly supplies its aluminum road wheels to American automakers Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) and Fiat SpA unit Chrysler Group LLC. But expanding Superior’s Mexican capacity also gives it exposure to major carmakers like Nissan Motor Co. (TYO:7201), Honda Motor Co. Ltd. (TYO:7267) and Mazda Motor Corporation (TYO:7261), each of which has plans to open manufacturing facilities in Mexico over the next two or three years.
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Superior, which already has plants in Mexico, plans to improve its older U.S. production facilities. Its U.S. factories provide nearly 40 percent of total unit sales volume for the past year.
Auto and auto-related manufacturers are not the only industry that find Mexico an attractive place to invest. Eurocopter recently opened a 12,000-square-foot plant in Queretaro that will supply Airbus jets and its own line of multi-purpose choppers, according to Aviation Week.
The boom in Mexican manufacturing comes against a backdrop of government action to liberalize the economy, and Mexico's new president, Enrique Pena Nieto is aiming to extend his country’s increasing appeal to foreign investors.
JPMorgan Chase & Co. (NYSE:JPM) said Mexico's improvements to its oil business, its education system and its telecom sector could potentially result in an upgrade of sovereign debt by ratings agencies, Reuters said. Additionally, JPMorgan said Mexico's surging manufacturing sector will be a key factor in agencies' re-evaluation.
The bank note also said the “approval of the labor reform last year was quickly followed by important first steps to overhaul the educational system, signaling the administration’s commitment to the reform agenda,” according to Reuters.
“The prospects for reform progress in Mexico have not been better in over a decade and, if the authorities deliver meaningful fiscal and energy reforms, an upward revision seems very likely,” JPMorgan said in its note. “Part of Mexico’s healthy recovery since mid-2009 likely reflects the improved competitiveness of Mexico’s manufacturing sector – which has outperformed its U.S. counterparts by nearly 6 percentage points since the mid-2009 trough.”