Industry Trend Analysis - Autos Investment Round-Up: GM Not Holding Back In Brazil - DEC 2017

BMI View: Key automakers like General Motors Company are placing big bets on a Brazilian recovery and are eager to upgrade production facilities to speed up a refreshment cycle for their Brazilian-made models. Meanwhile, Chinese carmaker interest in the Mexican market is heating up with the arrival of BAIC .

In BMI's regular round-up of production investments, we track the latest projects from the production side of the industry and analyse regional trends that we see developing. In doing so, we hope to build a picture of any potential hubs that may be developing, as well as company strategy in terms of production bases and export programmes.

Latin America Autos Production Investment
Date Announced Country City/ State/ Region Company Value Brief Description Date Onstream
na = not available. Source: BMI
Jul-17 Mexico Tlalnepantla, Mexico Continental na Expanding existing plant manufacturing high pressure hoses for air conditioning, hydraulic steering and oils. Floor size of plant to expand from 12,000 to 17,000 sq metres na
Jul-17 Brazil Sao Caetano do Sul, Sao Paulo Benteler na Inaugurated new plant with five production lines for producing chassis modules Jul-17
Jul-17 Mexico Queretaro Bosch USD80mn Establishing new plant producing steering columns and parts Dec-17
Jul-17 Brazil Taubate, Sao Paulo Volkswagen na Moving all production of the Gol hatchback to its Taubate plant and terminating the production cuts that were originally planned for the Taubate plant Jul-17
Jul-17 Argentina San Francisco, Cordoba Lear Corporation USD16mn Construction of new plant for manufacturing electrical harnesses na
Jul-17 Mexico Puente Nacional, Veracruz BAIC USD150mn Announced a five-year investment plan aimed at starting local production of at least four new models (in addition to the two they began manufacturing in May 2017). 2017-2021
Jul-17 Mexico Guadalajara, Jalisco Bosch USD13mn Installing new equipment 2017-2020
Jul-17 Mexico Huamantla, Tlaxcala Sonavox na Construction of new production plant producing speakers for vehicles Nov-18
Jul-17 Mexico San Felipe, Guanajuato Grupo Sumitomo na Establishing new electrical harnesses plant. na
Jul-17 Mexico San Luis Potosi Midori Auto Leather USD28mn Construction of new leather products plant for autos clients Jul-05
Aug-17 Brazil Gravatai, Rio Grande do Sul General Motors Company USD430mn Upgrading and modifying production lines to manufacture new models. Part of the USD4bn investment package announced in December 2014. na
Aug-17 Brazil Brusque, Santa Catarina Zen USD11.4mn Investing in upgrading manufacturing processes in line with Industry 4.0 developments Jul-05
Aug-17 Brazil Sao Jose dos Pinhais, Parana Renault USD237.2mn Investing in engine production expansion including new facility for injection moulding blocks and other engine components for the 1.6 SCe engine and new lines of machining blocks and aluminium heads. Aim is to raise the local content of the engines. Jan-18
Aug-17 Mexico Silao, Guanajuato Martinrea USD35mn Establishing a new Tandem Press for chassis components na
Sep-17 Brazil Sorocaba, Sao Paulo Toyota Motor USD316mn Establishing new production line for the Yaris subcompact car but overall plant capacity will remain roughly the same at 100,000 units/year. Jul-18
Sep-17 Brazil Gravatai, Rio Grande do Sul General Motors Company na Adding a third shift involving an extra 700 jobs na
Sep-17 Brazil Sao Caetano do Sul, Sao Paulo General Motors Company USD400mn Upgrading production facilities in preparation for introducing new models. na
Sep-17 Brazil Joinville, Santa Catarina General Motors Company USD600mn Introducing production of new engine family to replace Opel engines currently manufactured there. na
Sep-17 Brazil Sao Bernardo do Campo, SP Volkswagen na Adding a third shift to manufacture more Virtus and Polo models H217
Sep-17 Mexico Silao, Guanajuato Inteva Products na Inaugurated new plant manufacturing interior systems Sep-17
Sep-17 Mexico Pesqueria, Nuevo Leon Ternium USD1.1bn Construction of new hot rolling steel mill for supplying autos and industrial producers 2020

In BMI's latest investment round-up of countries in the Latin America region, we have identified 21 new investment projects that were either announced or inaugurated in Q317, down from the 32 projects identified for the same period in 2016. Of these 21 announced projects, 13 also announced their project values which totalled almost USD3.42bn, up 15.2% y-o-y compared to the same period last year.

Looking across the projects announced in Q317, three key themes are noticeable: Carmakers are attempting to reposition themselves in time for the Brazilian recovery; Chinese brand competition in Mexico is heating up; suppliers are still bullish on Mexican vehicle production prospects in Central Mexico.

Brazilian Producers See Recovery On Horizon

Clear signs that carmakers believe the Brazilian new vehicle market has bottomed out and is set for a multi-year recovery have emerged with retooling for refreshment cycles becoming a clear priority. Of the nine projects announced by original equipment manufacturers (OEMs) in Latin America in Q317, eight of these were based in Brazilian plants and most involved considerable sums of investment, averaging about USD397mn per project. These OEM projects mostly involve upgrades to existing production lines as part of a 'refreshment' drive to introduce new, refreshed models and replace older slower selling ones. In doing so, automakers are putting themselves in the best position to capitalize on the upcoming recovery in the Brazilian market where we forecast new vehicle sales to grow 17.0% in 2018 and to average 9.1% per year through to the end of our forecast period in 2021 ( see ' Sales Declines Hide Undercurrent Of Recovery ' , April 28).

We highlight General Motors Company (GM) as the company positioning itself most aggressively. The company has announced USD1.4bn worth of investments all aimed at retooling for the purpose of introducing new models and is also adding new shifts at its plants. Following GM, we identify Volkswagen as another firm aggressively pursuing a restructuring of Brazilian production of its best-selling Polo, Gol and its new Virtus models in order to refresh and optimize these critical products in time for the recovery; a process it began in Q217 ( see ' Autos Investment Round-Up: Latin America The New EV Hub? ' , August 9).

BAIC Adding To Chinese Onslaught

We also highlight that the threat to traditional Asian and Western brands from Chinese brands in Mexico, and Latin America in general, has been heating up even more. The threat is best embodied by the recent USD150mn investment into Mexican production announced by China's BAIC Motor, one of China's largest manufacturers which holds more than 7% market share in the 24.4mn-strong Chinese new car market. The company is joining brands like JAC Motor and FAW Group with Mexican production and, like these companies, BAIC also appears mostly uninterested in using Mexico as a base to export to the US market. Instead it is looking to Mexico as a launch pad into the domestic and other Latin American markets, a strategy that could prove promising as NAFTA renegotiations have prompted Mexican industry to seek new export opportunities outside of the NAFTA market.

Mexican Suppliers Still Bullish

Supplier investments also keep flowing into Mexico despite ongoing renegotiations of the NAFTA agreement. As we have previously highlighted, suppliers are flocking into Mexico out of necessity due to the sharp increase in new plants and recently expanded plants coming online, which both require more suppliers to locate plants close by ( see ' Autos Investment Round-Up: Motorcycles Make A Resurgence ' , July 1 2016). They are not just locating plants in Mexico because of its attractive labour costs and generous investment incentives. Hence, we believe NAFTA renegotiations will continue to have a very limited negative effect on supplier investments, something that is most obvious when looking at the bullishness of steel producer Ternium, which announced a very large USD1.1bn investment in the country during Q317.

We also highlight that supplier investment remains mostly fixed on the central Mexican states of Guanajuato, Jalisco, and Tlaxcala. Non-traditional automotive hubs such as those in Nuevo Leon and Coahuila remain fringe locations for automotive suppliers.