Industry Trend Analysis - Autos Investment Round-Up: OEM Focus Shifts To South America - MAR 2017

BMI View: Carmakers in Brazil and Argentina are gearing up for the upcoming resurgence in demand across the region after years of decline. In Mexico, suppliers are pushing ahead with investments to compliment rising vehicle output in the country but it is too early to acknowledge if President Trump ' s anti-free trade stance is impacting Mexican investment.

In BMI's regular round-up of production investments, we track the latest projects from the production side of the industry and analyse trends that we see developing on a regional basis. 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
e = BMI estimate; na = not available. Source: BMI
Sep-16 Mexico Ramos Arizpe, Coahuila Hyundai Polytech USD 13.7mn New plant constructed and inaugurated. Capacity for 500 tons of rubber and steel parts Nov-16
Oct-16 Mexico Juarez, Chihuahua Eaton na Expanding two plants. Part of expansion includes electric vehicle component production 2017
Oct-16 Mexico Puebla Volkswagen na Adding a third shift (extra 500 workers) raising daily output to 2,100 units Oct-16
Nov-16 Brazil Porto Feliz, Sao Paulo Toyota Motor USD 177mn Increasing engine production to 174,000 engines annually from 104,000 currently H219
Nov-16 Mexico San Juan del Rio, Queretaro Exo-S USD 19.5mn New plant manufacturing thermoplastic components na
Nov-16 Mexico San Francisco del Rincon, Guanajuato Kromberg & Schubert USD 52mn New plant construction for manufacturing electric harnesses predominantly for BMW, VW, Mercedes Benz and Audi. na
Nov-16 Mexico Guanajuato Yazaki USD 15mn New production of electrical harnesses supplying General Motors Silao. 2017
Nov-16 Mexico Silao, Guanajuato Kobelco CH Wire USD 33mn Inaugurated steel cable production plant making cold-forged automobile components Nov-16
Nov-16 Brazil Camacari, Bahia Ford Motor na Adding a third shift Feb-17
Nov-16 Brazil Catalao Mitsubishi Motors na Adding production of Outlander SUV 2017
Nov-16 Brazil Nationwide Volkswagen USD 2.2bn Announced it will invest BRL7bn in country operations from 2016 - 2020 to develop new models (especially compact SUVs). No specific investment projects mentioned 2016-2020
Dec-16 Brazil Nationwide Volkswagen Truck & Bus USD 470mn Investing over 2017-2021 period as part of the next investment cycle. Will introduce new truck and bus products and expand export activities 2017-2021
Dec-16 Mexico Guanajuato Tokyo Roki na Inaugurated plant producing catalysers Dec-16
Dec-16 Mexico Durango Durango Automotive Wiring Systems USD 4.5mn Plant expansion. Manufacturing: electric harness, components and spare parts for vehicles na
Dec-16 Mexico San Luis Potosi, San Luis Potosi Nidec Sankyo USD 15mn New plant construction. Areas 12,000 square metres Aug-17
Dec-16 Argentina El Palomar, Buenos Aires PSA Peugeot Citroen USD 320mn Expansion of plant to incorporate new model based on new modular platform. Plant will be capable of producing conventional, electric and hybrid powertrain vehicles. 2019
Dec-16 Brazil Joinville, Santa Catarina General Motors Company USD 310mn Beginning construction of new engine manufacturing facility with capacity for 280,000 units. Manufacturing engine blocks, heads, other engine components Jan-18
Jan-17 Mexico Hermosillo Ford Motor USD 400mn (e) Moving Ford Focus production to Hermosillo plant (from Michigan) after cancelling earlier plans to construct new plant in San Luis Potosi na

In the fourth quarter of 2016, almost USD4.03bn worth of autos investment projects were announced across the Latin American region. For the first time in a number of quarters, investment into Mexico, which reached USD552mn, did not top our rankings in terms of national investment. Instead, Brazil topped the rankings with USD3.16bn worth of investment projects announced. The remaining USD320mn in our investment round up was announced in Argentina.

Prepping For Recovery In Brazil

A clear theme emerging from our review of investment in Latin America in Q416 is the rising bullishness of automakers in Brazil. This was reflected most strongly by Volkswagen's announcement in November 2016 that it will spend USD2.2bn in Brazil as part of its next investment cycle from 2016-2020. The following month, the first big project of this investment cycle was announced. It came from the group's heavy commercial subsidiary, Volkswagen Truck & Bus, investing in new products and export expansions despite the Brazilian truck market having fallen to less than one third of its 2013 volumes. Clearly, the company sees a potential bounce back in the commercial vehicle segment and is positioning itself as best as possible to capitalize from this.

General Motors Company and Toyota Motor also echoed this growing positive sentiment with their own engine manufacturing projects. While these investments are most likely influenced by a need to meet localisation requirements as part of their agreements under the Inovar Auto, they do still represent a show of confidence in the Brazilian market recovery.

Mexican Suppliers Still Bullish For Now

Suppliers of components continued to invest into Mexico in Q416 despite the growing threat of a slowdown in Mexico-US autos trade due to possible new trade barriers replacing the current NAFTA agreement ( see ' Trump Presidency: Implications For Mexican Autos ' , November 10 2016). However, we believe this is most likely because most investments are aimed for supplying new car manufacturing plants coming online in Mexico rather than for trading components directly to customers in the US.

Furthermore, it is likely that many of the Mexican investment projects announced in Q416 were already finalised and agreed with local authorities before Trump's election win. Therefore, if the threat of a NAFTA redrafting starts to deter investment, this will not show up in supplier investment decisions until at least our next investment round-up covering Q117 projects.

OEMs All Quiet On The Mexican Front

After a string of large investment announcements over the last three years, original equipment manufacturers (OEMs) in Mexico held back on investment decisions. We recorded only one announcement from Ford Motor but even this project must be seen in context. While the company did announce it will build its Focus model in Mexico, which we estimate will involve an investment worth around USD400mn, it also cancelled its earlier USD1.6bn project in the country ( see ' Ford's Exit Darkening Car Production Outlook ' , January 4 2017).

PSA Catching Up With Rivals In Argentina

Automakers have once again raised their bets on an Argentinean recovery by investing in the country lately ( see ' Autos Investment Round-Up: Bets On Argentine Export Recovery ' , September 26 2016) with PSA Group becoming the next company to follow suit. In contrast to other automakers who are looking to leverage Argentina's specialisation in production of pick-up trucks ( see ' Argentina To Benefit As Regional Pick-Up Hub ' , April 8 2015), PSA remains focused on manufacturing passenger cars.