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GKN, the British engineering group, is expanding its operations in Mexico, following a wave of investment in the country by global carmakers eager to take advantage of its network of free-trade agreements.
The tier one car industry supplier will open a third precision forge at its plant in Celaya to allow it to produce 15m driveshaft components annually.
Combined with other measures, this will boost its driveshaft-making workforce in Mexico by almost a third from 1,300 to 1,700 over the course of the next year. In all, it plans to invest $100m in the country over the next three years.
The extra investment is designed to exploit demand from big carmakers expanding in the country.
Nissan is building a $2bn plant in Aguascalientes, Honda and Mazda are constructing their own in Guanajuato, while Audi said in April that it would locate its first North American production plant in Mexico. Volkswagen’s second-largest factory in the world is located in Puebla, east of Mexico City.
Mexico’s relatively liberal approach to international trade – the country is a member of Nafta and in total has free trade agreements with 45 countries – in conjunction with its comparatively low wage costs makes it an attractive location for carmakers aiming to serve markets ranging from the US to Brazil to Europe.
Yet in spite of the surging investment, Mexico’s car industry supply base still lags behind those in South Korea and China.
Andy Reynolds Smith, chief executive of the British group’s GKN Driveline division, said the expansion would help it gain exposure to the growth in the US and Mexican car markets.
“Mexico is a very important market in itself: light vehicle production there should rise from 1.7m today to 3m within the next three years. But it also gives us exposure to the US, where sales are strong, and there is still a lot of pent-up demand after people put off buying cars in 2008-09,” he said.
Overall, vehicle production in Mexico grew 14.4 per cent last year, according to OICA, the international carmakers association, making the country the world’s eighth-largest carmaker, surpassing Spain for the first time.
GKN enjoys a 40 per cent share of Nafta’s market for driveshafts, up from about 30 per cent three years ago, and Mr Reynolds Smith said he hoped to raise the figure further.
He added that GKN would look again at its capacity in Mexico once the final plans of the big carmakers were clear, and in light of a gathering trend towards all-wheel vehicles, which – since they require four rather than two driveshafts – could further increase demand for GKN’s products.