June 30, 2014 / 8:04 PM / 5 years ago

BMW to reveal Mexico factory plans this week: official

MEXICO CITY/MUNICH (Reuters) - Germany’s BMW AG (BMWG.DE) will unveil this week plans to build a new factory in Mexico, a government official said, as the company seeks to meet growing demand for premium cars.

A BMW logo is pictured at the Jacob Javits Convention Center during the New York International Auto Show in New York April 16, 2014. REUTERS/Carlo Allegri

News of the factory comes just days after BMW’s German rival, Daimler, announced similar plans, and adds to a growing list of companies plowing money into car making in Mexico.

Speaking on condition of anonymity, the Mexican official said the plant would likely amount to an investment of at least 1 billion euros ($1.36 billion) and would be located either in Hidalgo state north of Mexico City or San Luis Potosi in central Mexico.

A spokesman for Munich-based BMW said earlier on Monday that “a decision will be made public” on July 3.

BMW declined to comment further.

A new factory in Mexico would come on top of BMW’s plans to invest $1 billion to expand capacity by 50 percent at its plant in Spartanburg, South Carolina.

BMW Chief Executive Norbert Reithofer said last week that the Bavarian carmaker was still deliberating about where to locate a new factory and would reach a decision before the summer break.

Premium auto makers BMW, Audi and Mercedes-Benz are expanding global production as their factories in Germany struggle to meet strong demand for off-road vehicles and limousines in the United States and Asia.

Supplier sources said BMW had already mapped out a production timetable for Mexico, with a tentative plan to begin assembly in late 2017, ramping up annual capacity to 200,000 by 2020.

On Friday, Daimler AG (DAIGn.DE) and Renault Nissan (RENA.PA) (7201.T) said they would invest 1 billion euros ($1.36 billion) to develop small cars and build a factory in Aguascalientes, Mexico.

Manufacturing in Mexico allows European car makers to sell vehicles in the United States while avoiding some of the currency and tariff costs that crimp profits on imports. Mexico also offers lower labor costs than Germany and the United States.

Daimler’s Mercedes-Benz, Nissan Motor Co, Honda Motor Co (7267.T), Mazda Motor Corp (7261.T) and Volkswagen AG (VOWG_p.DE) already have large auto plants in Mexico.

At around $2.50 an hour, manufacturing wages in the country are nearly 20 percent cheaper than in China, according to a Bank of America study. That study put U.S. manufacturing wages at just under $20 an hour, on average.

German car makers’ overall output is set to rise for the fifth year in 2014, driven by overseas production, German auto industry association VDA has said.

Reporting by Luis Rojas in Mexico City and Irene Preisinger in Munich; additional reporting by Edward Taylor; and Dave Graham. Editing by Tom Pfeiffer and Andre Grenon

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