MEXICO CITY/DETROIT (Reuters) - General Motors Co (GM.N) will build its next-generation Chevrolet Cruze compact in Mexico, the company said on Monday, as automakers look to expand in the Latin American nation to take advantage of low labor costs and free trade agreements.
GM will invest $350 million to produce the Cruze at its plant in Coahuila, as part of the $5 billion investment in its Mexican plants announced last year.
GM will continue manufacturing the model in Lordstown, Ohio. GM so far has identified only three plants that will make the next-generation Cruze, including in China.
A GM spokesman in the United States said the company's assembly plant in Gunsan, South Korea, will continue building the current Cruze model to meet demand in domestic and export markets. As part of a new wage deal last summer, GM agreed to build the next-generation Cruze in Korea starting in 2017, in about-face for the automaker.
GM executives have voiced concerns about what they said were higher labor costs in Korea, where the automaker has run into problems with its workers. A
Automakers are looking to move to Mexico for its low labor costs and access to the U.S. market. Toyota (7203.T) is finalizing plans for its first passenger car assembly plant in Mexico, people familiar with the matter previously said. Volkswagen (VOWG_p.DE) recently announced a $1 billion investment in its Puebla plant.
It is the first time the Cruze will be made in Mexico, a GM spokeswoman in Mexico said, and production will be mainly for the domestic market. The Cruze is currently imported to Mexico from GM's plant in South Korea, she said.
A GM Korea spokesman said the move would not have a major impact on the production of next-generation Cruze, as export volume from Korea to Mexico are small.
In 2014, 7,870 Cruzes were sold in Mexico, down nearly 15 percent from the year before, according to data from the Mexican Association of Automobile Distributors and the Mexican Automotive Industry Association.
A union official at GM Korea said workers were evaluating the impact of the Mexican plant on its production. He said the Gunsan plant, which has a maximum capacity of 270,000 vehicles a year, plans to produce only 70,000 to 80,000 vehicles this year as a result of reduced exports to Europe.
GM has encountered tensions with its South Korean workers.
In April 2013, then GM CEO Dan Akerson angered union workers in Korea ahead of annual labor talks when he warned the automaker could shift operations from South Korea in the longer term due to rising tension with the North. Union activists in South Korea in the past have threatened "a war" if output was shifted from their plants.
The GM spokesman in the U.S. declined to say whether added Cruze production in Mexico meant that the Coahuila plant's capacity would expand or was simply shifting among models it builds.
Eleven plants globally make the current Cruze model but some, including a plant in Australia where GM is shutting down assembly operations, will not build the next generation model, he said.
Additional reporting by Hyunjoo Jin in SEOUL; Editing by Tom Brown, Bernard Orr and Lisa Shumaker