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Mazda Pins U.S. Growth on Mexico Plant Shielded From Yen

Feb. 28 (Bloomberg) -- Mazda Motor Corp., Japan’s most export-dependent automaker, is staking its U.S. future on a new factory in Mexico that will be its first wholly owned plant in North America.

The $770 million facility will shield Hiroshima, Japan-based Mazda from exchange-rate swings between the yen and the U.S. dollar, consultant IHS Automotive says. Mazda also will be able to cut shipping costs to the U.S. and benefit from Mexico’s web of trade deals covering more than 40 countries.

“The Mexican plant is one of the most important initiatives for us,” Chairman Takashi Yamanouchi told reporters yesterday at the factory in Salamanca, after Mexican President Enrique Pena Nieto helped mark the factory’s official opening.

Mazda joins a rush by Japanese automakers to expand in Mexico following plant openings by Nissan Motor Co. in November and Honda Motor Co. last week. Toyota Motor Corp. has contracted to have 50,000 cars built each year at the Mazda plant, with Mazda2 and Mazda3 small cars making up the rest of the annual capacity of 230,000 vehicles.

“Without this plant, it would be very difficult for Mazda to maintain their position in the U.S. market,” IHS Automotive Managing Director Michael Robinet said in a telephone interview from Southfield, Michigan. “They are a mass-market vehicle manufacturer and to be competitive in the U.S. market, you have to be building in North America.”

Growing Capacity

The factory initially will produce 140,000 vehicles and reach full capacity of 230,000, including Toyota’s cars, by 2016, said Jim O’Sullivan, chief executive officer of Mazda’s North American operations. The plant will employ 3,000 people at first and eventually 4,600, he said. The first Mexico-built Mazda3s entered the U.S. on Feb. 22.

“The production we have here is definitely going to be needed on a global basis,” O’Sullivan said. “We’re looking at global demand for Mazda3 right now and it’s really strong.”

Mazda is targeting U.S. sales of 400,000 vehicles in 2016, O’Sullivan said. Its 2013 U.S. sales of more than 280,000 vehicles ranked fifth among Japanese automakers, according to data compiled by Bloomberg. A venture with Ford Motor Co. that made Mazda6 sedans in Flat Rock, Michigan, ended in 2012.

Producing vehicles in North America for sales in the region will insulate Mazda against fluctuations in Japan’s currency, according to Sean McAlinden, chief economist of the Center for Automotive Research in Ann Arbor, Michigan.

Stronger Yen

The yen gained 13 percent against the dollar in the decade ended in December, even as Prime Minister Shinzo Abe’s monetary easing weighed on the currency in 2013. The exchange rate was 102.38 yen to the dollar on Feb. 26. Mexico’s peso weakened 20 percent against the greenback in the same 10-year period, lowering manufacturing costs.

“When the yen becomes a bit stronger, then we will never fall into a loss position,” Yamanouchi told reporters. “When the yen becomes weaker, we will reduce costs in the Mexican plant.”

Mazda fell 9 percent this year through yesterday to 495 yen in Tokyo, trailing the 6.5 percent drop for Japan’s Topix index of 1,774 stocks.

Automakers have committed $9.6 billion to Mexico since the start of 2011, with investments by General Motors Co., Ford Motor Co. and Volkswagen AG as well as Japanese automakers, according to the Center for Automotive Research.

Nissan, Mexico’s largest automaker by production and domestic sales, opened a $2 billion factory in November. Honda opened a plant last week in Celaya, Mexico, about 45 kilometers (28 miles) from Salamanca.

Toyota Expands

Toyota also will expand its Mexican manufacturing base next year by making small cars in Salamanca based on the Mazda2 platform. The Toyota City, Japan-based automaker has a plant near the California border that produces Tacoma pickup trucks.

“Through this agreement, Toyota is able to strengthen its North American vehicle lineup, while Mazda is able to increase its production efficiency,” Toyota said in an e-mailed statement.

Toyota’s output in Mexico rose 15 percent last year to 63,724, or 2.2 percent of national production of 2.93 million, according to the Mexican Automobile Industry Association trade group. Toyota, the world’s largest automaker, sold 60,740 light vehicles for a 5.7 percent market share, trailing Nissan’s 25 percent, GM at 19 percent and Volkswagen’s 15 percent.

“It’s very interesting that Toyota is trying this out in case they decide one day to build a large plant here,” Ricardo Haneine, an auto consultant with A.T. Kearney Inc., said by phone from Mexico City. “They’ll learn more about Mexico from a manufacturing perspective.”

To contact the reporter on this story: Brendan Case in Mexico City at bcase4@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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