FAW Group plans Mexican drive by building joint-venture plant

PUBLISHED : Saturday, 24 November, 2007, 12:00am
UPDATED : Saturday, 24 November, 2007, 12:00am

First Automobile Works Group will tap the Mexican market by building a US$150 million manufacturing plant with a local partner as a way to boost its export business.

By 2010, Jilin-based FAW Group, one of the three largest mainland carmakers, will produce 100,000 vehicles annually in the Mexican plant in the state of Michoacan.

In the first quarter of next year, the company will export mainland-made vehicles to Mexico.

FAW's vehicles will be sold at prices 5 to 10 per cent lower than the current average in Mexico, targeting a large segment of the country's population that currently cannot afford to buy a car.

According to a statement posted yesterday by FAW's Mexican partner, Grupo Elektra, both parties will consider enlarging production capacity, based on sales, after 2010.

The statement does not reveal the ownership structure of the proposed joint-venture manufacturing plant. FAW has not yet announced its investment in Mexico on its company website.

Some Chinese carmakers, which mainly make low to mid-range vehicles, such as Geely Holding Group, Great Wall Motor, Chery Automobile and BYD Auto, are expanding overseas to boost sales amid a competitive domestic market.

Analysts said mainland carmakers should have little difficulty tapping developing markets because they were able to produce low-cost vehicles.

Other large mainland carmakers, such as SAIC Motor Corp and Guangzhou Automobile Industry Corp, are focusing on the mid-range domestic market first to boost sales revenue.

FAW, which makes the Hongqi, once the only official car of the government, is struggling to improve the quality of its vehicles as a way to maintain market position.

Chairman Zhu Yanfeng in July said the company would invest 13 billion yuan to develop new technology for its own brand of vehicles in the next eight years.

FAW is also planning to streamline its corporate structure to improve efficiency in its three mainland-listed units: Tianjin FAW Automobile, which also sells Toyota cars; FAW Car, which also sells Mazdas; and Changchun FAW Sichuan Automobile.

Tianjin FAW has suspended trading on the Shenzhen stock exchange, pending an announcement today. The company secretary's office declined to comment.

New market

The plant, with a capacity of 100,000 vehicles a year, will cost, in US$: $150m