Chinese automaker, Mexican retailer plan low-cost cars

MEXICO CITY — Mexico's largest specialty retailer said Thursday that it was partnering with one of China's Big Three automakers to build a plant in central Mexico with capacity to produce 100,000 vehicles a year.

Appliance and electronics giant Grupo Elektra and Beijing-based First Automobile Works Group (FAW) are scheduled to hold a groundbreaking in the state of Michoacán today, where the companies will detail their plans to build and finance low-cost cars aimed at Mexico's emerging middle class.

Although the $150 million plant isn't slated to open until 2010, FAW will begin exporting cars to Mexico immediately, said Daniel McCosh, a spokesman for Grupo Salinas, Elektra's parent. He said subcompact vehicles retailing for as little as $6,000 should be available by year-end.

McCosh said the plant will employ about 2,000 workers when it opens in 2010, and will be looking to export vehicles to Central America and perhaps eventually to the United States.

Founded in 1956, FAW is one of China's largest automakers, with sales of more than 1 million last year. The company has partnered with Volkswagen, Toyota and Mazda to build and sell those companies' models in China.

Mexico has one of the most wide-open vehicle markets in Latin America. More than 1.1 million new cars and trucks were sold here last year, but fewer than two in 10 Mexicans currently own a car. A stable economy and an explosion of consumer credit mean many are looking for a first car.

More than 50 brands and 300 models fight for consumers' attention in Mexico. And while most new cars sold here are small, a flood of larger, low-cost used vehicles from the U.S. has cut into subcompact sales in recent years. It's a trend that some analysts say will accelerate when all NAFTA limits on used vehicles are lifted in 2009.

The manufacturing plant is a huge win for Michoacán, one of the biggest exporters of migrant labor to the United States. Grupo Salinas and FAW chose Michoacán because of its central location, Pacific port and low costs, according to Jesus Melgoza, secretary of economic development for the state.