By on May 18, 2012

Allegedly, there is rampant overcapacity in Europe. Not so at BMW. “The BMW plants are busting at the seams,” writes Germany’s Handelsblatt. BMW is looking into building new factories abroad. Possible locations are Central Europe. Or rather Mexico, writes the paper.

BMW already has a factory in Hungary. Hungary and Slovakia are begging BMW to build plants there. Their chances diminish by the day.

The European market is contracting and is expected to contract even more. Already, bimmers built for Bavarians are shipped to the U.S. or China instead. Sometimes, diesel engines are swapped out to make room for gasoline power.

BMW has enough plants in China. Next week, BMW chief Norbert Reithofer will travel to the Middle Kingdom to open a second plant.

All of this improves the chances for a BMW plant in Mexico. Mexico has low wages, a low peso, and a strong supply base. Most of all, the country has agreements that allow more or less unencumbered exportation to South America, to Europe, and of course the U.S.

Of course, leaks to the media could also be a signal to Brazil. Says Reuters:

“BMW wants to build a plant in Brazil, but has threatened to pull the plug on this if new government policies there meant it could not profitably make cars.”

BMW has been negotiating for months with Brazil and is getting nowhere. The Brazilian government makes one new demand after the other, BMW executives say off the record. The Brazilians think they have all the cards after Brazil has thrown up a new wall of import restrictions. Imports need a license, needed imports often get entangled in red tape. In-country assembly needs a lot of imported parts, and it needs them on time.

Restricting imports is a knee-jerk reaction than can easily be sold to a gullible population with rising unemployment. All too often, the policy has the opposite effect. New plants and jobs are created in countries with more lenient policies. In the meantime, the employed and unemployed back home pay for the policy in higher prices, and eventually, through the meanest taxation there is: Inflation.

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22 Comments on “Bimmer, Hecho En Mexico?...”


  • avatar
    Robstar

    Not sure how they can’t make a profit in Brazil even with more taxes.

    I think a 328i goes for something like 255k (As of today that is about $125k USD, but in the past it was as high as $167k USD) in local currency. In 15-20 trips to Brazil I think I’ve seen 2 bimmers..I’d imagine people who buy these could probably shrug off another 50k (Reais) in new purchase price pretty easily.

    Paging Marcello…he’s going to have the best info (more recent than mine.)

  • avatar
    skor

    I don’t see why not. My neighbor’s Cadillac was assembled in Mexico. Aside from a few fit and finish issues, it’s been perfect…no mechanical issues in over a year.

    • 0 avatar
      tankinbeans

      I also have the same reaction whenever I hear “OMG that’s built in Mexico, kill it with fire until it dies from it.”

      So the robots have instructions en Espanol, instead of auf Deutsch, or in English. What difference does it honestly make who pushes the go button?

      • 0 avatar
        Educator(of teachers)Dan

        Weren’t you aware, the Robots all wear little sombreros and drink tequila on their lunch breaks… :P

        Just like the one’s up in Canada get Canadian flag stickers on them and can’t stay away from Molson Ice.

  • avatar

    Hi Bertel,

    Down here I hear the opposite. It’s BMW that makes one crazy demand after another. Don’t forget that Brazil opened its legs (as it were) to receive a mega Mercedes plant that was supposed to make 50k vehicles a year. In 15 years, I’m pretty sure they haven’t assembled more than 40k. So, guvs here are wary of lux makers and their demands to open up a factory here. They’re more worried with the volume makers. If the (very) well-to-do want to pay mark-ups of over 100% for the privilege of driving the Teutonic wonders, the attitude is..let them!

    BTW, the higher tariffs are working as intended. Over at Fiat, plans are underway to build the Freemont locally. Hyundai is hurrying up construction of their plant. The Chinese (JAC and Chery) carry on building theirs.

    So, we protect factories that make over 50k cars a year, and keep out a factory that would make (if lucky) about 5k cars a year. Hummm, that’s some food for thought.

    • 0 avatar
      bd2

      Yep, mainstream brands are building production plants in Brazil due to the tariffs.

      Also, tariffs on auto imports is why the European luxury brands have built factories in China and why Audi decided to build their NA plant in Mexico (and why BMW is thinking of doing the same) instead of building in the US.

      Things aren’t as black and white when it comes to tariffs, etc. as TTAC likes to make it out to be.

      • 0 avatar

        Oh yeah, I forgot. Other makers coming down:

        Nissan is building their own factory (they import some cars from Mexico, the Brazilian factory will make them now, while other models are produced in the Renault Brazil plant). Toyota is expanding their facilities to make space for the Etios. Mitsubishi is sourcing parts for a locally built Lancer. Humm, Honda is thinking of bringing CRV production here, too. Ford is totally renovating their Bahia factory to make the new Fiesta and EcoSport. Fiat is also talking of making the 500 here.

        I’m pretty sure I’m forgetting at least another one.

        That’s just some of the consequences of the rise in tariffs. Nissan and Honda (not to mention Fiat and their Freemont) would surely not have committed if importation were free. Sure, there are many negatives. But that there are some positives cannot be denied.

    • 0 avatar
      Manic

      What I don’t understand is why Brazil has decided to put so high tax on cars in the first place. Those made locally are expensive too. Even Golf size car seems to be luxury in your country. Small Fiat or VW costs more than many bigger cars in neighboring countries?
      Is it because of bottlenecks in infrastructure so there’s no room or are cars just another healthy cow for gov. to milk?
      Some developing countries have decided for generally low tax so that car base would be changed in relatively short time. It seems that Brazil is making very hard for its people to drive modern cars (esp. non-penalty boxes with a bit of power) through high taxes.

      • 0 avatar

        Manic,

        the gov is torn. It doesn’t want to invest in infrastructure ‘for cars’. There is a definite Europhilia, particularly among some elite, that’d like to force people into buses and such, while they of course reserve the streets for themsleves. The people are speaking though, we want cars! And resist strongly. If anything the people admire the American lifestyle and have aspirations to it.

        Now, the guv makes a crazy amount of money off cars. This stems from the fact that up intil10 years ago, the car industry was an easy one to task (kind of hard to hide cars…). Now, tax collection is increasingly electronic and many companies are paying more taxes than ever before. So, the mid term tendency is for taxes to come down for cars.

        Don’t forget, high margins. I’m quite sure margins here are among the highest in the world. As of late, the media has finally caught on and are starting to take some industries to task for the fact. But the car companies still are pulling the proverbial wool over people’s eye and the knee-jerk reaction is for people to point the finger at the gov. But slowly this cat is coming out of the bag.

        It’s sad really. We have a population that accepts to 40k dollars for a Corolla, 50k dollars for a Sonata…A guv that can’t get off its high tax diet…Little competition (whisper – cartel – whisper), heck when the Japanese and Koreans came here they did so by pulling prices up! Let’s see if the Chinese can remedy the situation.

      • 0 avatar
        Manic

        Re: margins
        Here in Europe we have some countries with absurdly high taxes on cars (e.g. Denmark, Finland). In those countries pre-tax prices (money car maker gets) are usually actually lowest in W-Europe, that’s because if they’d ask same money i.e. same margin as in, say, Germany, no-one would buy those cars after gov. slaps its 100+% tax on top of that tax-free price. If car makers are able to get high margins in Brazil in those high tax rate conditions…capitalism (market, competition) is not working properly me thinks.

      • 0 avatar

        As to capitalism not working right: Me thinks you’re right.

        Taxes here are roughly equivalent to taxes in France. Not quite Denmark-type levels, but not US, or for that matter, other countries roughly similar in terms of development. As an idea, in Argentina any car is about 20% less expensive and comes with more standard equipment, while in Chile or Mexico cars can be from 40% to 60% less. Now, yes it’s higher taxes in Brazil, but market conditions (especially Mexico) make the margins here absolutely amazing.

        For you to have an idea, I read in a Brazilian business magazine some time ago that the (volume) maker with the highest margins in this country is Fiat. Yes, Fiat. They can hardly scrape two cents together as margin in Europe, but in Brazil…

        Alas, due to current political and economic conditions this will not change. Maybe, maybe, when Toyota, Hyundai and Chinese launch their new entry level cars in the latter part of this year and 2013, the other makers will be forced to lower prices (cut margins). God knows they have room to do so. Even with our current levels of taxation.

  • avatar
    Crosley

    Since modern VW’s made in Mexico for the American market have had such a stellar record for quality, it shouldn’t be an issue.

    Oh wait.

  • avatar
    schmitt trigger

    The Puebla, Mexico plant is perhaps the oldest in the country, since the early 60s. As such, this plant has developed a workers Union which makes the UAW look like the Mother Theresa.

    My sister lived for 12 years in Puebla, my brother in-law managed a structural steel shop who whose main customer was VW. He knew the factory first hand, and witnessed many things, including outright sabotage.

    Everyone in Puebla wonders how come VW has chosen to remain there, and not only that, but actually expand the plant several times.
    The plant is huge.
    Only after that many decades in Mexico, has VW finally decided to built a second plant in the country, this time an engine plant in Silao.
    But VW still is planning for further expansion in Puebla.

  • avatar
    highdesertcat

    Frankly, I hope more manufacturers decide to open plants in Mexico. It has been proven time and again that the UAW is opposed to the transplants unless they can take a share of their profits.

    Instead of being grateful that the foreigners are providing decent-paying jobs for Americans, the UAW continues their relentless assault on them. Clearly, the transplants would be better served relocating to Mexico.

    The existing Maquilas south of the border have proven to be a boon to US manufacturers as well, so opening more factories in Mexico is a win-win situation for everyone, except the UAW or other US unions.

    And maybe, just maybe, more Mexicans will stay home to work instead of coming over here illegally draining our resources. That would instantly reduce the strain on our local and state agencies.

    I say opening more factories in Mexico is a winner!

  • avatar
    Number6

    Given the “I work 6 months and then quit” mindset in Mexico, I’m sure BMW will find Mexico to be a marvelous place to struggle with unending quality issues, amazing turnover of trained staff, and a massive amount of engineers looking to jump ship and move Somewhere Else.

    Good for them. Another German brand I will cross off my bucket list.

  • avatar
    Athos Nobile

    It may sound nuts, but why not make the cars down here? Or is the US one of the markets which is growing more?

    • 0 avatar

      Hi Athos!

      ’cause the name of the game is maximizing profits. If it were done in Oz, the workers would take too much of the profits. Plus I’m willing to bet that Australia will not bend over backwards for the privilege of having a small factory, very robotized that will hire an infismal number of workers. And probably pay a smaller amount of taxes than a volume maker as the number of cars built will be small.

      • 0 avatar
        Athos Nobile

        As I see it, it would provide a product on which a higher price can be charged and would provide more volume to local parts makers.

        It could also be good for BMW since they could allocate some engineering work down here. These blokes down here are bloody good.

      • 0 avatar
        highdesertcat

        “These blokes down here are bloody good.”

        Yes they are!


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