Bimmer, Hecho En Mexico?

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.