Chinese company, Mexican retailer to build 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 Michoacan 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, according to 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's end through some of Elektra's 823 retail outlets in Mexico.

Plans call for 20 new, stand-alone dealerships in the first quarter of 2008 and a nationwide dealer network within five years, most likely under the Elektra banner.

The deal gives FAW, one of China's largest vehicle makers, instant distribution and a strong financing arm in Mexico — as well as a North American platform to enter the U.S. market. Elektra, a pioneer in granting credit to working-class consumers, sees a major opportunity to put its customers in a set of wheels.

"People have traditionally looked to Elektra for big-ticket items that they couldn't otherwise afford," McCosh said. "We're basically attending to clients' demands."

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

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. The population is young and eager to hit the road. A stable economy and an explosion of consumer credit means many of them are looking for a first car.

McCosh said the venture initially would focus on manufacturing entry-level vehicles, with the aim of offering consumers cars with more features than they would find in comparable subcompacts at prices 5 percent to 10 percent below the competition.

The partners have their work cut out for them. 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 United States 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.

According to McCosh, the plant will employ about 2,000 workers when it opens in 2010, and plans call for doubling both the work force and production if the vehicles prove a hit. The venture will be looking to export vehicles to Central America and perhaps eventually to the United States.

The manufacturing plant is a huge win for Michoacan, one of the biggest exporters of migrant labor to the United States. The plant will be in the municipality of Zinapecuaro, just northeast of the capital of Morelia.

Grupo Salinas and FAW chose Michoacan because of its central location, Pacific port and low costs, according to Jesus Melgoza, secretary of economic development for the state.

"This is a great opportunity," Melgoza said. "(Automaking) is a very dynamic sector that's very important in terms of economic, intellectual and technological development."

Times staff writer Maria Antonieta Uribe contributed to this report.

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