Mazda to Build New Factory in Mexico

Mazda to Build New Factory in Mexico

Along with other Japanese automakers, Mazda is predicting a drop in operating profit for 2011, due to a strengthening yen and supply disruptions, which continue to affect production output, following the March 11 earthquake and Tsunami in Japan.

However, the projected forecast in operating profit through March 2012 is slightly better than originally hoped, estimates place it at around some 20 billion yen ($248 million), versus original estimates of 5.6 billion yen predicted by industry analysts. Mazda has also forecast a net operating profit of 1 billion yen for this year, versus a net loss of some 60 billion yen in 2010.

Nevertheless, the Hiroshima based company is looking to diversify its manufacturing base to further increase profitability, with an eye on emerging markets as major centers for potential growth, including Central and South America.

To cater to market needs in this region, the company has announced that, in conjunction with Sumitomo Corporation, it will begin construction of a new assembly plant in the Mexican state of Guanajuato. The plant will produce the Mazda2 and Mazda3 as well as a range of engines.

Once up and running, the plant will have a production capacity of some 140,000 cars annually and will employ approzimately 3,000 people; Mazda will own 70 percent of the venture, Sumitomo the remaining 30 percent.

In addition, both companies will also set up a joint sales venture in Brazil, in an effort to capitalize on that country’s fast growing auto market.

Mazda currently has two thirds of its total vehicle production based in Japan and the rising yen is making its products increasingly uncompetitive overseas (currently 80 percent of total production is exported) as well as eating into profits.

It is hoped that an additional assembly plant outside Japan will help reduce the problem (currently Mazda has three other production facilities outside the home country, in the US, China and  Thailand, though all of those were set up as joint ventures with Ford Motor Company).

Upon announcement of the new Mexico factory, Mazda’s shares on the Nikkei (the Tokyo Stock Exchange), spiked some 1.6 percent, out performing the benchmark average, reaching 195 yen per share.

[Source: Reuters]

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