Toyota Motor (7203.T) is finalizing plans for its first passenger car assembly plant in Mexico that could be approved by its board as early as next month, according to three people with knowledge of the matter.
The plant would make the popular Corolla compact sedan and begin production in 2019. Based on recent investments by rivals, including Volkswagen (VOWG_p.DE), a new assembly plant would represent an investment of over $1 billion for Toyota.
A green light for the plant would signal an end to a 3-year expansion freeze imposed by the Japanese automaker’s president Akio Toyoda, who has blamed aggressive expansion a decade ago for contributing to quality lapses and a 2009 recall crisis.
Toyoda last year asked planners scouting for a site in Mexico to hit ‘pause’ and review the rationale for the project, executives familiar with the matter said then. He urged executives to squeeze more production from existing factories.
Toyota is the last mass-market automaker without a major production hub in Mexico, which has lured car makers and suppliers through its low labor costs and tariff-free access to the United States, Toyota’s largest single market. The Japanese firm has a plant in Mexico’s Baja California that produces the Tacoma pickup truck, but it has no passenger car plant.
Last year, Mexican officials pitched half a dozen potential sites for a new plant, and Toyota executives have zeroed in on a site in the central state of Guanajuato, two people with knowledge of the deliberations said.
A delegation of Toyota executives recently spent a week in Guanajuato and remain in talks with local government officials over a potential plot of land that would give the automaker a big enough footprint to expand in the future, a source said.
“We are always evaluating our production capacity in Mexico, and in North America generally, to keep it in line with local market demand, but no such decision has been made at this time,” Toyota spokesman Itsuki Kurosu told Reuters.
An official at Mexico’s economy ministry had no immediate comment on Toyota’s plans in the country. A spokesman for Guanajuato’s economic development department declined to comment.
The Mexico plant would produce a new generation of the Corolla, which will also be made at a factory in Japan, people with knowledge of the company’s plans said.
Toyota said it sold close to 340,000 Corollas last year in the United States alone.
Mazda Motor (7261.T) opened an assembly plant in Guanajuato early last year, which will also produce vehicles for Toyota under an agreement between the automakers. In June last year, Daimler (DAIGn.DE) and Nissan Motor (7201.T) announced plans to build a new small car joint-venture plant in Mexico at a cost of $1.4 billion.
The wave of new investment by automakers has brought hundreds of Japanese auto parts suppliers to Mexico over the past few years. Auto production in Mexico doubled to more than 3 million vehicles a year in the five years to 2014.
Toyota’s Corolla plant in Blue Springs, Mississippi, which opened in 2011, was the automaker’s most recent assembly plant to come on line in North America.
With production capacity in Mexico, Japanese automakers avoid the risk of a stronger yen cutting into profits on exports and minimize the risk of a disruption to sales from events like the labor dispute that slowed trade through the U.S. West Coast earlier this year.
(Additional reporting by Chang-Ran Kim, Norihiko Shirouzu and Luis Rojas; Writing by Kevin Krolicki; Editing by William Mallard and Ian Geoghegan)