I spent some time in Mexico over the holidays. Lots of anticipation about the imminent entry of Chinese-made cars into the Mexican market.
One of China's biggest car manufacturers, the state-owned FAW Group Corp. http://www.faw.com , announced an alliance with Mexican retailer and banking chain Grupo Elektra to begin selling Chinese-made cars in Mexico early this year. Elektra, a low-cost retailer (similar to a Dollar General ), has more than 1,700 stores in Mexico, Guatemala, Honduras, Peru, Panama, El Salvador and Argentina.
FAW will also build a US$150 million plant in the western Mexican state of Michoacan to be operational by 2010. The plant is expected to churn out 100,000 cars each year to serve the Latin American market.
The cars will be priced starting at $6,200 for a four seater sub-compact. This will allow the car market to incorporate a large segment of the population who, at this moment, aren't clients of the industry. In Mexico, less than 20% of the population owns a car. In other Central and South American countries, where Elrektra has a presence, the number is even lower.
Entering the American continent via Latin America is a pretty safe bet for FAW. There is a sizeable market, a growing middle class, an explosion of consumer credit alternatives. I believe they will be hugely successful, taking away market share from much more establishes brands such as Ford, Nissan, Volkswagen. FAW's pricing will be 10-15% lower than their competitors.
It's also a smart strategic global move. Spokespeople for FAW and Elektra have commented that building a plant in Mexico, will allow them to be much closer to the United States, should they decide an attempt to enter the very lucrative US market once the plant is built.
Makes a lot of sense...in fact if you think about it it's kind of odd we're not already driving Chinese-made cars in the US.