Nissan, Mexico take their relationship to the next level

November 15, 2013: 5:00 AM ET

Nissan opened a second plant in Aguascalientes, boosting Mexico's standing as a manufacturing location for the auto industry.

By Doron Levin

The production line of a Nissan car at the new Nissan assembly plant in Aguascalientes, Mexico

The production line at the new Nissan assembly plant in Aguascalientes, Mexico

FORTUNE -- The inauguration this month of Nissan Motor's automotive assembly plant in Aguascalientes, its second in the town, marks the latest and most striking symbol of Mexico's growing status as a global automotive powerhouse.

Mexican president Enrique Peña Nieto joined Carlos Ghosn, Nissan's CEO, on Tuesday to celebrate the start of vehicle production. The new factory, which will build Sentras headed mainly to the U.S., is Nissan's third in the country.

The investment by the Japanese automaker underscores Mexico's standing as fourth-largest exporter of vehicles worldwide, after Japan, Germany, and South Korea; and its status as sixth-largest automotive producer, having passed Spain and France in the last two years.

While southern U.S. states drew automakers away from Michigan, Ohio, and the Midwest starting in the 1990s, Mexico lately has become an ultra-competitive alternative location to Georgia, Alabama, and other southern states. And the auto industry has been a key factor in the growth of Mexico's middle class, which now includes more than half of its population.

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"The reason Nissan is here is because Mexico is a highly competitive place to do business," Ghosn told reporters following a ceremony at the factory. "It's not just wages. The government supports us. Our suppliers are here. The transportation system is excellent."

That transportation system includes rail lines north and south. Nissan exports 70% of the vehicles it builds in the country. Ghosn said Nissan's Mexican plants are top-ranked in quality and efficiency among Nissan's 40 plants worldwide. Nissan soon could be building more cars in Mexico than in Japan.

The plant, a $2 billion investment by Nissan, has an annual capacity of 175,000 cars a year and employs 3,000 workers directly and 9,000 through parts suppliers.

But Nissan already is hinting that it intends to expand capacity at the Aguascalientes plant (the city's name refers to the area's "hot springs") as long as demand remains strong and other factors don't change. The assembly line in its current configuration can build four different vehicle architectures simultaneously and will operate six days a week.

Production is carried out as two work shifts of nearly 12 hours daily, six days a week. Thus workers put in about 48 hours over four days.

No expense has been spared for the latest manufacturing technology. Automated guided vehicles glide about the plant rather than fork lifts. The paint shop is so advanced, Nissan officials said, that journalists and other outsiders are barred.

The technological crown jewel, though, is likely the enormous high-speed transfer press, built by IHI of Japan. The press stamps car parts -- some as large as the entire side of a vehicle -- from metal blanks at the rate of 575 per hour.

Nissan chose Mexico as its first manufacturing base outside of Japan more than 50 years ago. Almost every other major automaker is manufacturing in Mexico as well, only in part because of low wages.

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Worker's wages and benefits may be as low as $5 an hour in Mexico, compared to $50 an hour in some unionized plants in the U.S. Though this sum sounds preposterously small, it is regarded as an excellent salary due to the low cost of living and heavy government subsidies for many basic needs, like health care.

Happily for those workers who have snagged automotive jobs, the salaries are helping more and more families achieve middle-class status. Aguascalientes is dotted with residential neighborhoods, shopping centers, and paved highways -- all reflecting the prosperity that the auto industry has created.

But the rate of privately owned vehicles remains low in Mexico, compared with the rest of Latin America. The trends suggest that the cars Mexicans build soon will be owned by more of the workers that build them.

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