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General Motors Company (GM - Analyst Report) revealed that it plans to invest $691 million for expanding its Mexican operations. The expansion plan includes a new plant in Silao in central Mexico, upgrade of an existing facility in San Luis Potosi and the previously unannounced expansion of its Toluca engine plant.
Of the total amount, GM will spend $349 million for a new transmission plant in Silao that will manufacture 8-speed transmissions, $211 million for the expansion of Toluca, which produces V8 and four-cylinder engines and $131 million for upgrading the next-generation transmission plant in San Luis Potosi.
The combined $480 million to be spent on Silao and San Luis Potosi plants is a part of $900 million investment plan announced by General Motors in Jul 2011 to invest in Mexico.
The Detroit-based automaker produces Chevrolet Silverado and GMC Sierra pickup trucks in Silao and Chevy Sonic and Captiva, and Cadillac SRX vehicles in Ramos Arizpe; and the Chevy Aveo, Trax and Tracker vehicles in San Luis Potosi
Mexico has become an apple of eye for many automakers due to its numerous free trade agreements, cheap and well-educated labor and proximity to the U.S. as well as the burgeoning demand in South America.
General Motors operates in Mexico for 78 years. According to the Mexican Auto Industry Association, the automaker has the second largest vehicle output in the country, following Nissan Motor Co. (NSANY). It employs 15,000 people at four facilities in the country, which is the eighth largest producer of automobiles in the world.
GM also revealed that its in-vehicle OnStar service has been made available on some cars in Mexico. OnStar service connects drivers to live operators for directions or emergency. It has more than 6.5 million subscribers in the U.S., Canada and China.
General Motors’ plan to invest in transmissions technology is a part of its plan to catch up with its rivals in engines and transmissions technologies. Its competitors are already producing 10-speed transmissions when the automaker is lagging behind them providing only six-speed transmissions in vehicles. Transmissions with more gears are more fuel-efficient as they allow engines to do less work.
Chrysler Group – controlled by Italy’s Fiat SpA –already has the license to produce the 8HP eight-speed transmissions system (developed by Germany’s ZF Friedrichshafen AG) at its Kokomo Transmission Plant and the Kokomo Casting plant, starting this year.
In April this year, GM stated that it has joined hands with Ford Motor Co. (F - Analyst Report) in developing nine- and ten-speed automatic transmissions in order to save development costs and meet fuel economy standard mandated by the U.S. government. Further, the collaboration will help both the companies quickly launch the transmissions into many of their new cars and trucks.
In the same month, General Motors announced plans to invest $332 million in four plants in three Great Lakes states in order to gain competitive advantage in terms of fuel-efficient engines and transmission systems technologies.
The plants are located in Toledo, Ohio; Bedford, Ind.; and Flint and Bay City in Mich. The investment at the plant will help GM build a new V-6 engine, a new small motor and new eight-speed automatic transmissions.
General Motors has invested $10.2 billion in its North American facilities since 2009. The company has vowed to invest $1.5 billion in its North American plants in 2013 as part of its $8 billion annual investment plan for its global operations for new vehicle development.
Recently, GM announced that it would invest $133 million to add a third stamping press at its assembly plant in Wentzville, Mo. The company will begin construction of the plant, which builds full-size vans, in July. It expects the stamping press to be operational by early 2015, creating or retaining 55 jobs.
Currently, shares of GM retain a Zacks Rank #3 (Hold).