Low-cost areas such as Mexico, eastern Europe and Asia will form the centrepiece of expansion plans for Magna International for the rest of this decade, the auto parts giant’s co-chief executive officer Don Walker has said.
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The company would open 16 new manufacturing facilities over the next three year in those regions while its presence in its home country of Canada remained static or declined, Walker told a Morgan Stanley automotive conference in New York.
“We’ve been steadily trying to move our manufacturing footprint into low-cost regions,” Walker said.
Three of the factories to be built by 2010 will be in Mexico and eight in Asia (excluding Japan), he said, while the rest will be in central and eastern Europe, Brazil and South Africa.
The move into low-cost areas comes in part because those are growing markets, but also because the rise in the value of the Canadian dollar has made manufacturing in Canada more expensive and led to the shutdown of some factories in that country.
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By GlobalDataWhat happens in Canada and the United States, he said, will depend on currency movements and how auto makers adjust their assembly capacity.
Mexico is at least as inexpensive as a place to manufacture auto parts and in some cases it’s cheaper, he said.
“In about half the situations we analyse, Mexico is actually more competitive than China. Mexico will continue to be a very good place to do business.”
In China meanwhile, “costs are going up quite dramatically,” he said, noting that costs for talented engineers, managers and technicians in the world’s most populous country now are the same as they are in North America.
Russia also represents a huge opportunity for Magna, he said, and the company was well positioned because of an alliance it struck last year with Russian oligarch Oleg Deripaska, who now owns 42% of a holding company that controls Magna.
Russia, China, India and Brazil are expected to be the major growing markets during the next decade, unlike North America and western Europe, where the bulk of Magna’s operations and sales are now.
The company’s goal is to double the portion of its sales that come from outside those regions to 8% of its total sales by 2010 from 4% of last year’s sales of US$26.2bn.
