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Auto production increasing in Mexico City

– Toyota’s plan to source cars from Mazda’s Mexican plant starting in 2015 highlights global automakers’ growing reliance on the Latin American nation for quality production as well as lower costs.

Mexico’s vehicle output is on pace to reach a record 2.86 million units in 2012, according to researcher LMC Automotive. More is on the way, as Honda is building its first large Mexico assembly plant, Nissan adds a third factory, Ford produces midsize sedans and Volkswagen’s Audi opens the country’s first luxury vehicle plant in 2016.

“Across a range of industries, every single company in America that I’ve talked to will tell you that either their best plant or one of their top plants is in Mexico,” said Jeff Liker, an engineering professor at the University of Michigan. “They can build quality and they can deliver on time.”

From Japanese carmakers seeking relief from the strong yen to German and U.S. rivals eager to expand exports to the rest of Latin America, Mexico is evolving from its traditional role as a source of low-cost labor. Automakers are focusing investment within about 300 miles of Mexico City to take advantage of the nation’s newfound reputation for quality.

Mexico’s trade agreements covering 44 countries also make it an attractive export platform to ship cars to South America, Asia and Africa as well as the U.S. and Canada.

“Mexico has more free-trade agreements than the U.S.,” said Sean McAlinden, a labor economist with the Center for Automotive Research in Ann Arbor, Mich. “They have a free-trade agreement with the EU that saves them a 10 percent tariff that’s applied to U.S.-built vehicles. If you’re going to build a world car like Q5 or an Infiniti, Mexico is where you’re going to do it.”

Central Mexico “will definitely be the hottest growth area with respect to North American vehicle production this decade,” Michael Robinet, managing director of consultant IHS Automotive, said in a telephone interview from Northville, Mich. “The shift to Mexico is not only trying to feed the U.S. and Canadian markets, it’s more of a global production play.”

Automakers have announced $7.8 billion in Mexican investments in the past 24 months, McAlinden said.

Mazda agreed to build a Toyota-branded subcompact car based on the Mazda2 hatchback at a $500 million plant the company from Hiroshima, Japan, is building in the central state of Guanajuato.

The factory will supply Toyota with 50,000 units of the vehicle annually when production begins in mid-2015.

“As with all other regions where we have manufacturing operations, we’re confident this new vehicle produced in Mexico will be of the highest quality,” said Steve Curtis, a spokesman for Toyota’s North American unit.

Ford, seeking to win midsize sedan sales in the U.S. from Toyota’s Camry, this year began building a revamped Fusion sedan in Hermosillo, Mexico. The company has said it will also produce the car with looks evocative of an Aston Martin in Flat Rock, Mich., next year. Ford in March said it planned $1.3 billion in upgrades for Hermosillo.

Toyota’s manufacturing agreement with Mazda “is just catch-up,” said Liker.