Zacatecas and Celaya: Ideal Locations for Suppliers to BMW in Mexico

Commentary by JP McDaris

Finally concluding seemingly endless speculation, BMW announced they would situate their second North American plant in the Altiplano region of central Mexico, specifically in San Luis Potosi, some 250 miles northwest of Mexico City. The $1 Billion facility is expected to employ 1,500 people and produce some 150,000 cars annually when it is fully online in 2019.

When we first blogged about BMW’s anticipated site selection, one of the questions we posed was whether San Luis Potosi offered enough skilled labor for BMW, as the state is already home to GM and bus manufacturers. With the answer apparently answered affirmatively, it’s useful to look at how one of the world’s leading automakers – a luxury brand, on top of that – will affect the landscape in central Mexico over the coming 4-5 years as the plant gears up.

BMW will be over 500 km from Puebla, where Volkswagen is situated. I think this had to factor into their decision making, as the luxury automaker wouldn’t want to be too close to their fellow German carmaker to have to compete with skilled labor.

A supplier within the Altiplano region could effectively supply BMW in Mexico as well as BMW in the US. That said, it’s unlikely that the existing supply chain will be robust enough to serve both VW and BMW, when fully operational. We should expect increased interest on the part of tier one and tier two suppliers to establish a presence in the area over the next few years, because BMW in San Luis Potosi changes the perspective of how existing German suppliers in the region will operate. BMW’s arrival on the scene opens up all of central Mexico down to Puebla to potential suppliers looking to serve either OEM.

It’s also interesting to note that if you want to service one of the big German OEMs in both the US and Mexico, you need to be near to South Carolina and San Luis Potosi (BMW), Tennessee and Puebla (VW) and Alabama and Aguascalientes (Mercedes).

The states of Zacatecas and Guanajuato are ideal locations for suppliers looking to bid on BMW contracts in Mexico. Fresnillo, where Entrada’s industrial park has been located for the past 13 years, is just 2.5 hours away by road from San Luis Potosi. Celaya, in the state of Guanajuato and the site of Entrada’s newest industrial park, is also within three hours of San Luis Potosi by road. Suppliers contemplating one of Entrada’s facilities would be a “Goldilocks” distance from BMW – far enough to protect their cost structure from BMW yet still close enough to supply parts.

Better still, Entrada has the flexibility to suit almost any supplier, irrespective of size and desired location, able to accommodate companies whose priority is fast startup (as little as four months) onsite at our industrial park, onsite at an individual location in Fresnillo or Celaya or offsite at an alternative location, anywhere between San Luis Potosi and Puebla.

This range of choice makes Entrada a smart play for companies who need to have a presence in the region, but want to have a range of choice, for both location and overall price.

Source: Bloomberg

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