NEW YORK (TheStreet) -- Toyota Motor (TM) - Get Report has been noticeably unhurried to exploit what the rest of the global automobile industry has concluded is a distinct advantage: expanding vehicle production in Mexico.
That caution appears to be over, as the No. 1 automaker reportedly is finalizing plans for a Corolla plant in the central Mexican state of Guanajuato. Citing sources familiar with the matter, Reutersreported that Toyota's board could approve the plans as early as next month.
The plant would be Toyota's first for manufacturing passenger cars in Mexico. The Japanese automaker operates a single small plant in Baja for the production of Tacoma midsize pickups.
Expansion was inevitable, as Toyota has ambitions to improve its share of the local market, which is in the low single digits. Nissan (NSANY) is the market leader.
Mexican factories have labor costs that are a fraction of those that foreign automakers pay at plants in the southern U.S. They also have proven they can match the manufacturing quality of U.S., European and Asian plants. Perhaps Mexico's biggest draw is the large number of free-trade agreements it has negotiated with nations worldwide, including most of the Americas and all of Europe.
"We are always evaluating our production capacity in Mexico, and in North America generally, to keep it in line with local market demand, but no such decision has been made at this time," Toyota representative Itsuki Kurosu told Reuters.
Following a debacle that started in 2009 involving recalls related to unintended acceleration in Toyota vehicles, CEO Akio Toyoda concluded that the company had expanded too quickly, compromising quality. Last year, Toyoda told Toyota officials scouting in Mexico to review whether the plant was necessary and asked them to get existing plants to produce more, according to Reuters.
But Toyota shows signs of returning to pre-debacle form, selling more vehicles than ever worldwide and posting record profits. Close on Toyota's heels is Volkswagen AG, the German automaker, which has stated that its goal is to become No. 1.
Over the past five years Toyota shares are up 142%, compared with an 83% gain for the Nikkei 225 Index. (VW shares are up 102% for the period.)
VW recently announced a $1 billion investment in a new Mexican plant for Volkswagen SUVs, on top of plans to assemble Audi luxury vehicles at yet another plant in San Jose Chiapa, not far from the port of Veracruz. Toyota soon will begin rolling out vehicles and manufacturing systems based on what it calls Toyota New Global Architecture.
Toyota believes will help it create more common parts and tools, thereby saving costs. VW has a similar strategy with a few architectures on which it bases all its models.
As recently as 2010, Mexico was the world's ninth largest country for the production of vehicles. By 2020, IHS projects it will be the sixth largest producer, ahead of such giants as Brazil and South Korea. In the meantime, the U.S.'s last new assembly plant was built in 2009, following a spate of new plants across the South.
With so many final assembly plants springing up south of the U.S. border, the opportunities should expand for big automotive suppliers such as Delphi Automotive (DLPH) - Get Report, Johnson Controls (JCI) - Get Report, Continental and Denso (DNZOY) , as well as the smaller companies that supply them.
An expanding auto industry traditionally creates prosperity for a broad swath of society. No doubt this trend is welcome in a country that has suffered from unemployment, narco-terrorism and an exodus northward of a large segment of its population.
This article is commentary by an independent contributor. At the time of publication, the author held no position in the stocks mentioned.