Chinese carmaker FAW leaving Mexico market

First Auto Works (FAW), the first Chinese automaker into the Mexico market, is on its way out after only a year. In partnership with Mexico's powerful media and retail company Grupo Salinas, FAW had intended to import vehicles from China. A corollary plan was to build a new facility in southern Mexico to supply the rest of Latin America. Today all the plans have been canceled.

Grupo Salinas said three months ago that it was stopping construction on the plant. At the time, work was barely underway. Instead, the company said, it would import vehicles from FAW, along with other Chinese brands including Geely, and distribute them through its own Elektra retail chain. Banco Azteca of Salinas was to facilitate financing to non-credit-worthy customers.

Although the plan seemed airtight, even Ricardo Salinas-Pliego of Grupo Salinas, number 124 on the Forbes magazine billionaires list, couldn't get the Mexican government to twist the country's foreign investment policy to favor him. Mexico requires any company with plans to sell its vehicles in the country to invest at least U.S. $100 million on a manufacturing facility to produce at least 50,000 units annually. Considering how low demand was, with about 5,000 vehicles sold in a year, Grupo Salinas could not make such a commitment.

Any exception for Salinas-Pliego would have set a precedent against its own industrial policy, which is currently enforced by major global powers including Chrysler, Daimler, Ford, General Motors, Honda, Renault-Nissan, Toyota and Volkswagen.

Now First Auto Works, which has joint ventures in China with Volkswagen and Toyota, will have to rescind its partnership with Salinas, pack up and leave.

FAW had become the only Chinese OEM to land a plan to build a manufacturing facility in Mexico. Several companies intended to take advantage of the country's membership in NAFTA and eventually export cars to the U.S. free of import duties. First Auto Works was believed to be the first of these companies of a new generation.

Inside Line says: Maybe for awhile the North American market will have the same players as today. But the traditional auto companies will have to find a way to compete against newcomers once the Chinese presence becomes a reality.