Toyota to set up shop in Mexico

A Toyota Corolla LE is displayed during the LA Auto Show in Los Angeles, November 2013.
Jonathan Alcorn | Bloomberg | Getty Images

Toyota is joining the other major automakers and turning to Mexico as a location to build and export vehicles.

The Japanese automaker said Wednesday it will spend $1 billion to establish a new plant in the state of Guanajuato in central Mexico.

The facility will employ 2,000 workers and produce up to 200,000 Corollas a year when it opens in 2019.

"We are thrilled to invest in North America so we can better meet the needs of our customers for decades to come," said Jim Lentz, CEO of Toyota North America.

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As Toyota moves production of the Corolla south of the border, it will retool its plant in Cambridge, Ontario, where the Corolla is currently manufactured. The Canadian plant will then be transformed to build a midsize vehicle that has not yet been named.

Toyota's move to Mexico has been widely anticipated as the automaker indicated last year it would resume its global expansion after a three-year halt to adding new plants.

The pause in adding production while Volkswagen continued its global expansion is one reason why the German automaker has closed the gap in sales between itself and Toyota, the world's leading auto manufacturer.

Most of the Corollas built in Mexico will be exported north to the U.S. and Canada. Adding another plant outside of Japan will help the company further offset the impact a strong yen if the Japanese currency rebounds in the future.

Mexico is rapidly becoming a major auto exporter. This year, the country will produce more than 3.3 million vehicles and most will be exported to North and South America.

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Due to NAFTA, trade agreements with several other countries and its central location in the Western Hemisphere, Mexico has become an ideal location for production expansion by automakers. The country's lower labor costs also makes Mexican auto plants more profitable to operate.

"Our next-generation production facility in Mexico will be a model for the future of global manufacturing and set a new standard for innovation and excellence," Lentz said.