FIRST Automotive Works (FAW) Group Corp will build an assembly plant in Mexico with a local partner, being the first Chinese car maker to tap the South American market.

FAW has formed an alliance with Grupo Elektra SAB to locate a new manufacturing plant in Michoacan state, which will kick off its operation in 2010, according to a statement posted on the Website of its Mexico counterpart yesterday.

The investment to build the plant and purchase equipment will be about US$150 million over a three-year period, and it will have the capacity to assemble 100,000 vehicles annually.

The plant will produce its own brand, Xiali. The cars will supply Mexican and Central American demand.

Ahead of local production, Elektra will begin importing FAW cars from the first quarter of next year at a volume of up to 30,000 units in the mid-class market.

The company considers demand for the new cars to be substantial.

"The vehicles' prices are 5 percent to 10 percent lower than the current average in Mexico, allowing large segments of the population that currently cannot afford to be customers of this industry, to participate in that market," Elektra said in the statement.

Elektra, Mexico's largest electronic-goods retailer, also plans to offer financing for the autos through Banco Azteca, its banking affiliate.

FAW is China's second-largest auto maker with 1.16 million vehicles sold last year, trailing Shanghai Automotive Industry Corp.

It has joint ventures with Japan's Mazda Motor Corp, Toyota Motor Corp as well as Volkswagen AG in China in addition to selling the Hongqi, Jiefang and Besturn models under its own brand.

The plant in Mexico would be the first overseas manufacturing facility for FAW as it aims to boost sales and expand on overseas markets.