MONTREAL – BRP Inc., the former recreational products division of Bombardier Inc. that makes Ski-Doos and off-road vehicles, says it will invest $55 million to build a third manufacturing plant in Mexico that will lead to the introduction of a new product line.
Chief executive Jose Boisjoli said the investment will allow BRP to continue to make inroads with its Can-Am all-terrain and side-by-side vehicles in the fast-growing off-road industry.
“We are investing in a new facility to meet future demand and in expectation of entering new off-road vehicle segments,” he said.
Boisjoli said the investment will also provide enough space to conduct some outsourced operations in-house.
The Quebec company has expanded its presence in Mexico since acquiring Outboard Marine Corp., which opened a facility in Juarez. The new nearby plant will eventually increase employment in the low-cost country to 3,500 or more than 40 per cent of its eventual global workforce of 8,400.
Construction of the 46,000-square-metre plant is slated to begin next year and be completed by the end of 2017.
BRP (TSX:DOO) said Tuesday that the new plant will support an expansion of Can-am off-road vehicles and meet future demand.
The plant will employ 900 full-time workers. BRP’s main plant in Juarez employs 1,600 while employment at its facility in Queretaro is expected to reach 1,000 by September.
BRP employs 4,900 workers outside Mexico, including 2,800 in Canada and 2,100 in Austria, the U.S. and Finland.
Benoit Poirier of Desjardins Capital Markets said the investment “will allow BRP to gain further market share in both the ATV and SSV segments.”
Poirier added in a report that he expects BRP to introduce a utility-recreational vehicle with bench seats, a segment he estimates could add about US$90 million in annual revenue if the venture attracts a 15 per cent market share.
“In addition, this announcement should strengthen BRP’s position in low-cost sourcing, translating into margin expansion in the long-term,” he said, pointing to a country where the minimum wage is below US$5 an hour.
That will give BRP a competitive advantage because rival Polaris has only about eight per cent of its facilities in such low-cost jurisdictions, while Arctic Cat has none, he added.
The analyst estimates that 62 per cent of BRP’s powersport production (excluding outboard engines and motorcyles/roadsters) will be located in Mexico, up from 53 per cent currently.
BRP transferred production of the Can-Am from Valcourt, Que., to Mexico in 2008 and side-by-side vehicles in 2010. In May 2012, it announced plans to transfer Sea-Doo watercraft assembly to Mexico in 2015, affecting 500 Quebec employees. At the time, it said the move would free up space on the main assembly line in Valcourt to increase production of its ”roadster-type” vehicles.
A company spokeswoman said Tuesday that the new Mexican plant won’t hurt employment in Quebec, where it makes Ski-Doos and Spyder three-wheel vehicles.
“The fact that we will have the capacity to continue to expand our lineup means our product development and designers will continue to have more work,” said Johanne Denault.
BRP’s largest shareholders are the family that runs Bombardier, Boston investment firm Bain Capital and the Caisse de depot.
On the Toronto Stock Exchange, BRP shares were up 32 cents at $29.61 Tuesday afternoon.
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