Hyundai Motor is faced with mounting pressure from the Mexican government to build a new manufacturing plant in the Latin American country or face restrictions on importing its vehicles, an industry source said.

“The Mexican government is considering imposing an import restriction on foreign carmakers that do not produce cars in the country. Hyundai, together with BMW, is the main target of the recent push,” the Mexico-based source said on condition of anonymity.

The site of a new plant could be the duty-free city of Tijuana bordering San Diego where Toyota operates a factory, he added.

In a market that requires auto companies to have at least 50,000 units of local production capacity or pay a 20 percent tariff on imports, the Seoul-based Hyundai has been almost invisible, with its vehicles being sold by Chrysler and carrying the Dodge badge.

In a move to reinforce its brand, Hyundai announced in August that it was creating its own sales unit in Mexico to ditch the partnership with Chrysler.

But now, Mexico wants Hyundai to take the next step, and the Mexican government is reportedly in talks with the carmaker on the matter.

“It won’t be an easy decision for Hyundai, but the issue will definitely continue to turn up at the negotiating table, and Hyundai will try to stall for time as it tries to milk more benefits from the Mexican government before it goes ahead with the factory,” said the source.

In a recent interview with Bloomberg last month, Mexico’s Economy Minister Ildefonso Guajardo said Hyundai and BMW were considering building factories in the country and at least one of them would announce a new plant next year.

Hyundai immediately denied the report, but industry watchers say the minister’s comments were designed to give the two car companies a push to build more plants in his country.

Lee Young-tae, a Hyundai financial unit executive, said at a separate earnings conference in Seoul on Thursday that “Volume growth will be a key factor for considering a new plant,” adding that the company had no plans for the plant currently.

He also said that the planned expansions at the carmaker’s plants in China and Brazil were enough to achieve the original production goal of 4.66 million vehicles this year.

Mexico, whose vehicle output reached a record 2.88 million units last year, is emerging as an attractive export platform for global carmakers as the country’s trade agreements cover 44 countries.

From the Detroit Three to German and Japanese companies such as Volkswagen and Toyota, more and more companies are selling and manufacturing their vehicles there to take advantage of quality production levels as well as low labor costs.

According to the Mexican Automobile Industry Association, Mexico’s auto output rose 4.4 percent in the first eight months of the year from a year earlier to 1.99 million vehicles.

In 2002, Hyundai’s key rival Toyota opened a factory in Tijuana a year after it said it would be setting up a sales unit.

Hyundai may be mimicking Toyota‘s decision, industry watchers said, to maintain close relations with Mexico.

By Lee Ji-yoon (jylee@heraldcorp.com)