CELAYA, Mexico (AFP) - Honda unveiled a second factory in Mexico on Friday, seeking to capitalise on the nation's rising power in the sector and strengthen the Japanese car giant's foothold in North America.

The US$800 million (S$1.01 billion) plant in the central city of Celaya will churn out 200,000 units per year, contributing to Mexico's race to beat Canada and Japan as top car exporter to the United States.

For the company, producing the Honda Fit hatchback and a yet-to-be-named compact sport utility vehicle in Guanajuato state will expand its presence in the Mexican and US markets.

Latin America's second-biggest economy has become an increasingly favored destination for carmakers thanks to its lower wages, skilled workforce and participation in a raft of free-trade pacts.

"We have great expectations for growth in the US market as well as the Mexican market," Honda chief executive Takanobu Ito told reporters, adding that Mexico has good growth potential for small cars.

"In addition to having the North American Free Trade Agreement (NAFTA), Mexico has free-trade deals with several regions in the world, including Japan and Europe," he said through an interpreter.

Mexican President Enrique Pena Nieto was on hand to unveil the sprawling factory - which will have 3,200 workers - alongside state officials and Honda executives, including Ito.