Ford Motor Co said on Friday will spend $2.5 billion to build a new generation of fuel-efficient engines and transmissions in Mexico, creating 3,800 jobs.

Ford said it will build a new engine facility within its engine plant in the northern state of Chihuahua.

The facility will build a new gasoline engine that will be exported to the United States, Canada, South America and the Asia-Pacific region.

Windsor, Ont., had hoped to land the engine plant, but autoworkers union Unifor learned last year that the Ford was favouring Mexico. The automaker was unable to reach an a deal with the federal and Ontario governments to bring the engine plant to Windsor, Ont., Unifor said. 

Production of Ford's I-4 and diesel engines at the Chihuahua plant will also be expanded, making it the biggest engine plant in Mexico.

The company said it will also build a transmission plant in the central state of Guanajuato, in partnership with German transmission maker Getrag. Mexico's Economy Minister Ildefonso Guajardo said the Guanajuato plant would have the capacity to produce up to 800,000 units per year.

Ford's announcement, confirming an earlier Reuters report, is the latest in a recent series of auto investments in Mexico, as carmakers are drawn to the country's cheap labor, free trade agreements, and proximity to the United States.

It's also the second blow to Ontario's auto sector.

Earlier this week, Toyota announced it would spend $1 billion for its first passenger car plant in Mexico, moving production of the Corolla from Ontario.

Last month, Volkswagen also said it would invest $1 billion to expand its plant in Mexico's Puebla state.

With files from CBC News