Auto boom in Mexico troubles US workers

But analysts say both countries stand to gain from output increase
2013-07-02T00:00:00Z Auto boom in Mexico troubles US workersNick Miroff The Washington Post Arizona Daily Star
July 02, 2013 12:00 am  • 

RAMOS ARIZPE, Mexico - In the division of labor that has long governed North American auto manufacturing, the Big Three and other companies typically built their top moneymakers in the United States, using their Mexican plants to produce smaller, cheaper cars with lower profit margins.

But that division is breaking down. As Mexico cranks out record numbers of vehicles and attracts billions in new investment, Mexican auto workers are increasingly able to match the skill and productivity of their U.S. counterparts - and at a fraction of the wages.

General Motors is making its iconic Silverado pickup trucks in central Mexico's Guanajuato state. Cadillac SUVs that retail for $40,000 roll off the assembly line here in the sprawling industrial parks west of Monterrey. Audi has announced it will put its new $1.3 billion North American plant in the state of Puebla, the first time luxury vehicles will be built in Mexico.

The boom here is bringing worries to U.S. auto workers and unions about the long-term prospects of car manufacturing jobs in the United States, particularly after the $80 billion government bailout of GM and Chrysler. On Mexican assembly lines, wages are often six or seven times lower than in the United States, and new motor cities are rising across central and northern Mexico, fueled by a 50 percent increase in U.S. auto sales since 2009.

"The Mexican worker is a natural craftsman, and global investors are showing their confidence in Mexican labor," said Alberto Rabago, a union official who started working for Chrysler in 1959 as a floor sweeper when the company made Mexican versions of its DeSoto and Plymouth sedans for the local market.

Now Chrysler makes its muscular Hemi engines at the Saltillo Motors plant here in the deserts south of Texas. At another Chrysler plant nearby, $35,000 Ram pickups fly off the assembly line at a rate of one every 80 seconds.

The average pay at his plant, Rabago said, is $3.20 an hour, but he insisted that wage comparisons to U.S. workers miss a Mexican reality. "When I came here 20 years ago, people didn't even have indoor plumbing. Now they have pickup trucks, satellite TV and send their kids to universities," he said.

Overall, Mexico is making nearly 3 million vehicles a year, with output expected to increase 38 percent by 2016 as Nissan, Mazda and Audi add new plants and other manufacturers ramp up production. GM said last week it will invest $691 million to boost its Mexican assembly lines.

Some of the vehicles built in Mexico are bought by the country's expanding middle class. But about 80 percent are for export, primarily to the United States.

"Mexican auto factories and Mexican manufacturing offer first-world productivity and quality at third-world wages," said Harley Shaiken, a professor at the University of California-Berkeley who has tracked Mexico's auto industry for decades. "That is an unusual combination, and right now it is a defining combination."

To some, particularly the United Auto Workers union and many of its 1 million active and retired members, the trend confirms dire predictions of U.S. industrial decline brought on by the 1994 North American Free Trade Agreement. Although U.S. assembly lines have recovered some jobs since the federal bailout, the industry's long-term labor pull is southward to Mexico, where organized labor is feeble and rock-bottom wages are the rule.

Then there's the increasing tendency for automakers to cut costs by outsourcing parts to third-party manufacturers, who have flocked to Mexico even faster and pay even lower wages. Michigan-based parts giant Delphi is one of Mexico's largest private employers, with more than 50 plants and 50,000 employees.

But while Mexico's auto growth is seen by some with trepidation, other industry researchers point to projections that jobs will continue growing on both sides of the border. The auto industry is more integrated than ever, they say, with Mexico and the United States projected to add workers over the next few years, making the broader North American economy more competitive against East Asia and Europe.

"Mexico is not siphoning off jobs from the U.S.," said George Magliano, senior economist at IHS-Automotive, an industry research firm. "North America is becoming a new hub for export production, and the bulk of it is occurring in Mexico," he said. "But some of it is happening in the U.S."

Of the 15.5 million vehicles built in North American auto plants last year, Magliano said, 10.1 million were built in the United States, while Mexico produced 2.9 million and Canada 2.5 million. By 2020, according to his firm's estimates, the industry will make 17.8 million vehicles in North America: 11.7 million in the United States, 4.1 million in Mexico and 1.9 million in Canada. "If anything," Magliano said, "the loser will be Canada."

The Canadian Auto Workers union has resisted wage concessions, but the UAW has worked with manufacturers to bring some production - including small cars, such as the Chevy Sonic - back to U.S. plants.

Unionized workers at those facilities may earn half of what more senior "first-tier" members make, but at $14 to $18 an hour, it's still far more than workers are paid in Mexico.

By building cars in the United States, though, auto manufacturers save on transportation costs and diversify their production to hedge against supply disruptions.

Then there is the political pressure to keep jobs in the United States because of the federal bailout.

"Some of it is politics," Magliano said. "You have to remember GM and Chrysler took government loans."

Rather than look only at manufacturing jobs, it is the overall health of American auto companies that will ultimately benefit the U.S. economy, said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.

The Big Three are stronger and more competitive globally because they locate some production in Mexico and source parts from there as well, he said.

"Today the average Big Three vehicle contains over 40 percent Mexican content," McAlinden said. "We couldn't be building cars without Mexico."

UAW officials declined to comment on the industry's growth in Mexico. The union's leaders have traditionally been wary of criticizing Mexican auto production in a way that seems to pit the two countries' workers as rivals, but they view Mexico's numerous auto unions as weak, fragmented and too pliant to company demands.

The production surge in Mexico is projected to attract billions more in new investment in the next several years, as car companies increasingly look to use the country as a global manufacturing hub.

But Shaiken, the professor at Berkeley, said that by continuing to export the vast majority of the vehicles it makes, Mexico's economy will remain unbalanced in a way that disfavors its workers and ultimately saps U.S. growth.

"The healthiest thing would be for wages to rise in Mexico, so they buy more cars and import more cars from the U.S.," he said. "What we really want is trade based on rising consumer demand in both countries."

"Today the average Big Three vehicle contains over 40 percent Mexican content. We couldn't be building cars without Mexico." Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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