Mexico luring new auto plants
DETROIT — Mexico has become the most-attractive place in North America to build auto factories, a shift that has siphoned jobs from the U.S. and Canada while also helping to keep car and truck prices in check for consumers.
In the past two years, eight automakers have opened or announced plants or expansions in Mexico. Earlier this month, Toyota announced a plant in Guanajuato that will build the popular Corolla — work now done in Canada — while Ford unveiled plans for Mexican engine and transmission factories.
Honda opened a plant last year in Celaya, Guanajuato, that builds the Fit subcompact and HR-V crossover. The $800 million assembly plant is Honda’s eighth in North America, adding to capacity that includes two plants in central Ohio.
Low labor costs and fewer tariffs are the swing factors for automakers looking at Mexico. A worker there costs automakers an average of $8 an hour, including wages and benefits. That compares with $58 in the U.S. for General Motors and $38 at Volkswagen’s factory in Tennessee, the lowest hourly cost in the U.S., according to the Center for Automotive Research, an industry research group in Ann Arbor, Mich. German autoworkers cost about $52 an hour.
Mexico also trumps the U.S. on free trade. It has agreements with 45 countries, meaning low tariffs for exporting globally.
That, along with low labor costs, persuaded Audi to build an SUV factory in the state of Puebla. The German automaker will save $6,000 per vehicle in tariffs when it ships a Q5 to Europe compared with building the same vehicle in the U.S., said Sean McAlinden, chief economist at the Center for Automotive Research.
Audi also sells the Q5 in the U.S., where tariffs on vehicles built in Mexico were dropped under the North American Free Trade Agreement.
The cost savings also should let automakers add expensive fuel-saving features to meet stricter U.S. government mileage requirements without raising prices. Two-thirds of autos made in Mexico are sold in the U.S.
While Mexico’s auto industry booms and workers welcome the above-average wages, they are speaking out more loudly about working conditions.
Mexican auto production more than doubled in the past 10 years. The consulting firm IHS Automotive expects it to rise an additional 50 percent, to nearly 5 million vehicles by 2022. U.S. production is expected to increase only 3 percent, to 12.2 million vehicles in 2022.
Automakers have 18 factories in Mexico, many of them built in the past 10 years. In four years, five more are to be built, moving the country from seventh to fifth in production.
The shift means that jobs that could have gone to the U.S. or Canada went south. The number of automaking jobs in Mexico has risen 38 percent since 2008, from 490,000 to 675,000 last year, according to government and industry statistics. During the same period, U.S. auto-manufacturing employment grew 15 percent, to nearly 903,000.
Toyota’s new plant will create 2,000 jobs, while Ford’s $2.5 billion investment will add 3,800.
For Mexican workers, the plants “originally appear like marvelous places because you can earn a salary in exchange for good work,” said Huberto Juarez, a professor at the Center for the Study of Economic and Social Development at the Autonomous University of Puebla.
Some Japanese automakers start workers in Mexico at 90 to 150 pesos per day, or $6 to $10, Juarez said. Others, such as Volkswagen, have paid more than double that. Juarez said Mexico’s automaking wages now are lower than pay in China but higher than Mexico’s minimum of $4.50 per day.
There is pressure to improve working conditions at Mexican factories. This month, three former Mazda-factory workers publicly complained of injuries and of being worked longer than legally allowed.
Even so, Juarez said, workers probably will stay put. “The big threat is always going to be unemployment. That’s why they stay. Because you leave there, and where are you going to go?”
Initially, automakers with Mexican factories faced quality problems due to an unskilled workforce. But companies with longtime factories in Mexico, such as Ford and Nissan, have resolved those issues, according to McAlinden.
Despite shipping costs, it’s still cheaper to build autos for the U.S. market in Mexico, he said.
A U.S.-built Chevrolet Sonic subcompact costs about $700 more to make than a comparable Mexican-built Ford Fiesta, McAlinden said. That’s even with a labor agreement at the Sonic factory in Michigan that allows 40 percent of the workers to be paid less than longtime union employees.
The United Auto Workers complain that companies building in Mexico are taking advantage of “ slavelike” wages. “American manufacturing workers could have had good-paying jobs that respect basic human dignity,” UAW President Dennis Williams said.
Still, the auto industry’s investments aren’t limited to Mexico. Automakers poured $46 billion into improving U.S. factories from 2010 to 2014. Automakers’ employment in the U.S. grew 37 percent during that time.
Ford pointed out that 80 percent of its annual North American investments are in the U.S., where spending “will continue at about the same sizable level.”
Auto buyers should see benefits from lower costs in Mexico. U.S. government fuel-economy requirements call for raising the gas mileage of the new-auto fleet to an average of 54.5 miles per gallon by 2025. The technologies needed, including turbocharged engines and multispeed transmissions, are costly. And with gasoline at more than $2.50 per gallon, buyers don’t want to pay extra.
McAlinden said moving engine and transmission production to Mexico makes sense.
“There’s no room for labor costs,” he said.
Dispatch Reporter Dan Gearino contributed to this story.