Why Mexico Scares The Uaw
Arturo Tovar is a man with ambition. The 28-year-old assembly line supervisor earns $10 a day--before bonuses and benefits--overseeing 20 men at Rassini Autopartes' state-of-the-art suspension component plant in Piedras Negras, a desert town on the U.S. border. Part of Mexico's Sanluis Corporacion, the plant provides auto and truck suspension systems to Detroit's Big Three and other auto makers. Tovar, who started seven years ago as a line worker, has improved his standard of living, moving up from a plywood shack to a two-bedroom cinderblock house. "I can't complain," he says.
Tovar and other hard-driving workers in Mexico's booming auto-parts industry are part of the United Auto Workers' worst nightmare. As workers at General Motors Corp. in the U.S. battle furiously against possible plant closings, Mexico-based auto-parts makers are vastly expanding their capacity--both in terms of new plants and new skills. No longer do Mexican workers merely produce low-tech parts such as wire harnesses and seat covers. Now, dozens of new plants churn out higher-tech components such as airbags, brake systems, and instrument panels for major auto makers in the U.S., Europe, and Japan. And Mexican engineers, skilled but paid a fraction of what U.S. counterparts earn, design and test transmissions, brakes, and engines at state-of-the-art facilities, such as GM's Delphi Division technical center in Juarez.
While auto investment has been flowing to Mexico for years, it is this new sophistication and increasing integration, from parts up to R&D and assembly, that worries union chiefs up north these days. Mexico now exports $19.2 billion in autos and auto parts--up stunningly from only $7.2 billion only five years ago. It employs 360,000 workers. And it already exports close to 1 million vehicles, almost all to the U.S.
The latest Mexican surge flows from the North American Free Trade Agreement (NAFTA), which phases out tariffs on autos and auto parts between North American trade partners. The rates have already dropped, from 20% before NAFTA passed in 1994, to 6%. They're supposed to end in 2004.
That shift has encouraged the Big Three to move ever bigger chunks of their car and truck operations to Mexico. And it has spurred both local and foreign companies to invest hundreds of millions of dollars in Mexico on technology to produce high-quality auto parts to supply the carmakers. "NAFTA [has] accelerated the whole process" of knitting Mexican plants into North American production, says Jose Manuel Machado, president and CEO of Ford de Mexico.
To accommodate Detroit's growing demand, Mexico's parts manufacturers are investing heavily to increase capacity and improve technology. Sanluis's Rassini unit spent $140 million to expand its suspension-component and brake-system production last year. Much of that went into the new Piedras Negras plant. Rassini's exports climbed from $67 million in 1993 to $157 million last year, and the company expects to boost its share of the North American market for some suspension components from 40% now to 65% by 2000. Meanwhile, Nemak, the auto-parts division of Mexico's Alfa, will spend $143 million by 2000 to become the world's largest producer of aluminum cylinder heads.
To stay competitive, some Mexican producers are finding U.S. partners. Spicer, which is 51% owned by Mexico's Desc and 49% by Toledo, Ohio-based Dana Corp., is racing to modernize its 32-year-old axle plant outside Mexico City, installing robots and automated production lines. The plant, which designs and produces axles for light trucks, faces tough competition from its main U.S. rival, American Axle & Manufacturing, a former GM operation that was sold to entrepreneurs. American Axle is opening a new plant in Silao, Mexico, at the doorstep of a GM plant that assembles Chevy Suburbans for export to the U.S.
NAFTA EFFECT. To meet local-content demands under NAFTA, European and Japanese auto-parts suppliers are flooding in, too. Under the trade agreement, by 2004 all autos and trucks must have 62.5% North American content to enjoy duty-free status in the region. So, Nissan and Volkswagen, both of which have big operations in Mexico, have convinced many of their suppliers to set up operations around their plants in Puebla and Aguascalientes. Altogether, analysts expect up to $4.5 billion in new investment over the next two years.
Mexico is also producing more finished products--including more models for the Big Three. In 1991, Mexico lifted restrictions on auto imports. Now, many sport utility vehicles and midsize cars are assembled in Mexico, while minivans and luxury cars are produced in the U.S. and Canada. Analysts predict that Mexico's auto production could reach 2.2 million vehicles by 2001, up from an estimated 1.5 million in 1998.
All this bodes poorly for efforts by the UAW and and other unions to keep jobs in the U.S. As auto makers keep pushing to improve competitiveness, Mexican workers like Arturo Tovar must figure heavily into their plans.